“There has never been a better time to invest in the United States . . . Come to America where you can innovate, create and build.” – Donald Trump, World Economic Forum at Davos 2018.
“A weaker dollar is good for us as it relates to trade and opportunities.” – U.S. Treasury Secretary Steven Mnuchin at Davos 2018.
While these statements may seem contradictory, over the past 12 months the US Dollar Index has declined by nearly 15%.
That’s another way of saying that the US dollar has become weaker while other currencies such as the Euro, Yuan/Renminbi, and Canadian and Australian dollars have become stronger.
Over roughly the same time period – from December 2016 to December 2017 – the interest rate paid on U.S. Treasury debt instruments such as T bills, notes and bonds has increased by 7%.
But asking if the dollar is doomed is like asking if the United States is doomed.
Our guess is you wouldn’t be on the TwinRock Partners website reading this article if you thought that was the case.
As more money is repatriated back into the U.S. from global giants like Apple, and as more capital investment money stays in the USA rather than going overseas, investment-grade assets will continue to be in demand.
That’s not to say that we won’t be in for some challenging times over the next few years.
Inflation is likely to occur in an environment of potentially rising interest rates. Usually one event or the other occurs, but not both at the same time, at least for very long.
But we expect contradictions such as these will be the new normal for the foreseeable future.
We’re entering an environment of uncertainty, with more capital chasing too few deals and where the cost of debt financing is likely to increase due to rising interest rates.
How does one hedge risk in a market environment like this?
One technique when investing in tangible assets is to understand the difference between price and value.
It’s also important to partner with a professional investment group such as TwinRock Partners.