General / Expert Commentary

Fisher Investments’ Founder Explains What a Strong Dollar Means for the Global Economy

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses the strength of the dollar and why it may not affect global economies and stocks the way many fear. Over the past year, the dollar is up against virtually all other major currencies. However, Ken says currency movements generally don’t impact stock market returns in any predictable manner.

While some worry a strong dollar will reduce demand for US exports and hurt the economy, a strong domestic currency also tends to lower the cost of many internationally-sourced goods, materials and labor for US companies. In addition, Ken points out that most large, multinational companies hedge currencies to mitigate the effects from currency swings. According to Ken, given a general lack of correlation between currency movement and market returns, Ken believes the strong dollar is another fear of a false factor—typically a bullish sign for markets.

Transcript

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A man appears on the screen wearing a navy suit, sitting in an office with a view of a thick forest behind him from the window.

He begins to speak.

A banner identifies him as Ken Fisher, Executive Chairmen and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher doing hand gestures time to time explaining.

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Ken Fisher: One concern some people have had this year is the strength of the dollar.

Ken Fisher: Now, just to be real clear, if you haven't paying attention and hadn't been a concern for you, the dollar has been super strong this year. It's just been gangbusters compared to other foreign currencies. And this contributes to some extent to what has been, in a period where people are globally fearful, some inflation pressures in America. But if you compare, let's say, the dollar to the euro from its peak early in the year, the euro is down about 15% for the first time in a long, long, long time below parity with the dollar, the euro is. And yet, then further, the yen is down compared to the dollar, twice that.

Ken Fisher: All the other major currencies whether the British pound, which is down to lows not seen in more than 40 years, or to the dollar or Australian or Canadian dollars, they're all down. Australian dollar down the least but tied to its strong natural resource position, but all down.

Ken Fisher: And so, a lot of people would say maybe this is bad for the US economy. Strong dollar might impede exports—that the strong dollar could cause global disruption. You can view that the other way, however, and I want you to think through, because people don't view this correctly usually. This falls under the subset that I say all the time, that you should always think global first and your own country second if you think at all. You need to recall that the US economy is about 25% of global GDP.

Ken Fisher: And so, if in fact it were bad for the US economy that the dollar was up, then it would be good for the other 75% that they're down. You follow the simple logic there?

Ken Fisher: If it would be bad for America because it would impede our exports, then it would be good for the other 75% because it would encourage their exports. And in fact, you would say that America would benefit from being able to get imports of things like overseas natural resources and products made overseas cheaper.

Ken Fisher: Now, in reality it doesn't fully all work like that. And the reason it doesn't fully work like that is said simply: That almost all big firms hedge currencies in advance so that these price swings don't really impact too much what they're importing or exporting, much less than people think. Littler firms that try to trade globally, yes that's true—they tend to have more impact because there tends to be a lower percentage of them that hedge foreign currency, whether they're American firms or overseas. But the reality is the smaller the firm, typically, the smaller, not perfectly so, but typically the smaller the percentage of foreign trade. It's the huge firms that tend to be more international and or more fully global.

Ken Fisher: And so, in this we can say some things. One of them we can say that people don't want to believe, but it's true, there is no historical demonstration that you can see in the data of strong or weak dollar flipping to strong or weak non-dollar currencies having predictable impacts on the stock market. And I want you to again think about why and for similar reasons. If a strong dollar were to make the stock market go up or down on any consistent basis, it would imply that the reverse would be true, which was that the weak foreign would make the stock market do the same thing because it's the same statement.

Ken Fisher: But in fact, if strong dollar were good or bad for the US stock market, then it would in theory be that the weak currency overseas would be bad for their stock market. And yet US and non-US stock markets have a very, very, very consistently high correlation to each other. Therefore, you know that there's no actual currency effect that impacts stock markets. Hadn't been for a very, very long time, even back through the days once upon a time, long ago, when you couldn't really hedge currencies for global business, global exchange. So, what I want you to see is that when people have these fears, it's fear of a false factor. And fear of a false factor is pretty much always bullish because the fear is in the marketplace, it turns out to not be true. That's a positive surprise. So, I want you to think about that as you think about these fears. And when you hear anyone articulate them, it's just one of those things that in a period where people have a lot of fears about a lot of other stuff, they throw a few more on top just for the kicks and cables of it.

Ken Fisher: Thank you so much for listening to me.

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Ken Fisher finished talking, and a white screen appears with a title “Fisher Investments” underneath it is the red YouTube subscribe button.

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Ken Fisher: Subscribe to the Fisher Investments YouTube channel. If you like what you've seen, click the bell to be notified as soon as we publish new videos.

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A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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