As an investor, one thing I know is this space is ever changing. All these different macro themes ultimately change how I interact with these markets.
As I watch the dollar closely, (which helps me gauge other markets), I’ve noticed that the dollar this year has absorbed much of the worlds capital, brining asset valuations to extreme highs. When the dollar takes a turn, which it will do over the next couple years—this will change the notion of the “US over everything†to “everything over the USâ€. This means as an investor you can position yourself to find major growth in emerging markets.
Why do I say this? Because all that capital that came in and brought the US markets to record highs, will leave the moment the dollar collapses…but where will this money go? Something I always say is “money goes where it’s treated bestâ€. As an investor, undervalued markets with huge upside potential is extremely appealing and emerging markets have that environment. Now let’s zoom out a bit and take a look at our economic environment; we are in a world where bonds don’t have any yields anymore, so everyone is left with equity markets, which are at record highs. You can also find markets that are cheaper, have better demographics, and less debt.
We are all aware the US is the biggest debter nation, investors are not going to park their money where the most debt is. Let’s take a quick look at the US dollar, the amount of dollars circulating in the world right now is not proportional to the US percentage of GDP that occupies the world GDP. So what’s the problem here? The US is 25% of world GDP but the US dollar accounts for 80% of all transactions. So the US is lead to either print massive amounts of currency, or everyone needs to create dollar credit through euro dollar funding markets, or through credit markets overall, or there isn’t enough dollars. So what happens is when you have these economic downturns, (which we saw in March), we have a dollar rally because there isn’t enough dollars in the system.
https://markets.businessinsider.com/…/histo…/us-dollar-index
This is a massive issue in the US because they need to run huge current account deficits, credit deficits, and keep injecting dollars into the market to have this global financial system to operate. Why am I breaking the dollar down so much? Well because I’m trying to find the next trend. In the IMF, they’ve discussed a global currency where the dollar is part of a basket of currencies, and instead of being responsible for 80% of transactions, it would taper down to somewhere around 40%.
https://www.imf.org/…/2016/08/01/14/51/Special-Drawing-Righ…
This leads to huge opportunity in emerging markets to thrive and bring tons of investors into this space. If you want to survive and thrive in the investing world, you need to learn how to adapt and diversify.