April 12, 2023

Dear Friends:

The Value of a Dollar

Growing up I (Mitch) would spend summers staying with my grandparents in rural West Tennessee. My grandfather would work from 7-3 at the cotton mill and then arrive in the driveway promptly at 3:15, take a cheese and cracker break, and then go out to tend to his Il-acre garden. I loved to spend time with him and would help him bring in the vegetables. He would pay me $5 for a couple of hours work and then take me to the store where I could spend it on whatever. He said this would help teach me the “value of a dollar” (more on that later). I learned that I could quickly blow through $5 buying Little Debbie snacks, cokes, and baseball cards. Occasionally, certain baseball cards might go up in value, but the Little Debbie’s and cokes not so much (although back then they didn’t immediately reposition along my waistline!).

Markets are Up Year to Date – The Wall of Worry Thankfully Re-emerges?

Despite the headlines around bank failures, inflation, and the alleged demise of the dollar, financial markets have started to bounce back and “climb the wall of worry” up between 2% and 8%. However, valuations (PE multiples) for small cap stocks remain ‘”30% below their historical long-term averages, which we believe bodes well for our core allocations as valuations eventually normalize. And, while portfolios are up to start the year, stock indices are still off their highs by 10%-20%. Comparing similar historical pullbacks, the average return just 5 years later is over 100%! We can’t guarantee this will happen again this time, but we believe the current environment offers compelling long-term return potential for diversified portfolios.

Bye-Bye to the US Dollar as Global Reserve Currency

A popular theory spreading on social media apps, like Tik-Tok, is the fear of the impending implosion of the US dollar and subsequent replacement as the world’s reserve currency. (If you don’t know what Tik-Tok is, congratulations!) But back to the dollar fears – after a year of misinformation calling for an end to the dollar, it’s interesting to see the actual impact on currency markets when comparing the dollar vs. the Euro or the Japanese Yen. The answer- Nada. Zilch! Almost to the penny same exchange rate as a year ago.

The narrative that the Chinese yuan will replace the dollar as the world’s reserve currency is flawed on many levels. The world financial system is currently designed to operate and trade in dollars. Although many countries are working on an alternative because they don’t like the US power to control the global currency exchange system, solutions are still years away. Culturally and structurally, there are many roadblocks to the yuan as the world’s reserve currency. Those are 1) the Chinese government is not historically transparent in terms of reporting the real state of their financial systems and 2) the Yuan can be debased at the whim of just one man, Chinese President Xi Jinping. Neither of these instill confidence to make this a viable alternative. It is much more likely that the dollar will be replaced by a basket of many global currencies. Even this will take some time, especially if the US maintains any semblance of fiscal restraint. With a split congress we hope it will yield a stalemate on major new spending bills.

Get access to 3 month CD rates of 5.12% and preferred Money Markets 4.7% up to $10 M FDIC insured. As interest rates have risen, banks have been slow to follow, so many clients have started to capitalize on our savings rates offered at significantly higher levels. We have excellent options through our CDARS program to be able to provide access to up to $10M in FDIC coverage at better rates with flexible terms. As always, we are extremely grateful for each of you and thank you for your partnership!


Mitch Anderson                 Destin Tompkins