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🍋 What Does a Strong Dollar Mean?

🍋 What Does a Strong Dollar Mean?

Short Squeez
July 18, 2022

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"Any product that needs a manual to work is broken." — Elon Musk

Good Morning! Hope y'all had a nice weekend. Inflation is hitting everything, and on Aug. 23, ESPN+ will go up from $6.99 to $9.99. Folks in China may have to budget a step up like that, as lockdowns have all but halted growth, with the economy expanding 0.4%. That's even lower than the Fed's expected move of a 75 bps rate hike, as officials lean away from a full point increase. ETFs are leaning in during these crazy times, as single-equity ETFs launched Thursday.

Through ALAO, you can invest in brands you believe in alongside celebrities that you love. Click here to get early access.

1. Story of the Day: What Does a Strong Dollar Mean?

The folks at the Fed definitely don't have it easy. There's always haters and folks who'll say, "I told you so," when it comes to essentially everything they do. Well, the recent rate hikes have launched the US dollar to 20 year highs, and this could prove to be tough for the economy.

Currency values fluctuate for many reasons like trade flows, budget deficits, appeal to foreign investors, and, you guessed it, central bank moves. These higher rates could put a cap on oil prices, and foreign imports could get cheaper (helping with inflation). On the flip side, it will make the cost of exports out of the US higher for foreign customers, which could hurt sales.

Jon Turek, founder of JST advisors, believes that given high inflation and elevated commodities, investors should be wary of a dollar "doom loop" like never before. "What makes this version of the doom loop really scary is it's kind of hard to see how those circuit breakers play out over the near term," Turek said.

In 2016 and 2018, we observed some significant dollar strength. However, the currency's increase in value slowed when the Fed looked to tighten policy, and stopped rising when policy changes weren't being made. Given where inflation is at, it's not clear what other "circuit breakers" would be able to prevent a dollar to the moon.

Short Squeez Takeaway: Even though we are in "unprecedented" times these days, all we have to learn from is history. Unfortunately, the history is about as exciting as 7th grade social studies, as the theme has been a strong dollar usually leads to a struggling global economy.

2. Markets Rundown

Stocks finished the week strong from a selloff the day before and mixed earnings results from banks.

Movers & Shakers

(+) Pinterest ($PINS) +16% on news that Elliott Management acquired a more than 9% stake.
(+) Citigroup ($C) +13% thanks to an earnings beat on top and bottom lines
(–) Sunrun ($RUN) -6% after it was reported Sen. Joe Manchin would not support a bill increasing spending for climate change initiatives.

Private Dealmaking

MTN to buy carrier Telekom for $1.3 billion
Ericsson receives US clearance to buy Vonage Holdings for $6.2 billion, aiming to take 5G into space
Nyobolt, an ultrafast battery charger manufacturer, raises $59 million
Robin, a boston hybrid work management platform, raises $30 million
Apiture, a software manufacturer for regional banks, raises $29 million
Supermojo, a buy-now-pay-later NFT platform, raises $6 million

3. Top Reads

People have money but feel glum -- what that means for the economy (WSJ)
IMF to cut global growth outlook substantially at next review (BB)
Musk’s inner circle rocked by fight over $230 billion fortune (WSJ)
US economy careems between glee and gloom with each data release (BB)
Lawsuit claims skittles are unfit for human consumption (Fox)
Cities are paying tech workers to leave Silicon Valley -- and it’s working (WSJ)
Ice cream is suffering from two scoops of inflation (Axios)
Inflation has outpaced wage growth and is cutting into spending (WSJ)
Millennials’ and Gen Z’s days of remote work could be numbered (CNBC)
Global investors exit China as Xi’s policies backfire (BB)

A Message from Alao Invest

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4. Book of the Day: Collective Illusions: Conformity, Complicity, and the Science of Why We Make Bad Decisions

The desire to fit in is one of the most powerful, least understood forces in a society.

Todd Rose believes that as human beings we continually act against our own best interests out of our brains’ misunderstanding of what we think others believe. A complicated set of illusions driven by conformity bias distorts how we see the world around us.

From toilet paper shortages to kidneys that get thrown away rather than used for desperately needed organ transplants, from racial segregation to the perceived “electability” of women for political office, from bottled water to “cancel culture,” we routinely copy others, lie about what we believe, cling to tribes, and silence others.

We are so profoundly social that when we are incongruent with the group that we do lasting damage to our self-worth, diminish our well-being and never realize our full potential. It’s why we all too often chase the familiar trappings of money, fame, and success that leave us feeling empty even when we do achieve them.

It’s why we’ll blindly espouse a viewpoint we don’t necessarily believe in so that we blend in with the group. We trap ourselves in prisons of our own making that prevent us from living the happy, fulfilled lives we envision.

The question is, why do we keep believing the lies and hurting ourselves?

Todd Rose reveals the answer is deeply hard-wired in our DNA, with brains that are more socially dependent than we realize or dare to accept. Most of us would rather be fully in sync with the social norms of our respective groups than true to who we are.

Using originally researched data, Collective Illusions shows us where we get things wrong and just as important, how we can be authentic in forming our opinions while valuing truth.

Rose offers a counterintuitive, empowering, and hopeful explanation for how we can bridge the inference gap, make decisions with a newfound clarity, and achieve fulfillment. Only then can we transform ourselves, and ultimately, society.

“So much of our thinking about each other is informed by false assumptions that drive bad decisions that make us dangerously mistrustful as a society and hopelessly unhappy as individuals.”

5. Short Squeez Picks

Tired of having to use 5 different apps and 10 spreadsheets to monitor your investment portfolio? With Delta Investment Tracker, you can get a clear overview of everything that you own in one app. Check it out today!
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6. Daily Visual: Valuations Down and to the Right: Affirm Market Value

Source: Axios

7. Daily Acumen: Unexpected Hardships

The circumstances that lead to sudden, unexpected hardship may lead a person to adopt views that were previously unimaginable.

It’s not until your life is upended, your hopes dashed, your dreams uncertain that people begin taking ideas they’d never consider before seriously.

This was especially true in Germany, which suffered devastating hyperinflation prior to the Great Depression.

The book, What We Knew, interviews German civilians after World War II, seeking to understand how one of the most civilized cultures turned so sharp, so quickly, and committed the worst atrocities in history:

[Interviewer]: At the beginning of this interview, you said that most grown-ups welcomed Hitler’s measures.

[German civilian]: Yes, clearly. One has to remember that in 1923 we had the inflation … nobody had anything, everybody was unhappy. Then Adolf came to power with his new idea. For most that was indeed better. People who hadn’t had a job for years had a job. And then the people were all for the system.

When someone helps you get out of an emergency situation and into a better life, then you’re going to give them your support. Do you think people would then say, “This is all such nonsense. I’m against that?” No. That doesn’t happen. How things were done later on is something else. But the people at that time were happy, even full of enthusiasm, and they all joined in.