The U.S. Dollar and Domestic Investments

TruePoint Capital

Have you ever worked in an office with an erratic coworker?  One minute, they’re up and they’re fun to be around, but the next minute, they’re to be avoided at all cost.  You never know what is going to trigger this person, but the slightest nuisance could send them off the rails.
​Let’s call this coworker Chris for convenience.  With Chris, the bad times always outweighed the good times and the smart workers knew to avoid Chris.  The unwise workers liked the thrill of seeing the fun version of Chris even if this version was rare and at the risk of seeing Chris’s ugly side.  Sometimes Chris would even turn on these workers and take all their frustration out on them but these workers never learn their lesson.  They still choose to play with fire by going near Chris.  The smart workers know better – choosing to surround themselves with more consistent and successful colleagues.

​Playing the stock market is like working with Chris.  The bad times outweigh the good times and you never know what’s going to set off the next tailspin.  In the latest round of news that’s putting the stock market in a bad mood and impacting stock portfolios, it’s the strength of the U.S. dollar of all things impacting domestic stocks.

The U.S. dollar is at a 10-month high compared to a basket of big and small Asian currencies. It’s so high, in fact, that Japanese and Chinese central banks have come out with statements, warning that they’re ready to defend their currencies.

​​Theodora Lee Joseph, CFA, “A Strong Dollar Is Bad News For Other Currencies, But Could Be Good For You,” (Sept. 6, 2023),

What’s behind the strong U.S. dollar?

​​High interest rates in the U.S. have been driving much of the strength of the dollar (because higher rates add to the allure of a currency among international savers and investors). The side effect of the U.S. dollar is the foreign demand of U.S. goods.  For U.S. companies that export internationally: their products will cost a lot more abroad, which could weaken their demand.  Weakened demand impacts the bottom line, which translates to lower stock prices.  This week, Apple saw first hand the impact weakened demand can have on a company’s share price.

Perhaps in a move to boost its own currency, China reportedly banned officials at central government agencies from using or bringing iPhones and other foreign-branded devices into the office.  Boosting domestic demand for Chinese goods while weakening demand for U.S. goods is one way to boost the Yuan vs. the U.S. dollar.  The move weighed heavily on Wall Street indexes, with Apple shares falling 3.6%.  Like dominoes, as one stock falls, others follow – dragging down the entire market and investor portfolios at the same time.

Like the office workers who avoided Chris, smart investors avoid an erratic stock market that can be impacted by any of a number of factors that can send the whole market spiraling downward.  Smart investors prefer consistent and reliable returns that are insulated from the tiny triggers that can set Wall Street off and tank a portfolio.

Wise investors avoid uncertainty and avoid putting the fate of their portfolios in the hands of seemingly random outside factors.  They don’t let things like currency wars dictate the value of their portfolios.  They refuse to let outside forces tank their financial independence and impact the quality of their retirement.  They eliminate the fear and uncertainty of the markets by not investing in the stock market.  While investing public frets over exchange rates, inflation, interest rates, recession, or whatever other economic or geopolitical trigger, smart investors gravitate towards investments like real estate that are insulated from market volatility.

Ironically, the strength of the U.S. dollar – while detrimental to domestic companies like Apple that rely on foreign demand – has been beneficial to real estate investors at home who are finding more bargains as domestic real estate becomes more costly for foreign investors.

While foolish investors continue to ride the stock market roller coaster, wise investors prefer boring.  They prefer tried and true assets like commercial real estate (CRE)  that are insulated from market drivers because of their illiquidity.  Because CRE cannot be unloaded at the drop of a hat like stocks, the value of CRE is protected from market volatility that can impact stocks in an instant.

So, while stock investors constantly worry about what’s around the corner that’s going to tank their portfolios, smart investors allocate to private cash flowing alternative assets like CRE to ignore the noise of the public markets.

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