Why I have consistently backed the dollar

Published on 2015/11/24
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What follows is an unedited article which was published at the start of January 2015 in the IMMOBILIEN NEWS and in my FINANCE BLOG. In the article I outlined why I have been backing the dollar for many years.

As much as ever, I believe that short-term currency predictions are problematic, if not even impossible to make. In the long-run, however, it is perfectly possible to predict currency movements.

Following his election in 2008, many hailed Barack Obama as a political messiah. He was awarded the Nobel Peace Prize even before he had actually achieved anything. In Germany he has largely been able to retain his positive image. The exact opposite is true back home in the United States, where he not only attracts extreme criticism from Republican sympathisers, but also from a large number of his former supporters. Hillary Clinton is one of his severest critics. She has been very clear on why she couldn’t serve longer as Obama’s Secretary of State. His administration’s policy towards Syria, which she sharply criticised last year, is just one example of Obama’s total failure to deliver on his earlier promises.

In contrast to the many “finance experts” who constantly issue new recommendations, I have been the consistent proponent of the following three opinions and have made my own investments entirely in tune with these opinions:

  • More than 10 years ago I urged the following: Invest in apartments in Berlin. In my current book “Financial Freedom: How to Create Wealth and Hold onto It” (“Reich werden und bleiben“) I provide the example of an apartment building that I bought in Berlin in 2004 for €1 million and sold in 2015 for €4.2 million.
  • For the first time 10 years ago I also recommended buying gold. At the time, the gold price stood at around €11,000 per kilo: the price has since tripled.
  • Since 2012 my advice has been to invest in U.S. real estate and the dollar. In October 2012 the Euro was worth USD 1.30, in January 2015, as I reaffirmed my recommendation, it was at 1.20 USD, and now it is around USD 1.07.

No-one who has based their investment strategies on these three recommendations will have any regrets today. Here once more is the unedited article from January in which I explain why I back the dollar:

“The headline on the front page of the WALL STREET JOURNAL in its January edition: “Dollar Surges to 11-Year High Against Biggest Rivals.” The article continues: “Investors snapped up dollars pushing the greenback to its highest level against major currencies since September 2003.” The strength of the dollar has been making headlines in Germany too, rising to a four-and-a-half-year high against the Euro
On 22 October 2012 I published a substantive article with the following title: “The Euro Will Either Be Weak or It Will Not Be at All: The Future of the European Currency.”

I used the article to develop two scenarios:

“Scenario 1: European politicians will hang on to their political pet project of the euro “at any cost.”… The outcome will be a very weak euro.
Scenario 2: The centrifugal forces will be so powerful as to pull the monetary union apart despite any bailout attempt.…
Currency forecasts are always fraught with great uncertainty, especially short-term ones. And yet I would like to venture a prediction: The Euro is overvalued at the moment because financial markets always respond enthusiastically to short-term monetary policy measures from central banks, while ignoring long-term issues. This translates into opportunities for investors with a long-term investment horizon…” My recommendation to investors with a long-term horizon was to diversify their currency portfolios.

I have used this platform to repeatedly recommend investments in U.S. real estate. And I don’t just give advice, I live it. For some time now I have been investing more than a third of my own money in dollar investments.
Admittedly, the Euro’s downward spiral and the dollar’s strong upward march cannot continue unbroken forever. Nevertheless, I still view the USA as having much stronger fundamentals and better long-term prospects than Europe:

  • The banking crisis has been much more rigorously dealt with in the USA.
  • Unlike Europe and its Euro, the USA doesn’t have the stigma of an artificial currency.
  • The USA has demographics on its side and is growing, while Europe shrinks.
  • The USA continues to be more innovative: All of the most successful inventions over the last decade have emerged from the USA, not from Germany: iPhone, Amazon, Google, etc. As far as patents are concerned, it’s as if the rest of the world has fallen asleep.

Of course, the USA also has significant problems battling national debt and budget deficits, and they have a weak president. Nevertheless, I remain optimistic for the USA and restate my recommendation that you should invest a significant proportion of your money in the dollar.” That was my contribution from January 2015.

About the Author

Dr. Rainer Zitelmann is one of the leading experts for the strategic positioning and communications of companies.