One of the areas of volatility that isn’t always the first mentioned and reviewed in headline news is the state of our currency.
The dollar is quite strong at present and, in an article in Barron’s, Randall Forsyth summed it up well with “The strong dollar- is helping the Fed’s effort to rein in inflation, doing some of the work of expected interest-rate hikes. But as first-quarter earnings reports from U.S. multinationals demonstrate, the greenback is a drag on overseas earnings.
Whatever the impacts, volatile currency markets tend to reflect unstable conditions that can find their way into bond and stock markets. For that reason alone, they should be on investor’s radar.”
The U.S. Dollar as a Reserve Currency –
Our dollar has been a reserve currency for right at 100 years and replaced the British pound as such. Talk emerges from time to time about what, if any currency, will replace it. There does not appear to be a contender right now as China’s renminbi is not reliable enough. With our liabilities exceeding $15 trillion and 70% of GDP, it seems the U.S. dollar will stay stretched for some time to come as it continues in this role.
Our Position on Global Equities –
For several months now, we have focused on the reasons why global equities are an important part of our clients’ portfolios. Not only are they widely considered the best if not only hedge against inflation, they make good sense and bring efficiency too.
- Stocks of the roughly 17,500 companies trading outside the US represent nearly half of the world’s $74 trillion equity market.
- When determining where to invest, a country’s size, population, or gross domestic product may not be a primary consideration. Japan, for instance, is relatively small to landmass but accounts for 7% of the world’s equity market value, representing more than 2,600 companies, including familiar names like Toyota and Sony. Even a tiny little country like Switzerland is home to publicly traded giants like Nestle and two of the world’s biggest pharmaceutical firms.
- A strategy focused on global diversification captures returns from thousands of companies around the globe and can potentially offset weak performance in one market with stronger returns elsewhere.
Susan R. Linkous / The Linkous Group, Ltd.
A Registered Investment Advisor