Sometimes at a sports event or concert it is a good idea to start moving for the exit before the end of the event, to get your car out before the rush. The same may be said for US dollar exposure, it may be a good idea to start moving slowly towards the exit.
Treasury secretary Bessent said in a televised interview “if you look at any model”, for the fed funds rate, it suggests “we should be 1.5% to 1.75% lower”. The current rate is 4.33%. Bessent says it should be 2.6%. This doesn’t make any sense, and it is certain that this level has never been discussed at a single Fed meeting, even if some members are lobbying for lower rates.
In secretary Bessent’s comment, the concerning words are “any model”. The US Treasury Secretary should not make comments like “any model”. This is naïve, silly, and embarrassing. If one of his analysts at his hedge fund had said something like this, he would have given him a dressing down. There are models that suggest rates should be higher, like the Taylor Rule, named for John Taylor a Stanford economist.
He tried to walk his statement back the next day, but the damage was done.
If Secretary Bessent keeps contradicting himself, he is going to lose credibility. On the one hand he says rates should go down, which he knows will crush the dollar, On the other hand he has been trying to convince investors that a strong dollar policy remains intact, and his boss has threatened 100% tariffs against anyone who dares challenge a strong US dollar.
No matter the threats from President Trump or the calming rhetoric from Secretary Bessent, the dollar is dancing to another tune, tumbling 10% in the first six months of this year, its worst performance since 1973.
The administration is saying strong dollar, while the market is saying weak dollar. Hard to say who is going to win, but when the dollar falls, it will fall fast and hard, too fast for anyone other than lightning-fast professional traders to benefit from the fall.
While a severe crack in the US dollar is probably still some time away, normal investors may want to start moving assets slowly out of the US.
So, where should an investor go to lighten exposure to the US dollar? Where can they go?
In a time of a declining US dollar, good opportunities can be found in high yielding emerging market bonds in countries like Mexico and Brazil. The yield pick-up versus the US dollar in both Mexico and Brazil will attract investment flows. An investor will not only get the higher interest rate, but currencies may rise in value due to strong demand from investors lightening up on US dollar exposure. Etherfuse’s Brazilian Tesouros and Mexican Cetes are good options for emerging market bond exposure. These tokenized assets not only generate a good yield and currency stability but can enhance other strategies on chain.
Non yielding assets that offer a store of value like Bitcoin and gold are also good options, if the US dollar goes down. Lower interest rates and a lower currency are generally inflationary, and gold and bitcoin have proven to do well in times of inflation.
There are certain US stocks that do well in a time of a falling US dollar, stocks that perform well are those with a high percentage of exports, because a weak dollar makes their products less expensive on the global market, which can support earnings.
While this is true, given the extended valuation of the US stock markets, it doesn’t matter what the composition of sales outside the US is. All US stocks will go down together if the US dollar falls fast in value.
Once again, this is not an emergency call. There is no need to throw US dollar assets out, but now is the time to slowly start making your way to the exit before the end of the game, encore, or curtain call.
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.
