The Rising Dollar’s Impact on Emerging Markets

The greenback has been on a tear as of late, rallying about 5.5% since the dollar index bottomed out just below 96 on election night.

In fact, the dollar index is up 10 days straight — the biggest surge since May 2015.

That puts the dollar at its best level in over 14 years.

Reasons: Simple …    

FIRST, is all the flight capital leaving other countries and regions of the world that are in far worse shape than the U.S. Europe is going down the drain. So is Japan. So is the Middle East.

Plus, the more China opens up its currency market, the more yuan leave as wealthy Chinese get the opportunity to diversify and invest … and their main target is the U.S. of A.

SECOND, is that the dollar is now pricing in an inevitable rate hike from our Federal Reserve.

And THIRD, is general optimism over President-elect Trump’s policy of strongly desiring to repatriate the nearly $3 trillion of U.S. corporate money sitting overseas. A tax holiday of some sort is in the offing for that huge stash of cash and repatriating it would be hugely bullish for the dollar and for the U.S equity markets.

So it’s no surprise that my AI models have forecasted this rise in the dollar for some time now. And those same models are telling me that this trend should continue.

In fact, this chart clearly shows that the dollar index could easily continue moving higher heading into next year …

So, what does this all mean?

Most would argue that a stronger dollar may have significant financial, as well as trade, effects on emerging markets.

Reason: Many companies in these markets have borrowed in dollars. So the cost of repaying their debt rises when the greenback gains ground against their domestic currencies.

Plus, much of this borrowing is conducted through the banking system, leaving the banks exposed to the risk of a rising dollar.

In other words, a stronger dollar could cause a tightening of credit conditions in emerging markets — leading to slower growth.

The good news is that if the dollar continues rising — as I expect it will — emerging market exports become even cheaper. That can be a big driver of demand, sales and profits. And that means more growth globally and here in the U.S.

Unless President-elect Trump trashes trade deals and slaps tariffs on China and other countries that rely on exports. Then we’ll have a real mess on our hands, not unlike the trade wars of the 1930s.

For now, I recommend staying in dollars. Even if President-elect Trump starts to talk tough again on trade, it will be some time before anything concrete is decided.

Best wishes,

Larry

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

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Comments 16

G13Man November 21, 2016

why give a tax advantage to corps with cash over seas , if those countries are going to fold , would not the wise pay the tax to save their dollars

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betty m.brown November 21, 2016

NICE! Great to have some GOOD news! We will keep on trying til; we succeed!!! Thanks,

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Louis Ciasullo November 21, 2016

It is interesting to note that Karim Rahemtulla seems to be encouraging moving out of the dollar. I was even considering buying puts of the UUP to hedge my dollar investment. Also I am concerned with the possibility of an increasing dollar value that you suggest. Do I sell all my US companies with major overseas business or hope that their CFO covered their currency risk?

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Rafael November 21, 2016

According to you gold and dollar suppose to go up together. Even your charts show same ups and downs. I bet you are wrong because its simply impossible. Gold is already much below your braking point which was 1250.

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Dwayne November 21, 2016

Larry, a rising dollar and rising gold prices seem to be diametrically opposed, but you are predicting both. Please explain. Thank you.

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Brad Goldman November 21, 2016

Larry's comments make good sense, in particular why the dollar has screamed higher. Too bad it seems it is because it is less bad compared to other fiat currency alternatives. As Larry points out, but doesn't speculate upon is whether our new president elect will screw things up with restrictive trade policies or will modify his 1930's attitude toward trade.

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iralanger November 21, 2016

I think you are being naive in regard to Donald Trump.He has promised to trash trade deals and slap tariffs and with his lack of understanding he probably will so I would prepare for a real mess as you said.

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sigioz November 23, 2016

Trump has his advisors. This shows in his slacking off the different hard statements of the past. That doesn't make it any easier for us to predict...

Don November 21, 2016

Do I understand correctly - page 12 of the November 2016 issue - that the Real Wealth portfolio, during the stock market boom this year, has earned a total of 4.38%. If not, what am I missing. Thanks.

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$1,000 gold November 21, 2016

the decades long suffering in japan's economy has been concurrent with a decades long decline in interest rates by the fed, as the resulting weakening dollar made toyotas etc more costly in america. the reverse is about to happen. decades long rising rates in america will once again make toyotas easier for americans to afford again, as a result of a strengthening dollar. rising rates and a strengthening dollar will help the economies of our trading partners.

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Scott Hartzler November 21, 2016

Larry may very well be a genius and if he is I nod my hat. He did predict Trump victory. But it's been my experience that someone who keeps saying I'm right I'm right I'm right I'm right I'm right all the time is suspect

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Adrian November 22, 2016

Dear Larry, I expect the dollar to carry on rallying, as you predict, into the new year, to about 105 on the dollar index. But I see it as a final move. Meanwhile I am quite happy to play the inverse relationship, between the dollar and gold, which has worked very well so far. I do not see the gold mining stocks bottoming until early January. I love your articles and find them very informative! Best wishes, Adrian

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espy November 22, 2016

Agreed on tariffs but not on the trade deals. TPP needs to go, NAFTA needs to be renegotiated and the focus, going forward, needs to be on bilateral trade deals, not regional ones, and certainly none negotiated from a position of ineptitude as they have been for over 20 years.

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Tito November 24, 2016

A 360 degrees turn. Not long ago you said the dollar would crash

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Justin November 25, 2016

180 degrees? Unless he went full circle back to what he was saying before.

Dick November 26, 2016

Why would anyone believe Trump , the master lier? He has built a wall of lies. So we will see about the other wall.

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