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America is Hot. Other Countries? Not So Much

America is Hot. Other Countries_ Not So Much

There’s a truism about markets—everybody is a genius in a bull market. As we’ve seen in recent months, the geniuses are now down on their luck, and many are heading for the door.

Just ask Cathie Wood at ARK Invest, the growth stock money manager is down so bad that she’s demanding to talk to the manager—we mean, the Federal Reserve (which in a way is a monetary manager for America.)

This truism is proving its value outside of the market, too. Americans might dog America for being… well, America. At times, it’s even easy to do so—it’s expensive to live here, the healthcare isn’t free, political life can sometimes be jarring, and it’s not always easy to keep up. However, America has come out on top amid renewed global instability.

In short, a lot of places in the industrialized world looked pretty great before COVID-19. After it, the geniuses are a little quieter—and the real winners are clearer.

You might not feel like much of a winner looking at U.S. stocks or bonds, but as we observed in our Friday edition—the markets are not the economy, and the markets don’t always reward healthy outcomes.

One chart tells the story, though: the Dollar Currency Index. This index tracks the value of the Dollar against other world currencies; it hasn’t been this high since the 1950s. The index recently notched a 20-year high.

DXY performance over time

Graphic Via [TradingView]

That means that if you’re an American, your Dollar now goes further in other countries than it has in over a generation—and to make matters even more interesting, U.S. money printing has returned to pre-COVID levels. There’s even a chance it could start going the other way.

When you juxtapose the unprecedentedly strong Dollar in a global sense, along with America’s decades-low unemployment, it’s hard to see the recession that everybody has been fretting about. However, the bipartisan stimulus efforts to shore up America’s economy during the pandemic is largely to blame for the inflation according to economists, including economists at central banks branches like the San Francisco Federal Reserve Bank. In March, four economists penned an economic letter where they blamed fiscal policy for higher inflation.

And zero-interest rate policies helped us to the inflated valuations that we see today. That’s why we see markets and bond valuations falling, but payrolls and other leading indicators staying steady or even rising. That might not last, but the trend has not broken yet.

Alarmism about the economy is more pervasive than the alarmism about institutions, systems, or strength because it’s the most important political issue in every election—and odds are, you’ve been seeing a lot of alarmism about inflation, recessions, and the health of the economy. That’s convenient with an election less than a month away, but it’s news designed to part you with your money—the reality is that the U.S. hasn’t been this strong globally in over two decades.

While Europe fights the cold this Winter, Ukraine fights Russians in a real war, and China continues to fight COVID in a continuation of its zero-COVID policy, the United States might be part of a handful of countries fighting data points—not real people, energy crises, or global pandemics (at least, from what we can glean right now.)

Bare that in mind as earnings season starts this week. It might not be pretty, but it might be the best that the world can muster.

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