Where Is The U.S Dollar Heading? | Stansberry Research

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Please welcome back Kevin O'Leary, star of ABC Shark Tank, aka Mr. Wonderful. Kevin, always good to see you.

Great to be here! Thank you so much.

Yes, it's really interesting times in the market, just insane times right now. Help us unpack it all. Let's start with your take on inflation here. You know, when are we going to hit peak inflation, Kevin?

Well, we haven't yet. Particularly if this Build Back Better bill prints another 400 to 600 billion dollars and flushes it right into the economy, that's probably not going to be a good outcome for inflation because it's very inflationary. Even though it's trying to be labeled as an anti-inflation bill, anytime you print money, you get inflation. So, we'll see what happens. That's got to go through the gauntlet in Washington. That's one factor.

The other that's really interesting that has a lot of market watchers really scratching their heads right now, because it's never happened before, you've got a situation of full employment, that's like three and three point four percent, and yet at the same time, a second quarter of GDP shrinking. That has never happened before.

So, one way to interpret that is to say the productivity of the two plus million new workers that have just been booked into the economy must be very, very low. Or maybe they're not really working eight hours; maybe they're working less. But there's something not working to the traditional model, which is why I think it's giving Powell pause, because he has been job owning a more dovish Fed. Having just done the 75 basis points, even he doesn't know what's happening here.

So, he's data dependent. We've never seen this before. Never, never in the history of the economy, in 200 plus years, has this ever occurred. So again, another sign that is not fitting with what everybody wants.

Towards this recessions may be okay, and you say towards this recession, so I know there's a debate out there of whether we're in it or not. I'm assuming for you, we're not in it yet.

Well, the narrative towards the soft landing has changed so much in the last eight weeks because just two months ago, nobody thought Powell could engineer anything like this. And here we are, you... It's very hard to call this a recession when you've got full employment.

So, is this working? At least 50% of the pundits or the market now believes that a soft landing is possible. And again, a lesson learned for everybody that thinks they can time the market is, look, it happened in July. You've got maybe half of this year's returns came in four days.

So, if you weren't in the market, you didn't capture that upside. And so, it's impossible to time the market. You would have never guessed July would have been a good month, but it was.

Absolutely. And on that point, you know, help us decipher this because like you said, you know, we're getting this relief rally. But is it giving us a false sense of optimism or hope? What's the truth?

Well, the truth is in the earnings. And so far, everybody was waiting to see earnings completely blow up. Didn't happen! Many companies delivered, even the highly speculative tech companies. And we're halfway, more than halfway through earnings season, and it looks pretty good.

Now, it's not as good as it was a year ago, but it's nowhere near as bad as everybody was forecasting that we would be in the height of a recession right now, and we're not.

And so this is a very difficult time to make a decision between fixed income and equities, because you've, as you mentioned earlier in the show, we've got an inverted yield curve. That's generally never good. But again, when you can't tell me why we have full employment, two and a half more million people working, and low productivity, then maybe you want to be a little careful about making more decisions about raising rates or changing policy or, right, you know, raising taxes. They all sound like really bad ideas until you've really figured out the riddle of what's going on in this economy.

We don't know.

So, my attitude is to stay long equities, continue at a 30% weighting in fixed income. That's very low for me; usually, it's 50%. Just wait and see what happens. My names are high-quality names that provide cash flow and distributions, but it doesn't matter what sector you pick. You've been doing quite well in the last four weeks.

Let me ask you then this, Kevin, what grade would you give Powell then? Do you think he's been doing a good job?

Everybody likes to beat up the Fed regardless of who's in that seat, but he's been doing a really good job. In my view, because he just doesn't know and doesn't say that he knows what's going to happen next.

So, he's trying to stay flexible. Rates right now are still at historic lows, even though he's gone through multiple rate hikes. The question is now, what's next? Many people think, well, another one is going to be at one percent. Maybe there'll be an emergency meeting, but I don't think so.

He's in the same boat as everybody else trying to figure out where we are in this recession. Is it going to be maybe two or three quarters of slower growth or no growth? We haven't really called it yet because it's so perplexing to have this much employment for every job, you know, out there in America that is available.

