A partner from the US recently visited me, and one observation that resonated with him during his travels in Asia was the remarkable strength of the US dollar and thank-you very much. Having visited the region multiple times, he has experienced periods when the dollar felt robust, as well as times when it seemed weaker. This time, there was no doubt in his mind.
Indeed, the US economy has outperformed many others, resulting in the appreciation of the greenback. This strength can be attributed, in part, to the influx of capital into US assets. However, while the dollar’s ascent is positive for some, it raises concerns for risk assets, particularly emerging market equities. It is time to throw away the textbooks.
The fate of the greenback was discussed in today’s weekly breakfast meeting with some partners. The discussions covered the meltdown of the Yen, gold, energy and commodities and their impact on our range of positions. We also touched on what to expect from the May FOMC meeting.
Federal Reserve officials have consistently warned about the challenges ahead in reaching the 2% inflation target. Inflation has exceeded expectations in the initial months of 2024, reinforcing the notion that the trend of enduring higher inflation will persist in the eyes of mainstream investors in a “higher for longer interest rate” environment.
One popular strategist on Wall Street cautions against buying dips. As for diversification, diversification and diversification, I don’t need to own bonds, even though most 60/40 portfolios do. I have sold some positions not because they are no longer my favorite ideas. It is because I saw new opportunities elsewhere (that is a separate discussion).
Of course, nothing is guaranteed and past performance is not necessarily indicative of future results. The bad news is the macroeconomic, microeconomic, and geopolitical landscapes all persist in their frustrating ambiguity. The good news is if you find yourself grappling with a persistent feeling of bewildered frustration, you are not alone. There is no need to stand by helplessly.