As a Canadian, I think that the Washington circus is no longer funny. It has become “very scary”. We came very close to a nuclear war. Tensions regarding North Korea have lessen temporarily and the market sell off could have been a lot worse. So far, investors have ignored the noise coming out of Washington as U.S. corporate earnings have been better than expected.
Canadian and European investors with holdings in U.S. dollars have seen their investment returns reduced by the falling value of the U.S. dollar. For example, my investment club’s U.S. portfolio is up 10.2% as of the end of July. However, it is up only 2.3% when converted into Canadian dollars. The value of the Euro is also up 10% compared to the U.S. dollar.
The recent rally in gold is another sign of a weakening value of the U.S. dollar. A falling dollar not only increases the value of other currencies, it also increases the demand for commodities like gold. Investors buy gold as a hedge against a further weakening of the U.S. dollar.
American investors with holdings outside of the U.S. have benefited the most from a weaker dollar. Corporations that generate revenue outside the U.S. will get an earnings boost from foreign profits. Keep in mind that the bond market doesn’t believe the Trump growth agenda will get passed any time soon. The yield on 10 year treasuries has fallen back to pre-election lows. Returns in U.S. bond portfolios have been positive for American investors.
Biggest Market Risks
- More inflammatory tweets from Trump regarding North Korea
- The resignation of Trump’s key economic advisors, Gary Cohn and Steven Mnuchin
- The Fed increasing short term rates causing an inverted yield curve which historically causes a U.S. recession.
- In fighting within the Republican Party continues and they are unable to pass meaningful economic fiscal policy.
- Trump’s desperation for a win causes him to tear up the NAFTA agreement?
I find this very disturbing:
President Trump’s approval rating is at its lowest since he took office with only 35% of Americans giving him a positive rating, according to a Marist Poll released Wednesday.
Although he is still popular among Republicans, his key constituency, his job performance rating has dropped among strong Republicans from 91% in June to 79% now.
Hard to believe that 79% of Republicans still approve of President Trump!