There's a ton of people that don't want it. I mean, you can't hire anybody anymore, which is incredible. And, you know, minimum wages in California are 15 bucks for service providers, maybe in the food industry. You can't get anybody anywhere. 15 bucks, 21, 22, 23 right now.

So, the economy is self-adjusting. There are a ton of people that just don't seem to want to go back to work.

Let me ask you this: You see you're long equities. I just want to hone in on some of your other strategies. We know back in March or 2020 in the crypto phase, we know how spoken you've been about cryptocurrencies. Curious to get your take on where we are at now.

I had Mark Yusko on last week saying, "Hey, looks like the bottom is in for Bitcoin." How do you see it?

I see Bitcoin sort of testing 20,000 all the time, getting a lot of resistance there. It seems to be holding the 20,000 to 23,000 area. Still very profitable for Bitcoin miners that are currently mining at about $7,000 per coin at scale.

And so there has been a knee-jerk reaction against Bitcoin miners lately because of ESG concerns, but they're also self-correcting by getting into nuclear and hydropower, which, you know, is plentiful in some countries like Norway.

Now, crypto itself desperately needs policy; it needs regulation. There was a bill just two weeks ago that was contemplated being pushed through—not on Bitcoin, just stable coins as payment systems. And as you know, that's been a very volatile area. That bill, that initiative, has been stalled till September.

But I think there's a 50-50 chance that we will have policy on basically stable coins tied to the US dollar. Let me explain specifically why I think it's going to happen. There is a turf war going on between the SEC and every other regulator as regards to crypto, NFTs, tokens, all of this stuff.

And so the smart regulators, the policymakers, are saying, "Wait a second, let's pick one outcome. Let's just do payment systems, just like a credit card, a Visa card, or a money market fund," which has very, you know, limited flexibility in terms of what you can hold. It's basically T-bills and dollar-for-dollar cash.

Same thing with a payment system like a stablecoin. If that policy comes down, let's say it gets done in September, that's a signal to the market that we're starting to break open the logjam on policymaking.

Yeah, and I know you've been seeing this for a very long time, but specific to your holdings, Kevin, what's been your personal strategy with the cryptos with this down period we're in? Have you been adding to your position? Have you stopped? Are you good with what you have? What's your take?

No, we took a hit. We were at 20%, and then it grew up to 23%, then it went down to 16% of the portfolio. I mean, it was really volatile. But I've always said you're going to get this volatility in an asset class that is not regulated because there's no institutional bid.

So probably at the low, we’re at 15%. We lost, you know, 40% of the value, and now we've come back up on some projects, and they haven't all come back at the same pace. You know, the big players, the big market cap names like Bitcoin, like Ethereum, like Solana, like Polygon, HBAR. In some cases, we double down.

We took advantage of the extreme volatility in the large cap names, like ETH and like Bitcoin. Why not add to the position if you're going to stay long?

But, you know, everybody trying to manage this space, I don't care who you are, if you tell me you made money in the last 90 days, I know you're lying. You've lost money, and you're just averaging down hoping for this to climb back up. If you'd owned these positions for more than two years, you're basically in a break-even situation.

So, this asset class is not correlated with anything as people thought. It's not correlated with inflation yet, but the real problem, and every time you and I talk about this, it's really a gauge on where the institutional buyer is. And right now, zero. They have no Bitcoin.

Anybody that tells you the institutions or sovereigns own it is full of poo-poo.

Really good thoughts, Kevin. Just other quick items to talk on here. Curious to get your thoughts on the direction of the US dollar. Many folks thinking the US dollar will keep marching higher, euro will keep marching lower. How do you see it? What path are we on?

I'm in that camp that says dollar's king. Dollar's going to be stronger. Euro is going to probably, worst case, go to 80 cents. I mean, look, they've got lots of external issues there that we don't deal with here.

We go, they have the Putin factor, the energy factor, how screwed up Germany is in shutting down all its alternative power. They did that to themselves; that's a self-inflicted wound. The Ukraine, the grain situation, the market knows all these factors, but it doesn't give you confidence to stock up on euros.

For me, the way I'm playing it is I'm buying the top 50 European names in their local currencies—in Swiss francs, in euros, and British pounds—because if you look at a Nestlé or American Tobacco or Roche, half their sales, in some cases more than half, are in the United States.

