In case you missed it, the post-Election Day U.S. dollar rally really freaked out a lot of people the mainstream media.
After the dollar surged 5.5% from Donald Trump’s November victory to the late-December highs, more than a handful of financial stories argued that a stronger U.S. dollar is bad for the American economy. That’s misguided. The dollar has backed off its highs recently, so the elevated blood pressure in newsrooms across the country has settled.
But hold on.
Expect a “gradual climb” in the dollar like we had in the 1990s, says Hedgeye CEO Keith McCullough in the video above. In fact, looking at the U.S. dollar over the last 40-years is deeply instructive.
“There are plenty of analysts who have only been in this business of reflating the deflation using the dollar,” McCullough says. “But, if you’re a student of history at a bare minimum you’d respect that the dollar can go up in a very violent fashion, like it did in the 1980s under [Fed chair] Paul Volcker.”
Break out the Lipitor journos.
“All these people in the mainstream media talk about 16th century economics, ‘Oh, it’s going to hurt exports.’ Exports are 13% of the U.S. economy. This is a service economy and you get paid in dollars.”
In other words, when the dollar is strengthening, American consumers can buy relatively cheaper foreign goods.
“That’s why when the dollar goes up, real purchasing power goes up and real GDP goes up,” McCullough says, in stark contrast to “the effervescent hope in demand-based QE economics and the illusion of growth.”