The U.S. Dollar

Got Gold? Got 10% Gold?

June 1, 2018 By Adam Strauss Leave a Comment

I have previously suggested that a 10% gold position makes sense for many investors who want to generate attractive risk-adjusted returns in a diversified investment portfolio.

During my discussion, I spent little time talking about why a 10% position per se makes sense, as opposed to either a 2% position or a 50% position. Instead, my discussion focused on why it makes sense to own a meaningful position in gold.

For some people, a meaningful position is 11% in gold, while for others, it might be 20%. The correct allocation depends on each person’s risk tolerance, return goals, time horizon, and overall financial situation. That’s why my recommendation was “10%+” rather than 10%, or 12%, or 15%; I wanted to give room for the adjustments that must occur due to individual circumstances.

Yesterday, Incrementum published the 2018 version of my favorite annual gold report, “In Gold We Trust,” which I will discuss further in future posts. The extended version of the report is over 200 pages long, and I’m still in the process of slowly reading through the whole thing. Nevertheless, I want to share two tables I found which shed some light on the question of how much gold one should consider owning.

Risk/Reward Implications of a 10% Gold Position

The first interesting table, originally published by Goldman Sachs, analyzes the portfolio impact of adding a 10% gold position to a portfolio of 60% stocks and 40% bonds during the period since 1970. As you can see from the table below, adding a 10% gold position has enhanced returns and reduced downside volatility.

Goldman’s analysis also looks at the impact of adding a 10% position in GSCI (Goldman Sachs Commodity Index), in 30-year U.S. Treasuries, and in cash. Unsurprisingly, U.S. Treasuries and cash reduced risk, which is a good thing, but they also reduced returns. While cash and U.S. Treasuries certainly have a role in a diversified portfolio, these asset classes are not able to boost returns and risk in the same way that gold can.

Obviously, past performance is no indicator of future performance. That said, given how overvalued U.S. stocks are and given how leveraged the financial system is at the present moment, I expect the positive impact (on risk and return) of adding a 10% gold position to a 60/40 investment portfolio to be even more significant over the next ten years than it has been over the past forty years.

What are Central Banks Doing?

I also discovered that the world’s major central banks are on the 10%+ gold plan. To be more precise, central banks own a 13.73% gold position relative to all foreign currency reserves. For central banks, gold serves as a hedge against a decline in the rest of their foreign currency reserves, all of which are fiat currencies and most of which are U.S. Treasuries.

To be fair, the range is enormous, from China at the low end with a 2.25% gold position to Europe at the high end with a 42.64% gold position. While China’s gold position appears low, I suspect that China owns more gold than its official figures suggest due to the enormous volume of gold that has been imported into China over the past five years.

The key takeaway from this second table is that central banks understand the important hedging role that gold can serve in a portfolio of assets, and they have invested their own assets accordingly. Also, they are seeing that the need to hedge is increasing rather than decreasing because their gold positions have been rising year-after-year ever since 2008.

History suggests a 10%+ gold position makes some amount of sense. Central banks are acting accordingly. Furthermore, I expect that President Trump wants to see a weaker dollar, and any kind of a trade war will most likely result in accelerating inflation.

What are you waiting for?

To Balance U.S. Trade Flows, the Bretton Woods System Must Die

April 24, 2018 By Adam Strauss Leave a Comment

Created in Bretton Woods, New Hampshire, in 1945, the post-war world trading system involved foreign countries holding U.S. dollars as a reserve asset and using U.S. dollars to conduct global trade. With the U.S. dollar as the world’s reserve currency, the United States has provided the world with dollars by running a trade deficit, while the rest of the world has provided the United States with dollar support and cheap financing.

**The current world trading system was created in 1945 at the Mt. Washington Hotel, Bretton Woods, N.H.**

America First versus Bretton Woods

In the context of an increasing risk that the United States instigates a trade war, I would suggest that the United States can choose an America First trade policy with balanced trade and balanced capital flows, or the United States can choose to maintain trade deficits and import capital to fund its national savings deficit. It cannot do both. Mathematically, the United States cannot pursue a balanced trade deficit and also import capital to fund its increasing level of borrowing; after all, the balance of payments must – by definition – balance. Furthermore, if the United States ceases running a trade deficit, it cannot also provide the world with dollars with which to conduct trade.

In order to allow for U.S. exports to balance U.S. imports, everything has to change.

