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How to profit from the 2021 Dollar Decline!​

by , 26 January 2021
How to profit from the 2021 Dollar Decline!​
The amount of available dollars is on the rise...

In simple terms, as dollars become more plentiful, their value drops. Dollars are less scarce, so individuals and businesses are less worried about having access to them when needed.

The Federal Reserve has been a huge driver of this. It's doing whatever it can to support economic growth.

Currently, the Fed's purchasing roughly $120 billion worth of bonds on a monthly basis. That means as it takes in those securities, it is placing more money in the hands of the holders. They can then turn around and spend it elsewhere.

All of these actions are flooding the world with more dollars that hadn't been there before.

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The US government spending picture is about to increase substantially!
 
You see, President Joe Biden rolled out the first of what will be two fiscal spending initiatives. They'll focus on steps the federal government can take to support the domestic economy and jobs.
 
The expected price tag on this first one is roughly $2 trillion. That would be the second-largest government appropriations funding behind only the CARES Act.
 
This bill centres on coronavirus aid.  The Democrats want funds for more stimulus checks, increased jobless benefits, state and local aid, vaccine distribution, testing, an education campaign and others.
 
At the end of the day, fiscal spending is going up whether Democrats and Republicans agree or not. Some Wall Street analysts estimate spending will be $3 trillion to $4 trillion.
 
And the bulk of those funds will be focused on domestic spending.
 
More spending and stimulus would lead to an increasing supply of dollars in circulation. More money floating around will further devalue the dollar, which should drive the price higher for assets like gold, silver, cryptocurrencies and stocks.
 
My top two sectors to watch as the dollar declines in 2021
 
#1: Emerging Markets
 
Emerging markets thrive when the dollar falls. That's because most emerging market economies export commodities and natural resources. 
 
So a falling dollar means they make more money for exporting things like gold, silver, iron ore, and copper... as these assets rise in price (like they have in 2020).
 
Secondly, these countries also tend to have large debts denominated in US dollars. In times like these, they have to pay less of their own currency to service their dollar debts.
 
A falling dollar is a win-win-win for emerging markets. And those benefits can boost their stock markets in a big way.
 
History proves this….
 
When the Dollar Index (DXY) crashed 24% from April 2003 to November 2007, emerging markets soared 365%.
  
When the DXY lost 17% from March 2009 to April 2011, emerging markets grew 136% in under two years.
    
When the DXY slid almost 10% from the start of 2016 to the start of 2018, emerging markets rose 62%.
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#2: JSE Resource stocks
 
The dollar’s decline can also be good news for commodity prices.
 
You see, the US dollar has a strong influence on commodity prices. The explanation for this relationship is that since commodities are priced in dollar terms, then commodity prices must move lower when the dollar strengthens to reflect its increased purchasing power.
 
Doug King, head of RCMA’s Merchant Commodity Fund and one of the world’s best known commodity traders confirms …“A way to get commodities moving in an inflationary, buying power way is a weaker dollar.” 
 
But what’s also backing up the trend of higher commodity prices is…China.
 
Analysts at Montreal-based Pavilion Global Markets noted Chinese demand for commodities, including oil, soybeans, iron ore, zinc, lead, nicker and, copper, is outpacing the level seen during the peak of China’s industrialisation, which fuelled the early 2000s surge in commodity prices.
 
While demand is soaring, supply is falling due to pandemic-related shutdowns of mines and other interruptions to supply chains.
 
This is a perfect storm for higher commodity prices in 2021.
  
See you next week.
 
Joshua Benton,
Managing Editor, Real Wealth


How to profit from the 2021 Dollar Decline!​
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