Now you get to buy them in their local currency at massive discounts—P/E discounts and currency discounts. So, why not take down a little bit of Europe? And I've increased that position for me specifically to 20% of the operating companies' portfolio—European names, mega caps, big cash flows, selling at huge discounts.

Everybody hates the European zip code right now.

I want to ask you about gold. We've spoken about this in the past. I remember we made major headlines when you said your crypto location had outpaced your gold position. Have you added to gold as a hedge to the crypto portfolio? Have you done anything with your gold?

I have. I've added a little gold, and I’m using the GLD, which is an expensive ETF, but it's liquid enough. You can put millions in and out in an hour and not move the market—and gold bullion itself, like still keep in storage and pay for the storage.

But look, it hasn’t worked either. Gold may be the canary in the coal mine that basically tells you the peak inflation has been found. And we've seen it because so much of it is disruption: supply chain and disruption of food supply chains.

So right now, gold as an indicator is not doing what it should be if you really believe we're going to have hyperinflation.

Sounds like gold is pretty proud of Powell and saying, you know what? Maybe he’s engineered a soft landing because it's not been a great asset class of late.

Kevin O'Leary, I want to get your thoughts on the housing market now. Have we popped?

Housing is a tough one. I like, you know, I watch weekly housing blotters, tear sheets, and in some cities housing pricing is rolling over, and some it's not. Not rolling over in Boston, not rolling over in Miami. In fact, it's up in Miami.

Why? And, you know, anywhere? Well, maybe, but the same thing's happening in Texas. There seems to be a bias in housing now to states that are pro-economy, pro-business, pro-low taxes, pro-low regulation. Those are the states of Texas and Florida, Montana, North Dakota.

You know, these pockets seem to have really buoyant housing markets and rental markets, which you’ve never seen that before. It used to be, you know, New York City and Jersey. I wouldn't want to be long really high-end real estate in New York or New Jersey. There's an exodus out of there.

And, you know, this is the competition of policy, and I think it's good. Where do we see what the midterms are going to bring? That's going to be really, really interesting for Biden. My goodness, I’m not sure he’ll hold the Senate even.

Kevin, let's wrap with one of your favorite subjects of all time: watches. You are a watch aficionado, so I want to get your take on a Bloomberg report saying the second-hand market for luxury watches has been flooded now because we know those crypto millionaires were quick to go get the Patek and the Rolex. Many of them now selling them. Is it a hot market? Too many watches out there? What's it going to do to the price?

So, I've been listening to this dialogue now for a year about how watches are going to roll over. It simply hasn't happened because the demand for, you know, watch pieces, particularly the brands of Rolex, FP Journe, AP, even Omega recently, has had a huge run.

Now they're off their peaks, but you're if you've owned these watches for 24 months. It still outpaced the S&P. It still outpaced crypto. It's the best asset class to have been in the last two years.

Rolex just dropped the new GMT, too, with the bezel on the left-hand side, which is like a funky chicken thing to do, and so it's now been named "the Riddler." In the aftermarket, you're up 40-50% if you can get your hands on one, and that's a 2002 release.

So, there's no evidence at all that second-hand watch pricing is going to have a massive correction. It has gone down 14%. And by the way, I watch these prices nightly. I watch what's going on with watches everywhere. I'm very comfortable it's going to continue to rise and beat the market.

You are an expert. I know when it's my time to get one, you're the person I'm going to call! Is there one on your wish list?

There are. You know, I have to admit I've got to the point in my career where most of the brands are willing to make one-of-a-kind Mr. Wonderfuls for me. And my policy is always, don’t give me anything for free. I don't want to owe anybody anything. I will buy the pieces.

But one-of-a-kind pieces from an FP Journe, one of a kind from, you know, Audemars Piguet or any of the one-of-a-kind from any brand is priceless. And my wife is always saying, "Who's the guy at the Phillips auction house?" Because when you die, I don't need all these watches. I'm going to put on a huge auction.

And I say to her, "No, you're not going to do that. That guy is Paul Boutros. I said all these watches are coming in my coffin with me, just like the pharaohs, because I'm going to need a really good timepiece in eternity."

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