Are doctors overrated in America
The signs point to dollar devaluation
At the moment, the dollar is overvalued at its fair value according to purchasing power parity, and the euro, on the other hand, is undervalued. Is the dollar so strong, and rightly so?
The US regularly increases its debt level relative to economic output. In absolute terms, they pile up over $ 1,000 billion in new debt every year. That is half of Germany's total debt every year. The USA spends around three percent of its economic output on the interest burden.
For comparison: In Germany, the interest burden is only 0.6 percent of economic output. The US could run the risk - not today, but at some point in the future - of falling into a dangerous negative spiral in interest costs due to too high interest rates. That could weaken the dollar.
The capital market is also noticing that the sale of new US government bonds can only be guaranteed with a renewed bond purchase program by the American Federal Reserve. How could America still stimulate the sale of US government bonds? Maybe a weaker dollar. That would make US investments generally more attractive.
Positive economic effects could also be achieved through a weak dollar. President Trump will therefore try in the first quarter in particular to exert “verbal pressure” on the central bank in order to push interest rates further down. The strength of the dollar in particular is a thorn in his side.
Given the unfavorable development in US debt and the political will of the US President, I would not be surprised by a broad-based dollar weakness in 2020. That would also put a strain on the world share index, as it is weighted to over 60 percent in American stocks. The bitter pill from the point of view of a euro investor: a disappointing performance for US stocks and currency losses.
Although currency forecasts are difficult, hedging the dollar risk against the euro could make sense in the next few years.
The fund manager Gottfried Urban Bayerische Vermögen AG has received several awards for its asset management services.
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