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With the U.S. debt ceiling once again in headlines, and concerns over America's dominance over the global financial system, many nations are looking for alternatives to the U.S. Dollar (USD) to reduce their dependence on the United States.
That has me spending a lot of time watching companies that can profit from the trend away from the USD.
When the United States imposed economic sanctions against Russia in response to its invasion of Ukraine, Moscow and the Chinese government began working together to reduce reliance on the USD. Case in point, since the invasion in 2022, the ruble-yuan trade has increased eighty-fold.
Additionally, central banks (especially Russia's and China's) have bought gold at the fastest pace since 1967. I don't see those gold purchases ending anytime soon. In fact, I see them escalating as Russia, China, Iran and other U.S. adversaries move to unwind USD reliance.
And it's not just China, Russia, and Iran that are looking for USD alternatives.
Brazil and Argentina have discussed the creation of a common currency for the two largest economies in South America; former Southeast Asian officials recently spoke about de-dollarization efforts underway; UAE and India are in talks to use rupees to trade non-oil commodities; and even Saudi Arabia has indicated that it's open to trading in currencies besides the U.S. dollar.
I'm not saying de-dollarization will happen overnight - but it is going to happen. The time to start preparing for it is now.
The net fallout from it is going to be resource nationalization. As countries move away from the USD, they are going to secure their own basic materials, rare earth elements, and precious metals. That's going to cause commodity prices to increase and take away much of the cyclicality we've come to expect from natural resources.
With that said, I'm watching natural resource companies, and you should be too. You're going to want to own the biggest mining companies, especially ones with juicy dividend yields.
My favorite way to play the trend, and what I'm watching right now, is Rio Tinto Group (RIO), the world's second-largest metals and mining corporation, which explores for, mines, and processes aluminum, copper, iron ore, diamonds, gold, borates, titanium dioxide, salt, silver, molybdenum, and lithium.
From 2019 to 2022, revenue has grown 28.7% from $43.16 billion in 2019 to $55.55 billion in 2022. On the bottom line, net income over the same period grew 55.05%, from $8.01 billion in 2019 to $12.42 billion in 2022.
Additionally, over the last 12 months, the company generated operating cash flow and levered free cash flow of $16.13 billion and $7.36 billion, respectively.
The company's annual dividend is $4.92 per share, which at the current price amounts to a very healthy 7.73% yield.
Here's the best part. Shares of RIO have dropped 20% off their January 2023 highs, mainly on fears that developed economies around the world are going to slip into recession, and the need for basic materials will decline. That thought process might have served investors well in the past, but now, with resource nationalization on the horizon, it's increasingly outdated.
I'm watching RIO to see the stock close above its 200-day moving average, which is currently at $64.94. Once that happens, I like buying shares of RIO outright. I also like buying-to-open a RIO July 21, 2023 $65/$67.5 Call Spread for $1.25 or less, for a more speculative short-term trade.
Whenever it looks like the USD (or any other major currency, for that matter) is going to be in trouble, people tend to look toward gold as the ultimate safe haven and store of value. I've never been a gold bug myself, though I do own some of it. But as I said on the air recently, it's time to take a hard look at gold again.
The post How to Profit as Countries Gang Up on the U.S. Dollar appeared first on Total Wealth.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.