How to Make Profit from a Dollar Milkshake

After doubling its cash between 2019 and 2021, the FED stops Quantitative easing in November 2021 and announces that it will now withdraw liquidity from the market (Quantitative Tightening). Markets realize that the days of free money and cheap debt are over and are starting to turn to cash. The dollar has proven to be one of the best investments of the year 2022.

The global economic system only grows on debt and debt money. This operation is not without risk, especially after the massive injections of liquidity (Quantitative Easing) by the central banks after the Covid-19 crisis. They helped maintain a low credit environment, despite a global economic slowdown.

For several months, we have been witnessing the melting of international currencies against the dollar. The green buck established its dominance in international exchanges, linking the destiny of foreign currencies to his.?

In 2020, Brent Johnson, the CEO of Santiago Capital, theorized the "Dollar Milkshake Theory." According to his theory, the dollar has reached a hegemonic status which involves slowly the gradual fall of the euro, the pound sterling, the Canadian dollar….?

Brent Johnson represents all this cash with a milkshake into which the FED would have ended up dipping its straw to suck up the excess liquid. At the expense of other, "weaker" currencies are not enjoying the status of the dollar. The FED writes it in a 2021 report: “In times of crisis the dollar is even more in demand.” It is seen as the ultimate store of value. In the context of inflation, especially in countries with a currency pegged to the dollar, the dollar becomes more interesting to hold than its national currency.?

With that being said, how?can one explain the impact on traders and most specifically forex traders??

A Forex trader can take advantage of this situation since the falling price of the euro will allow more interesting Forex transactions in day trading. Investments in the dollar will also certainly increase in the field of the stock, and commodity industry; but markets are eyeing reactions from the Fed and ECB in the months ahead.?

Another profitable alternative would be to gain exposure to the US real estate market. In the world of cryptocurrencies,?even though that?Stable coins are a possible solution to get through such periods. But there is an even more versatile alternative: exposure to the US real estate market.

As a matter of fact, the operation of many new platforms allows exposure to the dollar, but also the American real estate market. This offers protection in the event of a fall in the euro while generating a more than decent return from the dollar rents investors can collect.

Of course, there is no guarantee that after such a fall, the euro will continue to fall against the dollar as the trend could just be reversed. Nevertheless, it is important not to underestimate the currency risk and the impact it can have on the economy?daily. In this, it is wise to diversify its capital into foreign currencies

The interest in this approach will depend on everyone's expectations regarding the need for liquidity. This strategy will not be suitable for someone wishing to be able to return to the euro within the hour to recover funds. But it will be very relevant for an investor expecting an attractive return, combined with the low volatility of the real estate market. In this, the American market is an interesting choice. Especially since real estate investment platforms do not select the geographical areas of their investments at random.

Taking everything into account, here are the sectors that could benefit from the fall of the euro against the dollar in which it is estimated that it is wise to invest.?

In the first instance, Companies whose export activity is well developed. As the euro has weakened against the dollar, exported European products are therefore mechanically more competitive, especially to the USA, Canada, Australia, and China.

In addition, there are also companies in the luxury sector whose share of turnover in Asia is one of the main catalysts for their growth. They should benefit from a weaker euro for their exports. In addition, these companies have pricing power that can allow them to pass on the increase in costs to their selling prices like Kering, Hermès, or LVMH.?

Along these lines, car manufacturers could benefit from a weaker euro regarding their export sales, as well as companies in aeronautics sector. For example, Airbus and Dassault Aviation, are among the world leaders in their sectors.