By Andrey Dashkov, analyst, Casey Research
The world economy is unstable…
From the continuing – and worsening – war in Ukraine to runaway inflation in all parts of the world…
It’s looking grim, and it could get worse before it gets better.
So it’s time to add protection to your portfolio.
In fact, we’ve been warning you for a while now. Casey Research expert Dave Forest even put out an urgent briefing on what to do.
We hope you’ve secured some gold and other “safe haven” assets… or that you’re at least thinking about adding them.
Today, I’ll talk about another asset…
And you may consider it contrarian to Casey Research… but it’s a great way to play our current situation.
The U.S. Economy Is in Trouble, But the Rest of the World Is Doing Worse
The world economy is not growing as much as experts predicted this year.
The reasons are obvious: high inflation, supply chain disruptions, and the war in Ukraine.
Plus, some of the biggest cities in China are entering lockdowns, which will hurt the country’s economy.
We haven’t been paying much attention to the pandemic recently… because there are bigger problems to tackle. But in many parts of the world, it’s still an ongoing issue.
Combine all these problems, and it’s clear why the International Monetary Fund (IMF) slashed its economic growth forecast for 2022.
According to the Financial Times, the developed world will grow by 1.2 percentage points slower than expected, while the developing world could see growth decline by 1.3 percentage points.
Investors focused on North America may not be used to seeing statistics from other countries.
But the truth is, whenever the rest of the world goes through difficult times, it buys U.S. dollars.
In fact, it’s one of the most popular “safe haven” assets out there.
And it’s in demand because of the negative global economic outlook… and because the Fed will continue raising interest rates.
The Dollar Is Up
As a rule, higher interest rates lead to currency appreciation.
What does this mean? If U.S. interest rates go up, the U.S. dollar rises in demand. That demand, in turn, increases its value relative to other currencies.
This is exactly the situation we’re in today.
Don’t get me wrong, I’m not saying the U.S. dollar is the best store of value.
At Casey Research, we’re against that line of thinking.
But as an investment right now, it has a clear catalyst: rising interest rates in the U.S. combined with low growth elsewhere.
Add the USD to Your Diversified Portfolio
In the past, I’ve talked about how gold hedges your portfolio against volatility.
But I want to add another tool to your toolbox.
It’s an ETF (exchange-traded fund) that tracks the value of the U.S. dollar against other currencies – the Invesco DB US Dollar Index Bullish Fund (UUP).
So far this year, it’s performed well.
Look at the chart below. It shows how the UUP has fared against gold and the S&P 500 in 2022.
While the market plunged by about 12%, gold appreciated by around 4%.
And the UUP is up 6.7%.
Clearly, both gold and the U.S. dollar are in high demand this year. And since we’re in the middle of a global slowdown, you’ll want to diversify your portfolio.
So, I recommend putting the Invesco DB US Dollar Index Bullish Fund (UUP) on your radar.
It could prove a worthy hedge against economic uncertainty.
Analyst, Casey Research