Personal Wealth Management / Expert Commentary

Ken Fisher on the Weakness of the Dollar

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher addresses recent fears that the US dollar’s position as a reserve currency is threatened. While Ken admits the percent of global trade done in dollars has declined since 2000, he says the decline has been modest and partly due to increased trust in the stability of the Euro, which was introduced the year prior.

Ken thinks these fears have re-emerged thanks to media reports of Saudi Arabia pricing some oil contracts in Chinese Yuan, but he points out that Saudi Arabia still has its currency pegged to the dollar because it trusts the stability of the US dollar more over the long-term. Overall, Ken believes the relative emergence of global trade in other major stable currencies—such as the Euro, Yen and eventually even the Yuan—is positive and a byproduct of a growing global economy and increasing faith in a variety of established currencies.

Transcript

Ken Fisher: So I don't know why it's true, but I know it's true that when there are big movements in the dollar, it tends to upset people, particularly people in America, and more so when the big movement is weakness in the dollar than when it's strength in the dollar. You really shouldn't worry about this too much in the intermediate to longer term. It really doesn't have any real impact at all. In the short term, it can have impact, but it's not fully predictable. It's not even very predictable. If you can predict currency swings, you don't need any advice from me whatsoever. But let me just say that those movements are not the most important movements in the world. And let me just take you to the 35,000 foot level on this. If dollar up or down either way made stock market go up or down. Then you could say in reverse. The other which is non dollar currencies up or down, should also reflect that you follow the logic there. If dollar movement. Predicted the direction of the market, then the exact reverse of dollar movement. Non dollar currencies aggregated.

Ken Fisher: Should also. They should show the reverse.

Ken Fisher: But in fact, it's true and has always been true that us and foreign markets are positively correlated and fairly highly so. Obviously some countries, more so than others, develop world more than less developed world. But countries stock markets around the world tend to go up together, tend to go down together. The differences are which ones lead, which ones lag. Now you take a year like last year. 2022. We had a bear market with the S&P 500 was down, hit bottom at 26% at the end of about nine months off the peak.

Ken Fisher: Bear market, a kind of a baby bear market, not a very big bear market. But the dollar last year was very, very strong. Most Americans never noticed that, as it happens. If you're, let's say, in Europe or if you're in Japan in yen or if you're in pound sterling. Your currency was very weak compared to the dollar last year. And the effect of that offsetting is those places didn't really feel the full bear market that Americans felt. They fell, but it felt to them more like a correction than a full scale bear market. Now, obviously, within Euroland, some individual countries fell more than other countries. I'm talking about Euroland as a bloc. In the same way this year, 2023, that's largely reversed and the dollar has been weak in those other currencies have been relatively stronger. It makes the exact reverse effect happen in the stock market in our feeling, but it doesn't stop the fact that last year markets falling in all of those places. This year the market's rising in all of those places. Over time it tends to equal out how do I know It tends to equal out over time. Let me just take you back. As long as we can take you back. And this is a game that anybody can play. You can do this. You can do this lots of ways, but I'm just going to give you a real simple. And you go on the Internet. Everybody these days goes on the Internet. It's almost an addiction. You go on the Internet, you go to the CNBC website at the top of the CNBC website. You can click on to things like bonds, and then you can look at various countries and see the history of the price movement of the bonds and interest rates. You can look at stock markets that way. But one thing you can do also is look at foreign currency. That way you can look at the dollar versus pound, sterling dollar versus euro dollar versus yen dollar versus Canadian dollar. Dollar versus Aussie dollar. And you can take those back as far as they go. Well, that's not quite true. You can take them back about 40 years. Now I'm going to tell you something most people just don't want to get. If you look at that very you can't take the euro back 40 years because you're only started in 1999, but it can take back to 1999. Good enough, right? If you actually look at those very long periods.

Ken Fisher: You'll see that the.

Ken Fisher: Dollar, compared to any of those currencies, isn't very different than it was 40 years ago. Wild swings briefly. Stock markets kept going up. Sometimes these led. Sometimes those led. Sometimes these LED. Sometimes those led. And not always predictably and driven by the currency. But over the longer term, the currency is leveled out. Will that happen in the next 40 years? I can't guarantee you that. What I can tell you is there's way too much made over currency because what is money? Money is nothing but something that people use.

Ken Fisher: As a lubricator. To facilitate a.

Ken Fisher: Transaction of buying or selling some real things goods or services, securities, whatever. In the process of that. That's all money is. It's a form of a commodity in that regard when one gets a little crazy because the sentiment people think this economy is doing better than that economy, this country or this region raises its interest rates. That one hasn't. Money wants to flow to the higher rates that pushes up the currency in that country. All of that stuff tends to be transitory. It tends to come and go. Focusing on that will over time cause you to make more wrong decisions than right decisions. Should you worry about this? No. Does it have a little effect sometimes ? Yes. Is it fully predictable? No, not at all. And therefore you shouldn't even factor it into your thinking. Thank you very much for listening to me. I hope you found this useful. Subscribe to the Fisher Investment YouTube Channel. If you like what you've seen, click the bell to be notified as soon as we publish new videos.

Disclosure

A series of disclosures appears on the screen “Investing in 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 Investments 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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