The dollar has declined year-to-date by over 9%, and some predict it will decline more. Dollar weakness, and the potential for more weakness, is knocking the dollar off its perch as the global safe-haven investment, the investment investors want to hold when global risk is rising.
Many investors are confounded by the disparity between the US dollar and the US stock market. Non-US investors buy US dollars to buy US stocks. If foreigners are buying US stocks, why is the dollar going down? At a minimum, given demand from overseas investors in US stocks, the dollar should be unchanged or a little down year-to-date, not near minus 10% .
The answer lies in the concept of total return, a concept that has three main components 1) price or value appreciation 2) yield or interest earned 3) the change in the currency when money is taken back to home currency. Investors must consider all three.
Investors are, and have been all year, optimistic about the prospects for US stocks driven by shares in technology and AI. Thus, the US stock market has provided capital appreciation, the first component. Yield has been positive in total return, but not by a lot.
In the end, it all comes down to currency. Non-US dollar investors who have made 10% on their US stock holdings year-to-date would be break even if they took the money back into their country right now. They would have no gain.
What they made on stocks, they lost on the US dollar going down. To mitigate such a drag on return, investors hedge the US dollar, which protects the investor against currency losses when they return their money to the home. It is called “Hedge America”.
“Hedge America” can be tough to understand when using derivatives, but easy to understand when looking at ETFs (Exchange Traded Funds). With ETFs you can buy a hedged or unhedged vehicle. This is the first time this decade that more money has flowed into dollar hedged ETFS than non-hedged.
In short, non-dollar investors want to protect the returns US stocks have provided, while avoiding the risk of the US dollar.
With total return in mind, and the US total return outlook in question, where should investors that hold USDC or dollar fiat look for investments? In terms of Etherfuse’s offerings, Brazil and Mexico stand out .
Etherfuse’s Brazilian Tesouros offer an API of 13.13%%. The currency should be stable to appreciating against the US dollar, since US tariffs have had no effect, and since inflation is stabilizing. 13% yield plus more on the currency is a good total return for a dollar based investor. No promises, but total return could be near 20%.
Etherfuse Mexican CETES offer 6.2% API. Official interest rates have gone from 10% at the beginning of the year to 7.75%, while the currency has strengthened, which shows positive sentiment towards the Mexican peso and its forward outlook. 6% plus another 5 or so % on the currency is a good total return when the money is brought back to dollars, either fiat or USDC.
The point is there are opportunities out there to achieve a solid total return, a return that includes appreciation, yield, and currency. They may just not be in the US, at present.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