In recent months, U.S. Trade Representative Robert Lighthizer discussed the Trump administration’s willingness, if necessary, to dispose of those institutions that have facilitated global trade since World War II in order to reduce the U.S. trade deficit with China:

The sheer scale of their [China’s] coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented. Unfortunately, the World Trade Organization is not equipped to deal with this problem. The WTO and its predecessor, the General Agreement on Tariffs and Trade, were not designed to successfully manage mercantilism on this scale. We must find other ways to defend our companies, workers, farmers, and indeed our economic system. We must find new ways to ensure that a market based economy prevails.

Demise of the Bretton Woods Trading System?

Paul Krugman raised the problem with balancing trade under the Bretton Woods system in 2013 when he suggested that U.S. protectionist policies, once implemented, would “break up the whole world trading system we’ve spent almost 80 years building.” That world trading system includes those supranational institutions such as the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) which were created at Bretton Woods and have supported the growth of global trade and global capital flows since then.

It is difficult to imagine these institutions surviving an era where the United States is no longer willing to work through them to resolve trade disputes. Supporting Lighthizer’s views, in January 2018, U.S. Secretary of Commerce Wilbur Ross participated in a panel at the World Economic Forum in Davos, Switzerland and agreed that it is finally time to break up the world trading system created at Bretton Woods in the aftermath of World War II:

Let me give you my version of post-World War II history… It was deliberate U.S. policy to help Europe and Asia recover from the ravages of the war… It was good policy globally and, at the time, all the way until the 1970s, we had trade surpluses every single year, so it was an affordable policy decision (for the U.S. to reduce trade barriers). I think one of the ways they went wrong was not time limiting it… Concessions that were totally appropriate to Europe or China or Japan in 1945 are singularly inappropriate as we sit here this year (2018)… Now we’re left with the cumulative effect of it, and we are trying to deal with it in a very short time period.

The video can be found below, with Wilbur Ross speaking beginning at 19:00.

With the support of global institutions like the WTO, the largest U.S. export has been U.S. Treasuries for the past several decades, and those U.S. Treasuries have been purchased and held by export-driven economies like China, Japan, and South Korea. In December, 2001, China was finally admitted into the WTO, and the People’s Bank of China went on a dollar buying spree immediately thereafter which continued up until 2013. China’s aggressive investments in U.S. Treasuries at a fixed exchange rate suppressed the exchange traded valued of the Yuan, but it also provided structural support for the dollar and financed U.S. deficits.

Transition Risks

Of course, no trading system lasts forever, and the current trading system certainly has its flaws. However, if the Trump administration follows through on its rhetoric to, in Dr. Krugman’s words, “break up the whole world trading system we’ve spent almost 80 years building,” without working with other countries to gradually transition towards a new system, the economic, geopolitical, and financial risks are significant and of an entirely different character than the risks represented by the 1930 enactment of Smoot-Hawley.

Following the logic of where this might end, I have arrived at an important question.

If the United States manages to successfully eliminate its trade deficit, balance of payments math suggests that net capital inflows into the United States would have to cease. If net capital inflows cease, with a record projected budget deficit (per the CBO), where does U.S. deficit funding come from?

How a Trade War Will Hurt the Economy

April 23, 2018 By Adam Strauss Leave a Comment

Is the United States headed for a trade war? And, if one comes, will a trade war hurt the world economy?

The answer to the first question is I don’t know. The answer to the second question is yes, a trade war will hurt the economy, but the U.S. economy will probably muddle through, albeit with more expensive imported goods and a lower standard of living.

Just as Smoot-Hawley was a predictable political response to the decline in worldwide aggregate demand which began in 1929, the 2016 election of a protectionist as President of the United States was, in retrospect, a political response to the loss of the U.S. industrial manufacturing jobs over the past twenty years.

**The U.S. output gap has been persistent since the Global Financial Crisis.**

The chart above shows that the recovery of GDP since the Financial Crisis and the continuing output gap has been consistently disappointing. The large and persistent output gap, representing the difference between actual GDP and the Congressional Budget Office’s (CBO) estimate of the maximum sustainable output of the economy, suggests that something permanent has impaired the U.S. economy. The continued disappointment in GDP growth, combined with a persistent trade deficit and increasing economic inequality, represent structural economic and social problems with no easy solution in sight.

