December 2022
December 2, 2022

Financials Matter

"It's Not Just About Finance"

Is the Dollar America’s Greatest Threat?

There’s an old saying: “When America sneezes, the world catches a cold.”

However, when our dollar rises the world ends up on life support.

Case in point, Emerging Markets.

You probably won’t read about this in the lame stream media because they don’t want you to see how a rising dollar undermines the pension system in America.

Here’s why.  The zero-interest rate policy we’ve had since the 2008 meltdown has forced many pensions (including Government Pension plans) to seek higher yields in the junk bond market.

It stems from the fact that they (pensions) were designed with an assumed rate of return of 7.5-8% annually.

When you factor in that Treasury yields have historically averaged between 4-5%, you’ll understand the huge funding gap.

So, in desperation, pension managers have loaded up on Emerging Market bonds (Junk) to get higher yields.  (This is another reason why you should never let politicians manage money).

Here’s the problem.

As our dollar gains strength, Emerging Markets get slaughtered.

You see, EM bonds are issued in dollars and NOT in a countries local currency.

A strong US dollar means their dollar buys less.  Therefore, the cost of servicing the debt (paying the interest) goes through the roof.

Adding gasoline to the fire, rising interest rates also lower the value of existing bonds, making this a double whammy.

These bonds are marketed as safe Sovereign Debt.  But, the only country that can survive a rise in the dollar is China.

In other words, the nations issuing these bonds (and the owners of them-namely many US Pension Plans) are screwed.

Remember this:  The world comes unglued ONLY with a dollar rally, not a decline.

So, stop listening to the pundits crying over a falling dollar.

Get the real scoop and save yourself a fortune.


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