4D·

US dollar

Asked, done: I took a look at SmartBroker and what struck me immediately... okay, our former community share $UKW (+0.38%) can be traded in London with a spread of just 1 cent, but something else:

In US dollars Coca Cola is up 17% YTD... In Euros 6.67%.

Apple is down 19% YTD in US dollars... 29% in euros.

@Epi has already clearly pointed out the depreciation of the dollar here, but I found it interesting to see it directly in the broker.

I find it even more serious with the MSCI world: 16.59 to 5.76% YTD... would we normally be talking about a crash at 5%? Some people here certainly would, I would almost chalk it up to market volatility.

But that brings me to the question: how to deal with it? Certainly, if you have a lot of USD in your portfolio, you have to hold it in order to take advantage of any appreciation. (Some may take a different view 😅 possibly also speak of a non-appreciation in perspective)...

But how should you position yourself in the future? 100% EUR hedged? 25% EUR hedged? 50%? And: hedging costs money (0.55 to 0.25 for the Ishares heavyweights)

A hedged ETF is certainly the cleanest way to track the performance of companies, as it is likely to remove the currency effects and is therefore the "cleanest" way to track the actual performance of the company.

If you look at the performance of those heavyweights, you can see that you would have done much better with the unhedged one, but that was also at a time when we were systematically moving from a very strong euro to a devaluation. So there was a double benefit there (strong US equity market + strong USD)...

I don't have an answer for you, but would be very interested to hear your thoughts on this...

26 Comments

Epi@Epi

Over the past 80 years, the USD (alongside $TLT ) has been considered a crisis currency, i.e. when US equities fell, investors shifted into USD. This has reduced fluctuations for EUR investors. In addition, we have essentially had an appreciating USD since 2009. Most people here only know this period.
That time now seems to be over. Investors are fleeing US equities and the USD. This is new, there are no models and no concepts for this.

So basically, nobody knows how investors should deal with falling US equities, US bonds and USD. That is why gold is the only rising asset at the moment.

Only this much seems clear: a paradigm shift is currently taking place on the markets (dethroning the King Dollar?). In my opinion, this is likely to make many investors poor and a few very rich. In 10 years' time, everything will seem very clear and simple in retrospect. 🤷

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Tenbagger2024@Tenbagger2024

@Epi
There is simply a lack of confidence in the USA. And the firing of 🍊 against the FED and Powell is taking away the last spark of confidence. The Chinese are driving 🍊 out of bonds. Inflation is driving 🍊 up. And the tariffs are driving 🍊 the economy into a review. Sounds like stagflation, which makes it difficult to cut interest rates. All scenarios that nobody wants.

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Epi@Epi

@Tenbagger2024 Unfortunately. But what does this mean for us investors in Germany?

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Tenbagger2024@Tenbagger2024

@Epi
I think the big US companies are very resilient. And in the long term, we will survive the crisis and so will the market

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Epi@Epi

@Tenbagger2024 Well, we're all dead in the long run. 😅
It took DJI 25 years to get back to 1929 levels. MAGA!

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Tenbagger2024@Tenbagger2024

@Epi
Stop scaring me 🙈🙈

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Epi@Epi

@Tenbagger2024 Sorry, then ignore the MAGA.

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Mo@BigMo

@Tenbagger2024 If you went all-in at the peak of the Great Depression, it actually took 25 years to get back to the initial price.
With monthly DCA over the entire downturn, however, only 16 years 😂🤷
I am very skeptical whether the loss of confidence in the USD will continue consistently if a real crisis in the rest of the world turns out to be much more dramatic than in the US...
Things aren't looking too rosy in Europe, especially when it comes to the demographic problem.
I certainly don't trust the Chinese with anything.

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Tenbagger2024@Tenbagger2024

@BigMo
In contrast to the Great Depression, this crisis is handmade and could end quickly.

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Mo@BigMo

@Tenbagger2024
I don't believe in a Great Depression scenario in this form either.
Perhaps there will be a bear market rally in tariff deals.
But I think Trump has pricked the bubble and we still have room to go down...

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Tenbagger2024@Tenbagger2024

@BigMo
I also think that it has not yet bottomed out. But the lower it falls, the greedier investors become.

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View all 5 further answers

Soprano@Soprano

One point that I would like @Epi to explain to me again in his thesis on dollar devaluation is the question "devaluation compared to WHY?". Epi's whole post sounded extremely sensible at first, but now I've slept on the core statement for a few nights and it doesn't quite make sense anymore.

