The Dollar’s Decline: What It Means for Investors and the Economy

Well, the Trump administration and Wall Street are starting to agree on one key issue, America's trade deficits are a problem.

In April, the US trade deficit was cut in half, mainly because companies stockpile goods ahead of Liberation Day tariffs.

However, many investors who are concerned about the tax and spending bill see a link between the trade and fiscal deficits.

Trade is central to this.

America borrows from foreign nations when there's a gap between imports and exports.

The trade deficit has been building since the 1990s and.

Lending from foreign investors to the US does not show up in external balances because there is no net increase in liabilities.

Well, joining me this morning to weigh in is Luke Lloyd, president and CEO of Lloyd Financial Group.

Well, Luke, great to have you back on the show.

We are looking at the major stock averages opening in negative territory today, but of course when we think about all the issues, the macro perspective, where do you stand and what does this mean not just for Wall Street but also for Main Street?

Well, it's interesting.

Let's focus on the dollar kind of like you were talking about.

Let's focus on the trade deficits.

Let's focus on global tensions.

Uh, let's focus on the deficit spending.

I mean, it's very interesting.

Look at the US dollar compared to other currencies.

I think we're at a 7 week low compared to the euro and like a 3 year low, essentially, lowest we've been since like 2021, 2020 on the DXY index.

So what I'm looking at from a macro perspective, it feels like a lot of the asset allocation.

This year, if you look at international markets, it's gone to international markets.

It's all the money flow has gone elsewhere outside of the United States.

I think maybe 6 or 7 months ago I was sitting in the stock exchange.

I think we talked a lot about international.

I think the international spots are still a very hot spot to be.

I'm going to have, I have clients in Mexico.

I have clients in South Korea.

I have clients in Argentina.

I have clients in Mexico, India, all.

These spots, I think, is where the money's going because of the weak dollar, because of everything you just cited, you know, the deficits we're seeing, the trade deficits, deficits in America, and also the fact that I think we're going to get lower interest rates from the macro perspective.

I think the Federal Reserve is extremely late to the game when it comes to rate cuts.

They were late on the first round, hiking interest rates in 2022.

I think they're late again this time around on the cutting side.

Yeah, and I'm glad you brought that up, Luke, because next week is the June meeting.

It's hard to believe it's that time of year already, but we do get that recision as well as SEP from the central banks.

So not just looking ahead to the second half of this year, but in terms of the long term, what do you expect for the central bank?

And while we're on the topic of the Fed, what do you expect to see when it comes to the leadership?

Yeah, uh, very interesting stuff going on there.

So let's focus on the first part there.

Um, I, I think we'll probably get 3 rate cuts, maybe 4.

I think we should get 4 or 5 rate cuts this year, maybe in the 25 basis and be down a full point, uh, by the end of this year.

Um, do I think that's actually gonna happen?

I don't think we'll get 5 or 6 or 4, but we probably will get 3.

So as an investor, you have to Make sure that you allocate money into what is actually going to happen, not what I think should happen, right?

So, um, the PPI this morning came in a lot lighter than expected.

CPI came in yesterday.

I wrote in my newsletter this morning that this is basically a double tap on inflation, saying that inflation is kind of beat.

We don't have to worry about inflation, but you also saw the jobless claims come in a little higher than.

Usual, I think it's at like a 3 year or since late 2023, it's at the highest jobless claims it's been in two years.

Um, that's concerning.

So you have a weakening inflation, you have uh maybe a weakening job market.

I think the Federal Reserve needs to cut rates.

They probably will do three rate cuts, but at the same time, the question we need to ask is, is the economy slowing?

If the economy is slow.

We have to consider that from an asset allocation standpoint, and I was right for a couple of months at the beginning of this year.

I was very hot on the equal weight S&P 500 outperforming the cap weighted index because of maybe a slowing economy.

That was great during the 20% decline we saw in the stock market during the tariff situation.

Ever since then, the market's recovered, but heading into the end of this year, I think it's going to be the same story we saw for a couple of months.

Equal weight S&P 500 rate cuts is going to benefit the smaller cap companies.

Those are going to do better than those large cap names that benefit, frankly, from a high rate environment because most people think technology, big tech stocks do well with lower rates.

They do better with higher rates because they have so much cash in their bank accounts, they're making 5% on their cash, and it's earning, adding actually earnings to the bottom line at this point.

Yeah, and Luke, while we have you here, we only have time for one more question, but I do want to ask you about what we're seeing in bonds, especially ahead of today's 30 year auction.

So we got the 10 year auction yesterday and this morning on the heels, as you mentioned, of that benign inflation data we're looking at.

Tenure lower around the 4.36 level.

So we're keeping a close eye on the long end as well as the short end.

A Wall Street Journal article today saying we've seen this Bond movie before.

I'd love to take credit for that, but I can't.

So have we seen this before?

That's funny.

Um, so if you look at a lot of these large asset allocators, some of the billionaires even out there, hedge fund managers, a lot of them are very, very outspoken that, um, they're short long duration bonds.

They're short the long end of the curve.

I actually don't agree with that.

Um, you know, there's a lot of risks out there that they cite, whether it's all the deficits we have in America, the fact that we got downgraded in our debt, uh, from the AAA rating a couple weeks ago, that was kind of big news. that kind of drop bond yields.

I'm in the camp that the Federal Reserve also, the whole economy is built on this debt Ponzi scheme, and rates need to go lower to allow the system to work.

I mean, people cannot afford 7% mortgages.

People can't afford debt at these interest rates.

That's not how this economy was built ever since we got off the gold standard in 1971.

So the long end of the curve, I actually like the longer duration, whether IEF ETF, TLT, two ones that I own for my clients.

The longer duration you go, I think you actually have maybe a better trade opportunity for some alpha in your portfolio compared to even the equity side.

So I like long duration.

I think that long end of the curve of the curve is going to come down.

I think the cracks in the job market, the low inflation is actually more important right now currently for the short term than maybe some of the debt issues we have in America and global tensions.

OK, Luke, well, thank you so much for joining us.

We'll see how that 30 year auction goes today and we'll see you here at the New York Stock Exchange in about 2 weeks.

Thank you.