Every day in the world of global economics, foreign currencies compete for global investment opportunities in an ever-complex web of government rules and tariffs which determine the winners and losers across the globe.
Why and how a sovereign nation chooses to do business with other countries depends on the strength and stability of each country’s respective currency.
Today, the US dollar is considered the “reserve” currency in the world. The US dollar began its global reserve status in 1921, after Britain’s pound sterling lost its status in 1920 (Source: Double Line). Being the “reserve” status for a currency brings lower exchange rate risk and greater buying power.
The downside is that artificially low interest rates and out of control deficit spending can spur asset bubbles.
This is now the multi-trillion dollar question: What happens when the United States government can no longer continue to spend beyond its means?
The United States government has adopted a bailout mentality since the 2008 great recession with the start of QE1 (quantitative easing). Since 2008 the US dollar money supply (M2) has increased by roughly 157%. On an annual basis, this represents a true inflation rate of the US dollar of over 13% per year. By comparison, Venezuela has increased their money supply 225% in a short 18 months causing hyper-inflation and a destabilization of their government.
Prolonged US dollar weakness against the major trading partners’ currencies, accelerating budget deficits brought on by a government bailout mentality, and continued quantitative easing by the US federal reserve are all causing investors to question how much longer the US dollar will be the reserve currency of the world.
You may be asking yourself: “What can I do?” There are steps you can take now, that may provide a life preserver for you and your family in the future. As with all investments, please discuss with your financial adviser before making any decisions to invest.
Buy Precious Metals
Initially in 1941 when the Bretton Woods Agreement was created, the US dollar was fixed to gold at $35 US dollars to an ounce. Adjusted for inflation that same ounce would be worth $498.08 in today’s dollars. Since gold was removed as the backing for the US dollar in 1971, the total number of US dollars has grown without any checks and balances.
Today, the value of an ounce of gold is over $2,000 US dollars. As a result, investors are concerned that any USD dollar denominated assets may depreciate as the dollar weakens. Not surprisingly, the headlines in the WSJ on 8-18-2020 reported that Warren Buffet, a long-time skeptic of gold and silver investments, invested over $500 million into gold mining company, Barrick Gold.
Buy Commercial Real Estate
As demand begins to surge for goods and services in the post-COVID-19 shutdown, this sustained surge in consumer spending may be the trigger which causes high inflation, according to Michael Levy, chief economist at Berenberg Capital Markets.
Should inflation start to accelerate, commercial real estate provides a strong hedge. As the price of goods and services increase, so does the ability to charge higher rents in keeping up with inflation. Provided these leases are structured correctly, there is a tremendous opportunity to keep up with inflation, and also accelerate the paydown of any fixed interest rate commercial debt on these assets.
Recentric is currently heavily weighted in health care real estate in part for this reason.
Buy Assets Backed By More Stable and Fiscally Responsible Countries
Any USD dollar denominated asset such as pensions, stocks, annuities, and bonds will be directly affected by a weaker dollar and higher inflation. In fact, the world’s strongest currency against the USD is the Kuwaiti Dinar. The exchange rate is currently 1 KWD = 3.28 USD. Consult with an investment advisor who specializes in international investments and foreign currencies.
As the United States’ global trading partners continue to scrutinize the fiscal policies of our country, the US dollar continues its decline in purchasing power and overall appeal as a safe haven in times of crisis. This debasing of the US dollar domino effect will continue to erode the confidence of international investors.
It is time to start to heed these warnings and prepare for the obvious warning signs.
Contact us today if you’d like to hear more about our strategies in health care real estate investments.
Recentric continues to look for development and acquisition opportunities to meet the growing demand for larger, out-patient medical facilities. This strategy allows us to take advantage of the growing need for these facilities and offer new and exciting opportunities to our current and future investors.