How to Prepare for a New 'Economic Order'
Editor's note: You need to prepare for what lies ahead...
With the trade war looming over the global economy, countries around the world are exploring alternative currencies in an effort to lessen their reliance on the U.S. dollar.
According to Retirement Millionaire editor Dr. David "Doc" Eifrig, this trend is putting the U.S. in danger of losing its spot at the center of international trade.
In today's Masters Series, adapted from the April issue of Income Intelligence, Doc explains how you can prepare for this new "economic order"...
How to Prepare for a New 'Economic Order'
Money flows to where it's treated best...
Since the start of the global trading system, that has been the United States.
Our robust financial system has made our nation the best place for businesses to launch, innovate, and grow. That has attracted trillions in capital to our shores – and especially so in recent years.
After the global financial crisis, many countries undertook austerity measures to balance their budgets. This slowed their economic recoveries. By continuing to spend and grow, while shoring up the financial sector with new banking regulations, the U.S. government made the dollar safer than ever.
This led foreign investors to snap up American assets much faster than we bought theirs.
In the chart below, you can see the net international investment position of the U.S. This is a sort of balance sheet that compares the foreign assets that U.S. investors own with the U.S. assets that foreign investors own.
From 2006 through today, foreign investments in U.S. assets have outpaced our investments in foreign assets by about $26 trillion...
As recently as 2023, the U.S. received nearly $2 trillion per year in foreign capital inflows. That's a lot of money, considering gross domestic product ("GDP") is less than $28 trillion.
Foreign countries own about 25% of our outstanding government bonds. That has helped drive U.S. interest rates lower...
Foreign investors also like to buy U.S. stocks. That's why the U.S. stock market (as measured by the MSCI U.S. Index) has earned a premium valuation to the rest of the world (as measured by the MSCI ACWI ex U.S. Index).
As you can see, U.S. stocks trade at a price-to-earnings (P/E) ratio of 24 times, while non-U.S. stocks trade at a P/E ratio of about 16 times...
Moreover, to buy U.S. assets, foreign investors first have to exchange their own currency for U.S. dollars.
As you can see, according to data from the International Monetary Fund, nearly 60% of all global currency reserves are held in the dollar...
And that has led to a particularly strong bull run in the U.S. dollar over the past 15 years...
However, the U.S. dollar's share of foreign reserves has been declining for years now...
While the most recent quarterly data shows a slight uptick, that data is from the end of 2024... and a lot has changed since then. Needless to say, watch the next release closely.
All of this has propped up U.S. stocks and bonds – keeping our economy humming along and our interest rates low.
Again, money flows to where it's treated best.
But today, with the changes in the world economy, that may no longer mean the U.S...
President Donald Trump's tariff war is threatening the global trading system. Not only does the U.S. stand to lose its place at the center of that system, but it stands to lose dozens of friendly trading partners as well. The U.S. may end up on the outside looking in.
If tariffs stifle the economy, tax revenues will decline, our debt will become less sustainable, and our creditworthiness will suffer.
The simple chaos and confusion of Trump's policies make international markets view the U.S. as a nation that's less reliable now than it has been for the past 100 years.
Trump's tariffs will change the way the global order works. Believers think it will lead to growth over the long term. Markets, so far, disagree.
But while it will take years – if not decades – for production and trade to settle into a new equilibrium, global capital can move right now.
And it already is...
Investors have been dumping U.S. assets in favor of foreign assets ever since January.
This chart shows the ratio of U.S. stocks to all foreign stocks.
When the ratio rises, it means U.S. stocks are outperforming the rest of the world. When it falls, it means foreign stocks are outperforming. You can see that for nearly two decades, U.S. stocks have had an amazing run. But that has radically reversed since the start of the year...
Normally in a market crash, investors will move out of stocks and into super-safe Treasury bonds, driving their prices up and interest rates down. And if they're too scared to invest in bonds, they move into the dollar.
But that's not what we're seeing. Today, capital is flying out of America's door.
Investors are moving out of U.S. stocks. They're moving out of U.S. bonds. And they're moving out of the U.S. dollar...
When you look at fast-moving data, you have to figure out whether it's just a bit of noise or the start of a long-term trend. The nature of this shift suggests it's the latter.
These aren't the flighty moves of small-time investors. When, say, a high-quality stock drops after a poor earnings report, that just reflects short-term traders giving up on momentum or making small adjustments to their portfolio.
These international investors are big institutions with careful investment committees. They're not fine-tuning an allocation from one stock to another by sending their money across borders and into different currencies. These are big and persistent decisions.
The size of the move matters, too. Look at just how sharply the ratio of U.S. to global stocks has reversed. That's not a rebalance. That's a regime change.
Put simply, investors don't like the U.S. anymore.
And that means we should put some money into that trend.
It's just good to have some of your income portfolio outside of U.S. stocks and the U.S. dollar.
With America's financial empire fading, there's a compelling strategic reason to add international stocks to your portfolio today...
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: The weakening dollar is a part of something much larger...
Doc believes it's part of a deliberate effort to manage the exploding national debt. With the financial media focusing on inflation and interest rates, Doc says many investors aren't prepared for the fallout of this currency devaluation.
That's why he just went on camera to reveal the exact steps you must take to protect yourself while your dollars lose value. Learn more here...