By Mike Sorrentino, CFA, Chief Strategist, Aviance Capital Management. Reprinted by permission.
The U.S. dollar (USD) plays an integral role in global economic activity, so its value relative to other major currencies is watched very closely. Over the last several months, the “greenback” has fallen, and given its importance, investors are now starting to ask if an extended period of weakness will adversely affect their nest eggs.
To make matters worse, anytime the dollar weakens by more than a few percentage points, the fearmongering ramps up around two frightening outcomes:
- Imminent Crash: A weaker currency will drive our economy into a deep depression.
- Reserve Status: China or some other contender will take over as the world’s reserve currency and cause the value of dollar-denominated assets to fall apart.
Don’t believe me? Conduct a Google search on the subject, and you will be inundated with tall tales of an impending dollar collapse. Some have even filmed videos that look like fake talk shows in the same manner used by TV infomercials in the 1990s (until the government banned many of them).
The world does not end all that often, so before we discuss the implications of the recent dollar weakness, let’s first deal with the doomsday rhetoric. [Read more…]