US Dollar Index Since 1973
As seen from the chart above the US dollar index has been on a steady decline since 1973. In 2018 we failed to break through resistance at the 105 level and retracted to the mid 90’s. The fundamentals make this chart a more terrifying scenario.
FED Chairman Jerome Powell in mid 2018 stated that quantitative tightening and the raising of interest rates was going to be on autopilot. Essentially QT would extract US dollars from the market. The raising of interest rates would put a higher price tag on the USD. Both of these acts would raise USD value. The benefits being we as a nation could important more things-giving is more bang for our buck.
However, this scenario won’t play out because we as a nation can’t afford the rising interest rates. Our corporate debt and now $22T worth of federal debt can’t be serviced. We are at our peak capacity for interest rates. Any further rate hikes will strangle our economy and bring on a recession more quickly.
Housing, auto, and financials are all in bear markets. Manufacturing index hit an unexpected 54. Anything beneath a 50 is retraction.
Because we never de-levered corporate and federal debt- we don’t have tools left for the next recession. We are kicking the can down the road but found the wall. We can’t cut interest rates without going below zero. Well, we can, but the EU is seeing how that move has effected their economy. So what is the FED’s next move?
The next move from the FED is to sacrifice the dollar. We will quit Quantitative tightening. We could even see a rate cut in the FED funds rate. Last but not least we will resume Quantitative easing. Essentially printing more money to keep interest rates down in order to service or debt. We simply don’t have the option to pursue a stronger dollar. What should individual do?
Pursue US dollar sensitive commodities that are near a bottom such as gold, silver, and oil. Don’t buy the dip-buy the bottom.