Last week King Dollar broke out of a multi-year trading range. The bottom was $.89 and the previous top was $1.0396 in March 2020. There are two points within this data. First, the currency moved in a large price action. Currencies do not move like this. Second, the breakout was decisive. On Friday, the dollar closed at $106.82. Currencies trend to move like slow, large boats. Think Titanic. In addition, they do correlate to interest rates. Our rates are rising and the dollar is coming along for the ride.
Effects Everything
First off, the stock market hates a strong dollar. Since everything has been outsourced, the currency exchange eats profits. This is foremost to the market trending down. The second part of the whammy is interest rates. Rising rates cost firms that reply on cheap money a question of survival. These CEOs did not reinvest in their product or company. They squandered profits on buybacks to raise share prices and enrich their retirement options. We are faced with weak leaders in industry and poltics.
Then, we have the geopolitical problems like the Russian/Ukraine war, China and soon, a global food crisis. These fears are also coming into the equation. This is why the "R" word, recession is in the air. With a recession, layoffs come. Our nation and many in the world are just getting back on their feet from the pandemic. For example, there are over 8-million people in the US who are behind on their rent. Being back to work and the stimulus got them pass the danger. Now, if a recession hit, a chain reaction could hurt everyone and everything in our economy. People would fall behind again on rents or mortgages. A consumer slowdown means less need for product. It also means less building (read less copper, materials, etc.) less gasoline (read lower demand and lower prices for oil). Both big purchases like houses and new cars will shrink. Even small pleasures like cable, eating out will suffer. This is how the chain connects. When you barely make ends meet, you have nothing to give to food pantry's or for nations in deficit to export charity to countries in need. It effects everything!
Precious Metals
Gold and silver have been taking it on the chin. The contagion is now moving to oil, copper and other commodities. I think there has been manipulation against the precious metals. With inflation roaring, they should be approaching $2000 per ounce for gold and $30 per ounce for silver. It could get worse. Time will reveal all the lies, especially with central bankers. There will be excessive heat to hold onto your metal holdings, but what goes up must come down. The dollar should only be worth $.74, but the same could be said about the euro, the pound and the yuan. We are in a financial reset. Peace