In 1930, in a response to a sharp downturn in economic activity that began with the 1929 stock market crash, Congress passed the Smoot-Hawley Tariff Act. In 2016, in response to a persistent output gap, the United States elected Donald Trump as President, promising stronger trade tariffs and a weaker dollar to protect domestic jobs.

Four Key Differences between 1929 and 2018

While Smoot-Hawley didn’t cause the Depression, it also didn’t help. To be sure, a trade war will not help the global economy today if it happens. Having said that, global trade has evolved since the Great Depression and is very different today, for several reasons. Below are four key differences:

1.In 1929, the United States had a trade surplus, with net exports of goods and services exceeding net imports, whereas today the United States runs a large trade deficit. In 1929, the United States was the producer to the world, much like China is today.

World trade was largely balanced in 1929 with the U.S. trade surplus representing less than 1% of GDP, whereas in 2016 the U.S. merchandise trade deficit represented 4% of GDP (see chart below). The United States trade deficit is far from balanced. Likewise, the trade surpluses of countries like China, Taiwan, South Korea, and Germany are far from being balanced.

**The U.S. trade deficit is large and not improving.**

Trade is far more important today to the global economy, so the stakes are higher for all parties involved in global trade, including but not limited to the United States and China. Mathematically, this means that the value of exports and imports relative to world GDP is at a much higher level today than it was in 1929.
In 1929, tariff rates were already high, with an average import duty of 13.5% in 1929, and the increase after Smoot-Hawley was not significant. By 1931, the average tariff rate in the United States had only increased to 17.8%. Today, the average U.S. import duty is just 1.5%.

These differences suggest that the potential impact of greatly increased tariff rates is likely to be greater today than the increased tariffs implemented in 1930 under Smoot-Hawley. Trade wars are always a drag on the economy, but the more dependent the world economy is on trade, as it is today, the bigger the adjustment for the global economy once a trade war begins.

Everyone will be hurt in a Trade War, but the United States will be hurt less

Trade barriers make imports more expensive for consumers, thus creating inflation and suppressing aggregate demand. Because of its effect on demand, protectionism has a negative impact on economic activity for all parties involved. That said, in a trade war, trade surplus countries such as China are generally hurt more than trade deficit countries. The GDP level of a surplus trade country like China is enhanced by its net exports to other countries. Similarly, trade deficit countries, such as the United States, suffer relatively less in a trade war because their net imports detract from GDP.

Given this dynamic, in retrospect, it seems odd that the United States passed Smoot-Hawley at all in 1930. As a trade surplus country at the time, the United States clearly stood to lose more than it had to gain from lower levels of world trade because, in 1929, the United States exported more goods and services than it imported. Indeed, when global demand declined as a result of the 1929 crash and subsequent banking crisis, every country suffered, but, as the world’s leading exporter, the United States economy suffered more.

Today, in contrast, the United States is in a different situation. Because of China’s large trade surplus, China’s GDP growth would suffer more than the U.S. GDP growth in a trade war. Two Australian economists, Warwick McKibbin and Andy Stoeckel, modeled the impact of a 10% global tariff on GDP for each country, and they came to the conclusion that U.S. GDP would decline by an estimated 1.3%, while China’s GDP would decline by an estimated 4.3%, or more than triple the U.S. decline.

**The GDP impact of a trade war is worse for China’s GDP than for U.S. GDP.**

In other words, there are no winners in trade wars, but some countries lose more than others. The United States, with its large and highly diverse economy, should muddle through a global trade war comparatively better than export-driven economies such as China, Taiwan, Japan, South Korea, and Germany, in my view. These surplus countries simply do not have the domestic demand to replace the export-related demand coming from the United States.

How the United States Will Suffer in a Trade War

U.S. GDP will hold up better than the GDP of surplus countries in a trade war. Wages will rise, and domestic producers should enjoy increases in sales and profits due to lower levels of foreign competition. However, the United States will experience plenty of problems and adjustments of its own if a trade war happens.

Below is a short but important list of economic adjustments that the United States will have to make if a trade war happens:

Higher priced imports will create inflation and reduce U.S. living standards.
With higher inflation, interest rates could rise further, making it difficult for investors to generate an attractive return on domestic stock and bond investments.
The United States will enjoy less global influence. Other countries work closely with the United States due in part to the size and openness of its markets.
Foreign central banks will be reluctant to purchase U.S. Treasuries, making it more expensive for the United States to finance its debts.

