Because of the record strength of the U.S. dollar, my 22-year old daughter is enjoying a giant 15% off sale in Europe right now. 

She and her best friend rented an apartment in Naples for $800 a month. But after a day trip to Rome, they decided to leave their Naples apartment a week early so they can spend some extra time in Rome. 

They could afford to do this because the U.S. dollar is so strong. It really is like a continent-wide 15% off sale. They’ve been able to enjoy a few nice bottles of wine with dinner, and a hotel room in Amalfi instead of taking the late train back to Naples because their budgets are stretching much further than expected. 

It’s the opposite here in the U.S. Our dollars aren’t going nearly as far as they did just a year ago. Plenty of families are forced to make some tough choices in order to make their budgets work. 

No one is talking about it much in the financial media, but the inflation that we are experiencing and the strength of the U.S. dollar are not isolated events. In fact, they are intimately connected. 

Inflation and the strong dollar are two sides of the same coin. And the reason for this is because the global economy is in the midst of a massive restructuring, the likes of which haven’t been seen in nearly 30 years. It’s not an exaggeration to compare the shifting balance of power to post-World War II and the fall of the Soviet Union. 

The End of Globalization

10 years ago, I recommended Starbucks (NASDAQ: SBUX) to my readers at $27 a share. Starbucks had everything you want to see for a great investment. Excellent management, loyal customers, it could raise prices without driving customers away…and it had excellent growth prospects mainly due to its expansion into China. 

Back then, China was just another end market for American companies. Apple (NASDAQ: AAPL), Disney (NYSE: DIS), General Motors (NYSE: GM), Google (NASDAQ: GOOGL), Boeing (NYSE: BA) Tesla (NASDAQ: TSLA) – revenue from China has been a big part of these companies’ success. 

Today, I’d be leery of owning Starbucks in my own portfolio. And I sure wouldn’t recommend it to my readers. The risks of investing and doing business in China have skyrocketed. That’s why U.S. companies are moving their supply chains out of China as fast as they can, regardless of cost. 

Throw in China’s best friend Vladimir Putin’s depraved war in Ukraine and how that’s affected grain and energy supplies and it’s a done deal – globalization is over. 

Of course, the financial media and the Wall Street fat cats would love for you to believe that U.S. inflation is simply the result of the current president's policies. Because in that case, if it was just one guy making bad decisions, the solution would be simple wouldn’t it: vote the guy out and that will fix the problem, right? 

The fact is, Wall Street and multinational companies are still heavily invested in globalization, to the tune of trillions of dollars. Sure, supply chains are coming home. So is a lot of manufacturing (for example, Taiwan Semiconductor just announced plans for its second U.S. based chip factory yesterday). But reversing 20 years of global investment doesn’t happen overnight. The longer the Goldman Sachs’ of the world can keep individual investors believing that inflation is just an American problem… the longer they can distract you from the risks of vulnerable companies, the better off they will be.

Now, about that U.S. dollar. It’s pretty simple, really. The world is facing a nasty recession, and companies are moving supply chains and manufacturing to the U.S. (a trend I call the Second American Industrialization). So you want to invest in Europe? Nope. 

The UK? Good lord, no. 

China? Sorry, companies are leaving China. 

Japan? Not with the yen circling the drain. 

Russia? Mmm, maybe in 10 or 20 years…

Simply put, there’s only one safe haven for money in the world today. Foreign money is pouring into the U.S. right now. It’s an all out gusher. And that’s driving the U.S. dollar to record levels. 

The Second American Industrialization

Here’s where it gets really interesting (at least to me, cuz I’m a geek about this macroeconomic/geopolitical stuff). If we play out this Second American Industrialization trend, some pretty interesting things should be expected. 

One, the labor market will likely remain strong. With so many companies building here in the U.S., there’s gonna be plenty of jobs. What’s more, many of these jobs will be found in areas of the U.S. where costs will be lower because economic activity has been lower. Places like Detroit, rural Texas (where Taiwan Semi is building), upstate New York…

The investment outlook for U.S. companies that are focused on the U.S. economy is very strong. And I’ve got a few investment ideas that I’ll share with you on Friday… 

The second takeaway from the Second American Industrialization concerns the Fed. The Fed is in a really, really bad spot. The only way to fight inflation is to bring consumer demand down, ie, get people to stop buying stuff. The only way that Americans stop spending money is if they lose their jobs. It sounds terrible to say it, but the Fed’s job is to raise interest rates until unemployment rises and the U.S. economy falls into recession. 

But with money flooding into the U.S. to reroute supply chains and build the factories of the future, the Fed is already finding it very difficult to weaken the jobs market and affect consumer demand.  And at the same time, the Fed is nearing the point where it has to stop hiking rates or something in the global economy is going to break. 

In other words, the Fed’s not going to win this battle. At least not anytime soon. And most likely not on U.S. soil. The most likely scenario is that inflation remains stubborn until Europe falls into a deep and nasty recession early next year.

Finally, I’m optimistic that the U.S. gets out of this mess without much of a recession at all. And then the true benefit of the Second American Industrialization will take hold. 

Again, I’ve got some investment ideas coming on Friday that you’ll want to hear about, so stay tuned.

Take care, and I’ll talk to you then.

Briton L. Ryle