We are not really interested in whether the dollar depreciates against gold or even soft currencies on the forex market, but only in the relationship between the dollar and the euro, as most of us are paid in euros and also have to settle claims in euros.

Here in particular, however, we do not have such long data series as the post suggests to prove a cyclical fluctuation. After all, the euro is still a relatively young currency. In addition, the euro, like the dollar, is under strong pressure to depreciate, as the countries in the eurozone are also keen to reduce their financial debt.

This is why the ECB is constantly lowering the key interest rate, even though the creditworthiness of the euro countries should not allow this at all. But who wants to argue with the central bankers?

In my opinion, it would be interesting if @Epi could express a few thoughts on this again in a follow-up post or in the comments section. Specifically, my point is that I think he forgot to subtract the depreciation of the euro from the depreciation of the dollar. If the dollar depreciates by -30% but the euro depreciates by -20%, the relative depreciation is of course only -10%. In my view, it is not serious to treat the euro as a completely stable reserve currency in the current situation.

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Epi@Epi

@Soprano Your thoughts are basically correct. Taking them up, explaining them, refuting them, etc. would have turned the article into an event for specialists.

In general, I have oriented myself to the USD index, which tracks the USD against a basket of currencies, the largest of which is EUR, then JPY, pound, CHF.
When we talk about USD depreciation, we mean a loss in value against this basket. The general value of the basket plays just as little a role as the different fiscal policies. It is a purely relative story.

The absolute values compared to the EUR and the former DM differ somewhat, but the fundamental cycles are also the same for the USD Index and USD-EUR, which is due to the high weight of the EUR in the USD Index basket.

Finally, EUR investors are only interested in the depreciation of the USD against the EUR. I have looked at these cycles accordingly.

So: the statements in the article remain valid despite the fundamental correctness of your considerations.

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Soprano@Soprano

@Epi Thanks for the clarifications. I can still do something with it. I had already thought that it would primarily be a basket of currencies made up of the currencies mentioned, and in the past with DM and francs instead of EUR.

Overall, I would therefore conclude that your considerations are still fundamentally correct. However, with the caveat that the forthcoming devaluation could be at the lower average, as the reference currencies will be softer in 2025 than they were 40 years ago.

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Epi@Epi

@Soprano It is not so much the softness of the EUR that matters, but the relative difference in softness between the EUR and the USD.
If the EUR is soft but the USD is super soft, then the USD will fall against the euro.

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Tenbagger2024@Tenbagger2024

@Soprano
But I usually buy and sell in euros as well. And therefore it shouldn't really matter

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Soprano@Soprano

@Tenbagger2024 It's about shares that you already have, for example. You certainly won't be able to sell them as well in the event of a devaluation because you'll get fewer euros for them.

At that moment, of course, you could buy them cheaply, but the minus is in your portfolio for the time being.

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Gehebeltes-EFH@Gehebeltes-EFH

Gerd Kommer: "There is a broad consensus in the academic literature that exchange rate hedging in a globally diversified equity portfolio does not generate a systematic, i.e. sufficiently reliable advantage (see some of the articles in the box at the end of this blog post as examples). This is probably the reason why the proportion of globally diversified equity ETFs with currency hedging is very low."
https://gerd-kommer.de/wann-ist-waehrungsabsicherung-sinnvoll/

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devnerd_daddy@devnerd_daddy

For some time now, I have been looking for individual stocks of companies that do not trade in USD. Turning away completely because of the madman would certainly be exaggerated and stupid, but I think it makes sense to weigh up the risks. Currently, the cloud market in the EU looks quite good and there are good companies here. I have been invested in $AI for a long time, $A5G is also doing well. I like $NU, I also see $UTDI (although I am an MA myself) and $DTE is also well positioned. So you can diversify in Europe and focus on strong stocks at the same time.

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Silas W.@DynasticGrind

But you all know that the USD has no longer been the world's reserve currency since 2020, right? It has clearly been overtaken by four-ply toilet paper, which is why the particularly resourceful Germans have invested all their worthless fiat euros in this new crisis currency. Including myself! I recently took a wheelbarrow of it to a sports store to buy a heart rate monitor. But my deal, "Charmin for a Garmin", was rejected because the denomination was just absolutely enormous, as if I wanted to pay for an iced coffee with a whole $BTC. I've still got the whole cellar full of them and am slowly running out of space. If I don't get rid of it soon by buying a Ferrari, for example, the next few years are going to be a real shit time.

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Dominik@Dominik_76

The question of the dollar was also recently discussed in a podcast by the Buy the Dip Finfluencer: https://www.youtube.com/watch?v=gKkXBvmQF0k from minute 40 onwards

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