These adjustments would be difficult under almost any circumstances. It has been several generations since the United States experienced high and accelerating inflation. The last time it happened, in the 1970s, the level of financial leverage across the U.S. economy was much lower than it is today. As inflation and interest rates increased, the economy was able to adjust. With much greater financial leverage today, however, the economic adjustments are likely to be more painful this time.

Did Smoot-Hawley Cause the Great Depression?

April 20, 2018 By Adam Strauss Leave a Comment

In light of President Trump’s recent trade tariff threats, financial news articles are citing the Smoot-Hawley Tariff Act of 1930 with increasing frequency. While U.S. industrial workers cheer on new tariff proposals, free traders sternly warn that Trump is on the verge of starting a global trade war that could throw the world into a global depression, just like Smoot-Hawley caused the global depression.Are these worries well-founded? Is Ferris’s teacher correct? Should you be selling your stocks to avoid a repeat of the 90% stock market downturn which occurred between 1929 and 1933? Or are fears about repeating the mistake of Smoot-Hawley just a tempest in a teapot?

I don’t think Smoot-Hawley caused the Great Depression, for several reasons.

chicago soup kitchen during the great depression — **Soup Kitchen Line in Chicago during the Great Depression**

The Tariff Rate Was High Before Smoot-Hawley

Signed into law by President Hoover, Smoot-Hawley raised tariffs on 890 products, increasing the average industrial tariff from 37% to 48% in the United States.

Since the industrial revolution began, the world has experienced great periods of prosperity even in the midst of significant trade barriers. As demonstrated in the chart below, the U.S. tariff rate averaged 10%+ between the 1830s and the 1940s, a period in which the United States grew enormously, even as it evolved from an agrarian country into the world’s industrial powerhouse.

As you can see in the chart below, the average import duty, already high in 1929, did not increase by very much after Smoot-Hawley was passed. Moreover, previous increases in the average import duty during the course of the 19th and early 20th centuries did not cause a Great Depression.

**Smoot-Hawley did not result in a remarkable increase in the average import duty.**

Companies Involved in Global Trade Didn’t Cause the 1929 Stock Market Crash

A year before Smoot-Hawley was signed into law, the stock market crashed on September 4th, 1929, with the worst performing sector being utility companies. Utility companies were heavily indebted, but their revenues and profits were largely unaffected by global trade. In other words, the possibility of a future trade war did not cause the stock market crash.

Prior to the 1929 crash, the Federal Reserve had tightened the availability of credit in order to temper the strong stock market, and monetary policy remained restrictive even after the crash. Post-crash, central banks were unwilling or unable to pursue countercyclical lending to stimulate demand. Subsequently, during the early 1930s, a series of banking crises took place in the United States and across Europe which likely turned what should have been a garden-variety recession into the Great Depression.

World Trade Declined Due to Inadequate Global Demand, not Trade Tariffs

As the Depression progressed, world trade suffered due to inadequate global demand, but a reduced level of trade was most likely the result rather than the cause of that inadequate demand. While the Smoot-Hawley Act most worsened an already-bad situation, circumstances suggest that its economic impact was somewhat muted.

Prior to the passage of Smoot-Hawley, European countries were already erecting trade barriers in response to their weakened economies. Importantly, Smoot-Hawley applied tariffs to roughly one-third of U.S. imports, representing just 1.3% of U.S. GDP. Furthermore, the tariff rate was already quite high prior to the Smoot-Hawley Act, with Smoot-Hawley increasing the average duty from 13.48% in 1929 to 17.75% by 1931.

Perhaps more importantly, exports plus imports represented less than 10% of U.S. GDP in 1929; international trade was simply not as prevalent then as it is in the present era. As such, the $470mm decline in net exports which occurred between 1929 and 1931 represented only 0.5% of U.S. GDP in 1929. Relative to the stunning 26.6% decline in U.S. GDP that occurred between 1929 and 1931, a 0.5% GDP detraction from net exports seems relatively minor when taken into context.

**A decline in net exports did not drag down U.S. GDP by very much.**

Investment Implications

Based on the economic evidence, I would agree that the passage of Smoot-Hawley was not an incrementally positive development for the ailing U.S. economy in 1930, but it was certainly not the primary cause of the Great Depression either. In this view, I concur with economist and New York Times columnist Paul Krugman, who said in 2010, “I don’t think the Smoot-Hawley tariff was a good thing…but did Smoot-Hawley and other trade restrictions cause the Depression? No.”

