OTW #66: U.S. seizes assets, risks dollar; Gold miners still cheap, & more.
Important financial events and data to check out over the weekend
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1. Seizing assets. Risking dollar.
The U.S. made a seismic policy decision that major financial news publications largely shrugged off.
Last Tuesday, Congress passed the REPO provision, which gave President Biden new powers to seize Russian dollar assets and use them to aid Ukraine.
Antagonist’s take
Let me first stress that The Antagonist is a financial publication, NOT a political commentary. I only discuss policy decisions when they directly impact the financial markets and, consequently, your portfolio.
The potential repercussions of the REPO provision on the dollar, global markets, and the financial status of the U.S. on the international stage cannot be overstated.
To appreciate these risks, we first need to understand the massive advantage that the U.S. enjoys because of the dollar’s status as the world’s reserve currency. Here are just a few examples:
Lower-borrowing costs: The U.S. can borrow money at lower interest rates, reducing costs for taxpayers and improving public services.
Currency stability: The dollar’s wide use stabilizes global transactions, which reduces costs for American companies and consumers.
Economic influence: The U.S. can shape global economic policies to favor its interests, impacting trade and sanctions.
Investment inflows: Global trust in U.S. assets boosts the stock market and lowers business costs, which aids economic growth.
Consumer benefits: A strong dollar makes imports and travel cheaper, enhancing the standard of living and purchasing power for Americans.
All these advantages hinge on trust, however. If countries no longer trust that it’s safe to keep their reserves in U.S. dollars, the currency’s reserve status will be threatened.
This isn’t fear mongering either.
To see what I mean, consider the REPO provision, but ignore politics and even your feelings toward the countries involved. Think about the situation purely based on principal.
The U.S. just ruled that not only can it seize (not simply freeze, but seize!) another country’s assets but it can also give those assets to that country’s enemy.
If you were leading another nation, would this make you trust the United States’ role as the world’s banker?
Even before this policy decision, multiple countries were already calling for a new, “de-dollarized” system that would make them less dependent on the dollar.
Seizing Russia’s assets could prompt nations like China—the biggest holder of U.S. Treasuries—to accelerate the process of de-dollarization if it decides it’s no longer safe to keep its reserves in U.S. dollars.
That could be catastrophic for the U.S.
For decades, both political parties have funded their policies through massive debt and deficit spending. That has only been possible because of the world’s trust in a dollar-denominated system.
If the U.S. weaponizes the dollar for geopolitical reasons, however, it will only add urgency to the call for a competing reserve currency and system.
2. Gold miners still cheap.
Even with gold’s recent incredible rally, gold miners remain cheap. This chart suggests that these stocks are close to breaking out, however.
Also, on last week’s episode of Macrovoices with
, Alex Gurevich offered a strong argument that gold is still NOT overvalued.Gurevich considered mining companies’ costs and concluded that gold prices will need to rise even more to incentivize building new mines to increase production capacity. If he’s correct, that’s good news for both gold prices and gold mining stocks.
Antagonist’s take
I remain very bullish on gold and gold miners. There will likely be pullbacks in the near term, but I see those as buying opportunities.
If you don’t hold any gold positions, I encourage you to consider allocating at least a portion of your portfolio to them. For specific ideas, check out the Antagonist Blend Portfolio.
Last thing...
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Thank you for reading, and have a great weekend!
Jason Milton
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