The Only Three Questions That Still Count: Investing By Knowing What Others Don't, 2nd Edition

Weak Dollar, Strong Dollar—What Does It Matter?

Can what you know about supply and demand be applied largely to any freely traded security category? Sure. We can apply it to the dollar and discover still more unnoticed Question Two investing truths (while dispelling more myths).

The poor US dollar can never catch a break. When it’s weak, folks uniformly believe it will lead to our economic undoing. Views down this line are near religious in their conviction. In 2010, there was nonstop talk about the dollar being replaced as the world’s go-to reserve currency. (Folks who say this almost never have a workable solution for what should replace it.)

Investors forget: In the late 1990s, we were all concerned a too-strong dollar would keep foreigners from wanting to trade with us, leading to our economic undoing. Following that logic, what doesn’t lead to our economic undoing? Maybe there is an optimal exchange rate with every other world currency we should aspire to achieve. I don’t know what that exchange rate would be or how we’d endeavor to maintain it in a free market. And I’ll take a free market over a government jigger any day of the week or year of my life. But investors must think such a state of jiggering perfection exists because they love to complain about the dollar and its direction leading us to hell.

Here’s a Question Two: Does a weak or strong dollar even matter? But first we have to hit Question One: What do you believe about what causes currency prices to move that’s ...