To be sure, there are plenty of reasons to worry about the U.S. stock market and the global economy, having nothing to do with trade:

The U.S. stock market has been on a nine-year tear, which is a relatively long bull market.
The overall valuation of U.S. stocks is high.
The Federal Reserve is hiking interest rates, slowing down the economy and creating financial stress for highly indebted corporate and household borrowers.
According to the Congressional Budget Office, the U.S. fiscal situation, already poor and deteriorating, is poised to worsen considerably as a result of the Trump tax reforms.
Geopolitical risks remain at elevated levels.

Overall, I think the consequences of a trade war today would be quite different than what happened during the Great Depression. Back then, a contraction in trade occurred coincident with deflation, monetary policy that was too tight, and a banking crisis.

While this is a subject for another post, the facts suggest that trade tariffs will be inflationary rather than deflationary. The prices of most U.S. stocks and bonds currently do not discount for this risk.

Four Reasons Why Donald Trump Wants a Weak Dollar

September 11, 2017 By Adam Strauss Leave a Comment

I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting—that will hurt ultimately. Look, there’s some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good. It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency.

– Donald Trump, speaking to the Wall Street Journal on April 12, 2017

I’m the king of debt. I’m great with debt. Nobody knows debt better than me.

-Donald Trump, in an interview with CBS News on June 22, 2016

If the dollar strengthens significantly, it will have a significant impact on your investment portfolio. Similarly, if the dollar weakens, it will also have an impact on your investment portfolio.

If you are an investor, or, for that matter, if your earnings are denominated in dollars, it’s worth paying attention to what Donald Trump says about the dollar.

I say this because President Trump has enormous influence over what happens to the purchasing power of the dollar. As President, he appoints the Secretary of Treasury and the members of the Board of Governors of the Federal Reserve. Trump signs legislation that will affect fiscal spending. He is in charge of the country’s foreign policy.

For years, Donald Trump has consistently communicated that he wants a weaker dollar. You might be wondering, is this just rhetoric, or does he plan to make appointments and pursue fiscal policies and foreign policies that will actually weaken the dollar? Put more simply, does Trump mean what he says about wanting a weaker dollar?

In my view, it’s more than just rhetoric. Donald Trump is highly motivated to keep interest rates low and devalue the dollar. I say this because of where his own political and business interests lie.* I believe it’s possible to examine Donald Trump’s interests and determine whether Trump is more likely to be a weak-dollar President or a strong-dollar President. So far, I have found four reasons that support my view that he will be a weak-dollar President.

Reason #1: Almost 90% of Donald Trump’s $3.5 billion in estimated net worth is tied to real estate.

Donald Trump is a billionaire, but more importantly, he is a real estate billionaire.

Real estate is an asset class that is highly sensitive to interest rates. When interest rates go up, real estate values decline, and vice versa (all things being equal). Real estate investments are valued according to the present value of their future cash flows. Low-interest rates increase the present value of those future cash flows.

That might be why Donald Trump recently said, “I do like a low-interest-rate policy, I must be honest with you,” in April 2017.

Investment Conclusion: We can expect Donald Trump to appoint members to the Board of Governors of Federal Reserve who are supportive of low-interest rates because low-interest rates will support the value of his real estate holdings.

Real estate also tends to hold its value in an inflationary environment. When the cost of the materials used in constructing a building increase, the replacement costs of existing real estate properties increase commensurately. As a result, property values tend to increase in an inflationary environment.

A decline in the value of the dollar would likely lead to increased rents and increased replacement costs for Trump’s various real estate properties. Conversely, an increase in the value of the dollar would likely result in a decline in property prices. Weak-dollar policies will serve Donald Trump’s investment interests better.

Investment Conclusion: We can expect Donald Trump to make appointments and pursue policies that result in a weaker dollar because a weaker dollar should increase the value of his real estate holdings.

Reason #2: The majority (~52%) of Donald Trump’s estimated net worth is tied to New York City real estate.

trump tower NYC real estate — **Trump Tower is just one NYC trophy property among many that Donald Trump owns.**

New York City real estate is dependent on the health of the local NYC economy, which is, in turn, dependent on the health of the financial markets. When financial markets boom, so too do New York City and New York City real estate. When financial markets bust, so too does New York City and its real estate.

During the financial crisis, Trump’s estimated net worth declined by almost 50%, from $3.0 billion to $1.6 billion, and at least one of his properties filed for bankruptcy. That’s what will probably happen again during the next financial crisis.

