The dollar will remain strong and whip emerging markets and even developed countries. Look for debt defaults across the globe in 2023 as the King Dollar throttles other countries.
Here's why:
- The US economy is the strongest economy in the developed world
- The Fed is running the tightest monetary policy
- US interest rates are about the highest in the developed world.
- Emerging markets no longer are making lots of money from selling raw materials
- The strong dollar is causing their debt and debt servicing to skyrocket
- But inflation is causing declining real wages in virtually all countries in the world
Combined, these will keep the dollar on the upswing.
But the effect of the strong dollar will be dramatic:
- We will see defaults on some emerging debt as the debt burden accelerates on their dollar debt
- The recession will reduce the price of many raw materials which will cause some emerging markets to face declining income at the same time
- The strong dollar is a form of monetary tightening in the US which will sharpen the economic decline but will also reduce inflation
- Usually, a strong dollar is associated with a strong stock market so the strong dollar will help the US stock market
- Gold will not go into a big bull market inspite of the high inflation because strong dollar equals weak gold.
So how do we make money from this?
I think there are several key plays here:
- Short emerging market currencies and debt. That would include selling CEMB which is corporate bonds in emerging markets and EUM which is emerging market stocks
- Buy dollar against just about anything but particularly the Chinese yuan and most emerging currencies. CEW is a good ETF to short but liquidity is extremely light so beware!
Of course, I recommend that you subscribe to our Stock Navigator program to follow my specific trades.
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