Expectations of a more hawkish Fed have strengthened the U.S. dollar — but according to one billionaire investor, the greenback’s future won’t be full of sunshine and rainbows.
“My long-term view on the dollar remains strongly bearish,” DoubleLine Capital founder Jeffrey Gundlach says in his company’s latest webcast.
“We’re looking at a weaker dollar in the second half of next year, maybe 2023. The dollar is going to go down, thanks to the twin-deficit problem [fiscal debt and trade balance] in the U.S. It’s going to slip pretty mightily.”
The “Bond King” adds that a weaker U.S. dollar could lead to the rise of several assets. Here’s a look at three of them — plus a more exotic asset in Gundlach’s collection.
Gundlach says this quintessential safe haven has been “shockingly stable” when compared to the inflation-fueled rally in other commodities.
Moreover, he predicts the downfall of the U.S. dollar could make the precious metal shine again.
“The dollar being firm this year has been a cap on gold, but when it heads down, gold will go up,” says the Bond King.
And because gold can’t be printed out of thin air like fiat money, it can also act as a hedge against inflation. Gundlach projects that inflation could rise to 7% in the coming months.
To capitalize on a potential gold price rally, investors can always choose to buy gold bullion itself. But mining stocks can also benefit in such a scenario: Barrick Gold, Newmont and Freeport-McMoRan should provide a good starting point for some research.
Gold isn’t the only precious metal Gundlach feels has been ignored, calling gold and silver together “the orphans in the commodity market.”
Silver currently trades at around $22.10 per ounce, which is more than 50% below its all-time high.
Like gold, silver can be a store of value. But it’s also more than a safe haven asset.
The highly conductive metal is widely used in the production of solar panels and is a critical component in many vehicles’ electrical control units. The industrial demand — plus the hedging properties — make silver a very interesting asset class for investors.
You can buy silver coins and bars at your local bullion shop. Meanwhile, companies like Pan American Silver, Wheaton Precious Metals and First Majestic Silver have the potential to outperform in a rising silver price environment.
Emerging market equities
The U.S. stock market has performed extremely well, with the S&P 500 more than doubling over the past five years.
But Gundlach suggests looking internationally.
“When the dollar starts to go down, you’re going to see tremendous outperformance by non-U.S. stocks. Emerging markets will be a very strong performer when that happens,” he says.
He even notes that after the dot-com bust, the outperformance of U.S. equities in the middle of the 1990s “was completely reversed” and the situation “could very well happen again.”
You don’t need to travel to a foreign country to add international exposure to your portfolio. Exchange-traded funds (ETFs) such as Vanguard FTSE Emerging Markets ETF (VWO) and iShares Core MSCI Emerging Markets ETF (IEMG) provide a convenient way for American investors to diversify.
Gundlach is a noted collector of modern and contemporary art, with pieces by Andy Warhol and other famous names gracing his collection.
While he didn’t highlight art investing during his recent comments on the dollar, fine art is becoming a popular way to diversify because it’s a real asset with little correlation to the stock market.
Contemporary artwork has outperformed the S&P 500 by 174% over the past 25 years, according to the Citi Global Art Market chart.
And on a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.