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The Fed’s Dollar Debasement Is Spit-Roasting Millennials

Last Updated September 23, 2020 2:09 PM
W. E. Messamore
Last Updated September 23, 2020 2:09 PM
  • Tech stocks, spot gold, and bond prices continue to rise as the Fed wraps its two-day meeting Wednesday.
  • Goldman Sachs expects the weaker dollar to bring $300 billion in foreign investment to the U.S. equities market – and tech stocks especially.
  • While Trump walls off U.S. jobs from fleeing offshore, the monetary-fiscal regime is selling off vast swaths of U.S. equity overseas.

The Fed is dragging the dollar through the ravaged 2020 hellscape  to prop up capital markets. As the tide rolls in and pumps asset prices across the board, it’s leaving millennials high and dry.

Earlier this week, Goldman Sachs predicted a weakening dollar would boost the energy sector and tech stocks.

Diving Dollar Will Entice Foreign Capital into U.S. Stocks

nasdaq, tech stocks, stock market, weak dollar
Tech stocks aren’t really getting more valuable. They’re just getting more expensive. | Source: Yahoo Finance 

Goldman expects the Federal Reserve to push the dollar 5% lower against foreign currencies by this time next year.

That’s on top of a 4% weaker dollar since mid-May. The result? David Kostin, the bank’s chief U.S. equity strategist, said :

We expect foreign investors will buy $300 billion of US equities this year and replace corporations as the largest source of US equity demand. Sectors with a high percentage of international sales typically outperform alongside a weakening USD.

Goldman recommends betting the Fed will continue to sell off vast chunks of corporate America to foreign investors.

Although President Donald Trump doesn’t like seeing his Midwestern voters’ jobs sent overseas, he’s been rooting for the Fed weaken the dollar and incentivize foreign investment  since before the COVID-induced market panic.

That’s locking millennials out of their country’s future.

stock market generational divide
Younger Americans have a smaller and smaller stake in the stock market. | Source: Wall Street Journal 

U.S. baby boomers already have an average household net worth 12x that of millennials . That’s almost double the 7x multiple dividing comparable age groups in 1998.

It’s not that millennials aren’t saving. It’s just that they earn 20% less than their parents did at the same age .

And as the Fed debases the dollar further, the generational divide is only going to get worse.

Weak Dollar Is Great for the ‘Haves’ – But Not for Millennials and Other ‘Have Nots’

weak dollar, stock market
A weak dollar benefits the investors already holding stocks. It hurts the people on the outside looking in. | Source: corlaffra/Shutterstock.com

The puzzling disconnect between tech stock valuations and financial fundamentals is not evidence of another tech sector bubble. It’s not a broader stock market bubble, either.

The Fed is fueling a rising tide that lifts all boats out of millennials’ reach.

Neil MacKinnon, Global Macro Strategist at VTB Capital, calls it the “Everything Bubble”:

The historically extreme valuations in US equity markets which investors have ignored for so long are coming home to roost.

The Fed dollar deluge was well underway before the market panic this year.

In January, Guggenheim Global Chief Investment Officer Scott Minerd warned that the risk-asset market would rally for the time being .

Eventually, prices will have a rude reckoning with reality.

The Fed Is Driving Asset Price Inflation from Risky Growth Stocks to Safe Haven Assets

gold price bubble
Millennials are getting priced out of haven assets too. | Source: Yee Hui Lau/Shutterstock.com

Tech stocks aren’t actually becoming as “valuable” as their surging prices suggest. At least not by any fundamental metric. They nominally appreciate as the Fed floods the market with capital and stretches the dollar thin.

It’s not just tech stocks and other blue-chip equities rising to seriously questionable highs amid the epic Fed liquidity pump . Millennial Americans are getting priced out of safe haven instruments like gold and bonds as well.

The spot price of gold soared to an all-time high of $1,980 an ounce on Tuesday. Bank of America expects to see $3,000 gold  in the next 18 months.

Yields are lying dead at the bottom of their flight-to-safety crater  as bond prices rise.

Congress & the Fed Blow More Air into the ‘Everything Bubble’

The Fed is expected to tag Congress back into the stimulus match Wednesday. 

While Republicans and Democrats are far apart on the details, the main question isn’t whether stimulus is necessary. It’s what number will come behind the “$” and before the “trillion” on the aid package.

The fiscal-monetary regime will continue blowing the everything bubble, and asset prices will continue to inflate. For now.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.