This might come as a surprise, but there’s plenty of reason to expect a strong dollar in 2025…
And that’s going to have a widespread effect on everything from interest rates to stock performance.
Watch my video below for the full story:
Video Transcript:
Welcome to Moneyball economics, I’m Andrew Zatlin.
Have you noticed Trump has yet to be inaugurated … and already the markets are getting volatile?
Imagine what’s going to happen this year when he is actually president.
So I’m thinking play a strong economy, play a rising stock market in fits and starts, so maybe some straddle option plays, buy the dip.
I’m also thinking along with the strong economy, we’re going to see a strong dollar and I think that’s going to lead to rate cuts. I think that’s going to be a boost for the bond market and the stock market. I want to walk through my thinking here today.
Why do I expect to see a strong dollar? Well, the first reason has to do with our trading partners, right? The dollar is always strong relative to another currency. Well, let’s talk about what that means because I think our trading partners, well, their economies are so fragile right now.
They’re so close to recession that they are going to turn on the printing presses. Let me tell you what I mean…
The most recent economic data we have GDP for the third quarter. That ended in end of September. Well, what do we know? We know that the UK on an annualized basis, barely achieved growth. 0.1%. Same thing for Germany, 0.1%. Japan springing forward with a whopping 1.2%. China was doing pretty well, 4.6%, but when you consider where they’ve been like last year, it’s way below where they’ve been, they are slowing and for an economy of their size and growth, this is terrible. Remember they were at 9-10% not too long ago. Note that the US is doing pretty well, 3.1%. We’ve been growing all 2024 at the 3% level.
Alright, so to net it out, our trading partners doing really badly … us doing really well.
Well, the first move that these economies are going to do is they’re going to try to stimulate the consumer economy. They’re going to try to get some spending going, right? And so let’s take a look at China.
China’s already springing ahead a lot. So for example, they’ve recently offered a 15% subsidy. If you take your phone or your tablet and you go trade it in and buy a new one, as long as that new one isn’t Apple, of course, because we want to support Chinese domestic companies along the same lines, appliances, industrial equipment, EV cars, you name it.
China’s trying to bring down the costs and stimulate consumer activity. They’re also looking at the housing market. Housing market is immensely important for China and their entire economy. It’s been very abundant. And so what they’re doing there, again, the usual are going to try to stimulate it by lowering the transactional costs and so forth. End of the day, China is trying to stimulate their economy. They’re trying to do what any economy out there is going to try to do.
I’m telling you, we’re going to see a strong dollar and here’s why…
Not just because of what’s going on offshore and the weakness and the behaviors of trading partners, but also what’s going on via the Trump tariffs and so forth. At the end of the day, if we are the strong economy out there, we’re going to attract cash. People are going to be buying dollars. At the end of the day, the US economy is doing well. Trump is going to make sure of that. The stock market is doing well. If you want to do business with America, Trump is going to try to force manufacturing to onshore. You’re going to have to buy equipment and buy dollars to put your equipment up here and so on and so forth.
Lots of reasons to expect a strong dollar. And then we go back to what I was just talking about. Our trading partners, they can’t stimulate their economy only through domestic consumption. They’re going to focus on exports and that means currency manipulation. Turn on those printing presses.
Let’s face it, if you’re China and Trump threatens you with a 50% tariff, your exports are going to drop.
But if you counter with a drop in your currency value, it’s the same thing in dollar terms and you China don’t care. And that is exactly what we can expect. Let’s take a look at the currency manipulation that has been underway past couple of years. So this is the Chinese Yuan five-year view starting 2022. You see that the Chinese yuan relative to the dollar, the dollar has strengthened substantially. In fact, it’s at a five-year plus high.
Same thing with the Japanese Yen.
2022 forward, strong dollar has meant a very weakening yen. And going forward, as you can see in the most recent couple of months since Trump was elected, the yen is getting even weaker. Same with China. In fact, if you take a look at what’s been going on over the past three years, you’ll see that the Chinese currency has dropped 15% relative to the dollar. The Japanese currency down 40%.
And if you’re Trump coming in, you’re not happy about that.
At the end of the day though, all this demand for dollars, it’s going to lead to a strong dollar, which I think is going to lead to rate cuts. Let me explain that. Strong dollar actually tamps down inflation. Think about it. You can buy the same, but it’s going to cost you less as an importer. And that’s huge. There’s another reason why I think we’re going to see rate cuts, not just because the fed’s super concerned about the inflation that’s out there that I’m suggesting is going to moderate not just because all this demand for dollars is going to drive down yields.
At the end of the day, our trading partners are going to be cutting their rates and we can’t be too different from our trading partners when it comes to interest rates.
So I suspect all these things will lead to rate cuts. Now that’s interesting.
Now a strong dollar, well, at certain companies, that’s a problem, right? If you are dependent on offshore sales and you repatriate into a stronger dollar, you’re getting smaller revenues, you’re getting smaller profits. But I want to focus mainly on the rate cut issue because that’s been driving the markets stock market down, for example, as we see that the markets don’t expect rate cuts.
I’m telling you right now they might be wrong.
We might see some more rate cuts if inflation is tamed. So at the end of the day, I’m saying the economy’s taking off no matter what. The stock market’s going to grow. If the economy’s growing, some sectors get hit more than others like technology.
But you take that strong stock market and then you throw in one or two more rate cuts than expected. Wow, that is magic. That’s the surge we’re looking for. This won’t happen overnight. This is probably something on a six month schedule, but you can take advantage of it.
Now with the rockiness of the market and the weakness to buy this dip, we are in it to win it. Zatlin out.