Since the financial crisis, as markets have rallied, Trump’s net worth has increased almost three-fold, from $1.6 billion to $3.5 billion, driven by increased profits for banks, hedge funds, and wealthy investors located in New York City.

Investment Conclusion: Donald Trump will pull out all the stops to prevent financial markets from declining. Trump will pursue low-interest rate and weak dollar policies to support the health of the financial markets, which will also support his New York City real estate empire.

Reason #3: Trump’s various real estate holdings are encumbered with approximately $1.1 billion of debt.

In one important respect, Donald Trump’s financial interests are aligned well with that of the United States. Both Trump and the United States have a lot of loans to pay to creditors.

By depreciating the dollar, President Trump, in effect, reduces his own indebtedness. If the dollar declines in value, Trump would still have $1.1 billion in loans outstanding, but the real (inflation-adjusted) value of those loans would be lower. Also, the real (inflation-adjusted) value of his net worth would increase substantially.

Let’s use some simple math example to illustrate this concept.

Forbes estimates that Donald Trump owns $4.2 billion in real estate which is encumbered with $1.1 billion of mortgage-related loans. Thus, Donald Trump’s real estate net worth is approximately $3.1 billion ($4.2 billion of real estate assets minus $1.1 billion of debt).

Let’s now assume that Donald Trump manages to devalue the dollar by 50% and that, as a result of a devalued dollar, all real assets double in price. His real estate would then be worth $8.4 billion, but his debts would remain at $1.1 billion. Donald Trump’s real estate net worth would increase from $3.1 billion to $7.3 billion. Because of the debt leverage that Trump is employing, his real estate net worth increases by 135%.

Investment Conclusion: Donald Trump’s weak dollar policies will likely be helpful for real estate investors who have a manageable level of debt leverage.

Reason #4: Donald Trump wants to bring jobs back to the industrial manufacturing states of Michigan, Ohio, Pennsylvania, and Wisconsin.

Without winning these Midwest manufacturing states during the 2016 election, Donald Trump would not be President of the United States today. He won these states by promising to bring jobs back to the United States. Without delivering on his promise, Trump will likely not win these same states again when he runs for re-election in 2020.

2016 electoral college map — **Wisconsin, Michigan, Pennsylvania, and Ohio provided Trump with 64 electoral votes in the 2016 election.**

If the dollar increases in value, the competitiveness of U.S. manufacturers will decline relative to foreign producers. If the dollar declines in value, the relative competitiveness of U.S. manufacturers will increase. I see no way for Trump to deliver on his promise to the industrial manufacturing states without figuring out a way to reduce the value of the dollar.

Investment Conclusion: Donald Trump will make appointments and pursue policies that result in a weaker dollar in an attempt to bring jobs back to the United States and secure his re-election. The companies that will likely benefit from the most from a weaker dollar are U.S. exporters.

Investment Implications of a Weak Dollar

Donald Trump’s commercial and political interests suggest that the President is highly motivated to depreciate the dollar. Doing so will contribute to the real value of his net worth and help his chances of being re-elected. If I’m right, some of the investment implications include the following:

Real assets: Real assets should maintain their inflation-adjusted values. Owning gold, real estate, and other tangible assets should protect the purchasing power of your investment portfolio as the dollar declines in value. I would expect real estate assets to outperform financial assets (see what happened in the 1970s below).

U.S. stocks: Although I have said multiple times that the inflation-adjusted return from owning U.S. stocks during the next ten years may be poor due to high valuation ratios, the U.S. stock market may rise in nominal terms as the dollar declines in value. U.S. corporations that rely on exports should perform better than U.S. companies that rely on imports.
Foreign stocks: Foreign stocks in countries where valuation ratios are reasonable should outperform U.S. stocks, and a weak dollar will be a tailwind for overseas stocks. A few weeks ago, I discussed some of the reasons why South Korea stocks are attractive right now.
U.S. bonds: If you a lot of exposure to U.S. bonds, you should consider the potential decline in the purchasing power of your investment portfolio. Even if the nominal price of your bonds remains the same during the Trump administration, your bond portfolio might buy less over time as the dollar depreciates.

What investments are you making which should perform well as the dollar continues to decline in value?

*Source: In my analysis, I am relying on Forbes for estimates related to Donald Trump’s assets and liabilities.