Editor’s Note: As the clock winds down on 2016, this week we turn to PBRG’s top minds to learn how to navigate 2017’s choppy investment waters.
Today, PBRG founder Tom Dyson weighs in on the breathtaking action in the largest market on Earth…
J. Reeves, editor, The Palm Beach Daily: Tom, longtime Daily readers know you’re a raging U.S. dollar bull. The DXY index—which weighs the dollar against a basket of six major world currencies—just broke out to near 14-year highs.
The greenback is just a few cents away from parity with the euro ($1.04 to 1 euro)… the common currency for the largest economic bloc in the world. Why is this happening?
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Tom Dyson, founder, Palm Beach Research Group: It’s simple. Since Ronald Reagan’s inauguration in January 1980, humanity has borrowed more than $40.5 trillion dollars.
They’ve done this for a variety of reasons. One of the big ones is the people who manage the dollar—the Federal Reserve—have made it very cheap and easy for everyone to borrow dollars.
The borrowers didn’t just sit on the dollars they borrowed. They spent them… on stocks, bonds, factories, growth, infrastructure, commodities, technology, research… everything.
The dollar, therefore, wins the title as the “world’s most unpopular investment.” All this borrowing is sort of like a giant $40 trillion short position in the dollar.
And now this trade is unwinding. People don’t want to borrow dollars and spend them on stuff anymore. So the dollar is rising in value. It’s that simple.
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J.R.: So will the dollar continue this run higher, or has it topped out?
Tom: It’s just getting started. We’re not even close to the end of the dollar’s run higher. By the time it’s over, the dollar will be at all-time highs against almost any asset you hold it up against… especially other currencies.
How am I so sure of this? Because there’s $40.5 trillion worth of short-dollar tinder left to fuel its rally. Not only will the dollar go to all-time highs… it’s going far higher than anyone can imagine, even me.
This really is the world’s most contrarian trade.
J.R.: How will investors recognize when the new dollar bull market is over?
Tom: There will be universal agreement that the dollar is the world’s best investment. People will be proudly hoarding cash. There may even be shortages of $100 bills. And reliable promises to pay dollars in the future—i.e., really high-quality bonds—will be the hottest investment around.
Meanwhile, all other assets will be really cheap and unpopular. (Clearly, this is a long time in the future.)
J.R.: When the dollar rises, usually things priced in dollars go down. But we’ve seen the S&P 500 and oil continue to rise at the exact same time. What is that telling you?
Tom: That this trend is only just beginning. The stock market and the oil market are much smaller markets than the market for dollars. They can be pushed around for all the wrong reasons.
Not the market for the dollar. It’s the world’s most important market… and by far the largest.
Every single transaction that occurs around the world in anything basically involves dollars. For better or worse, it’s the world’s medium of exchange.
Trillions of dollars change hands EVERY DAY. Trading in the dollar is thousands of times larger than trading in stocks or oil. And it’s based on true economic needs, not speculation.
The dollar is giving reliable signals. Oil and the stock market are just noisy. They’ll fall back down soon. Just a matter of time.
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J.R.: What is the easiest way for Palm Beach readers to play a long-term dollar bull market?
Tom: There are many ways to express this idea… from highly speculative to very safe.
The easiest way is to simply hold dollars and NOT hold other assets—like stocks, mutual funds, dodgy bonds, etc. Just accumulate as many dollars as you can.
I don’t mean cash (although I personally like to keep some spare cash on hand). I mean keep your wealth in FDIC-insured bank accounts. Turn your 401(k)s and IRAs into cash and Treasury bills.
Buy ETFs like iShares 1–3 Year Treasury Bond (SHY) and iShares Short Treasury Bond (SHV). Gold and silver—because they’re money—are also good options as this unwinding continues, although I like the dollar more.
I have decades of experience in the markets and hold high conviction in this trade. So I personally hold more cash-related assets than PBRG’s traditional asset allocation breakdown.
Subscribers without significant expertise in trading or managing money should prescribe more closely to PBRG’s recommended asset allocation models. They ensure 100% safety and peace of mind in any economic environment.
J.R.: Sound advice. Thanks for your insights, Tom.
Tom: You’re welcome.
Reeves’ Note: One of Tom’s favorite personal investment strategies for the raging dollar bull market is 100% off Wall Street… 100% private (not even the IRS can peek inside it)… and 100% contractually guaranteed to deliver safe returns 30 to 40 times higher than a savings account. He explains what it is in greater detail right here.
(Current Palm Beach Letter subscribers can access our comprehensive “how-to” guide for this special investment right here.)
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