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Why dollar bears have been wrong the past 5 years

Pras Subramanian

For dollar bears, there are many reasons, at least in their minds, to bet against the greenback. The Fed’s unprecedented liquidity measures have pumped trillions of extra dollars into the system, the economy isn’t growing nearly as fast as everyone likes, inflation is starting to pick up, the list goes on.

But one thing that they cannot ignore is that the dollar is flying high recently. The U.S. Dollar Index (DX-Y.NYB), which measures the U.S. dollar versus a basket of major currencies, just hit fresh 5-month highs, continuing a steady upward trend beginning near the end of June. While this coincided with geopolitical instabilities, the question remains whether the greenback can keep the surge going.

Count Paul Schatz of Heritage Capital among those who see the dollar pulling higher. In his mind, the U.S. dollar is the place to be, and he’s been saying since 2008. In fact, he strongly believes the dollar has plenty of room to the upside.

“The dollar is a function of many things, most importantly it is a relative value vehicle. Meaning if the dollar is strong, other currencies have to be weak," he says in the attached video. "My stance since 2008 has been, of all the places around the world to store your value, I’d rather store it in the greenback than the Euro, clearly the Yen, the [U.K.] Pound and Canadian dollar.”

Despite the dollar hitting new highs, Schatz is convinced it has a lot of room to run. “People don’t realize the low was March of ’08… in fact, [contrary to popular opinion] once the Fed began to print money, the dollar has only appreciated, “ he says. “I think that there’s an awful lot of room left. When you look at the dollar index, a basket of currencies, it’s only a few percent off of the lows.”

In the 1980’s, Schatz notes the dollar index was at $120, whereas now it’s in the low $80s. Schatz believes there will be a big run up over the next few years. “I think the first stop is $100, and then later this decade the dollar index runs much further as our economy does better than the rest of the world.”

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