Every night in 1995, I would deposit money overnight in a different currency…
Sounds strange, I realize.
But back then, as the vice president of a global mutual fund, one of my jobs was to execute our fund's trades.
Once our U.S. trading day was done, we wanted our money to work for us overnight as well. We might put our money into French francs, German marks, or somewhere else – just for the night.
We would find the safest country that was paying the highest interest rate. And we would put our money there overnight. No kidding.
As I'll explain today, what we were doing wasn't anything special…
Big companies like German automaker Volkswagen and Japanese automaker Honda (and thousands of other companies) have cash-management departments that do basically the same thing – on a much larger scale.
I'm sure that hundreds of billions of dollars move this way (if not trillions)… every day.
This money is all looking for the same thing… "Where am I going to get treated best tonight? Where is the safest, highest-yielding place to spend the night?"
The simple investing lesson you need to learn is that money flows to where it's treated best.
It always has. It always will.
Importantly, this simple truism leads us to an investment conclusion that you might find hard to believe: The U.S. dollar could move dramatically higher in the coming months and years.
Take a look at this table of safe countries to park your money in overnight. Tell me, where will money be treated best going forward?
We ask the simple question, "Where will money be treated best?" The answer is obvious: in the U.S. dollar.
The interest-rate difference between the U.S. and the other major "safe haven" countries is downright massive right now.
You know my investing strategy by now… Ideally, I like to buy when three things come together. I want to buy when an investment is cheap, hated, and starting an uptrend.
This investing strategy works for basically every asset class – you just have to figure out how to define these three terms.
When it comes to currencies like the U.S. dollar, we define "cheap" as the best value. The first place I look for value is in interest rates. When you have a difference in rates as large as we have today, it's time to pay attention.
For most of this year, the dollar hadn't been hated enough or in enough of an uptrend to expect a big move. But that changed recently.
After being in a downtrend for most of this year, the U.S. dollar has finally started an uptrend…
This is a new development. It tells me that a major move in the dollar could be starting now.
I know this might sound a little too simple… and maybe a little crazy. But hear me out…
Money flows where it's treated best. And right now, the U.S. dollar treats money better than any other major global currency.
With the uptrend back in place, we could be at the beginning of a major move higher. That makes now the time to position yourself for a stronger dollar.