Hong Kong’s Dollar Weakness Points to Possible Currency Run

VALENTINE, SOUTH DAKOTA – Bloomberg just had a story about the Hong Kong dollar breaking its peg with the U.S. dollar.

The Hong Kong dollar has been pegged to the U.S. dollar for 37 years. It’s probably the most important peg in global currency markets…

Why would it break now?

Currency pegs always break sooner or later. (More below.)

New Day, New State

Another day… another new state…

Greetings from Nebraska…

We’ve been on the road for two months now.

So far, we’ve been to Florida, Alabama, Georgia, Tennessee, South Carolina, North Carolina, Kentucky, Indiana, Ohio, Michigan, Wisconsin, Minnesota, Iowa, and South Dakota.

A friend from our hometown in Florida – a physician – writes:

“Enjoy your trip but take a long time coming back. COVID is very bad here in Palm Beach county. The hospitals are filling up. It saddens me, but your trip brings us all happiness. We are living vicariously through you, Kate, and your children.”

Here on the road in the American countryside, there doesn’t seem to be any coronavirus. Many people aren’t wearing masks (including us). People shake our hands and friends hug us.

And while many things are closed due to coronavirus, the essentials… gas stations, supermarkets, pharmacies, campgrounds, drive-thrus, etc… are all open and doing business as usual.

Sometimes the campgrounds make you reserve over the telephone or online to protect their staff, and sometimes we find a museum or a playground closed. But otherwise, life on the road is pretty much same as it always is.

Today, we drove 200 miles west along the Nebraska-South Dakota state line from Yankton, South Dakota.

The scenery has changed again. Gone is the intense industrial farmscape of Iowa. It’s been replaced with the vast emptiness and ruggedness of Nebraska’s rolling hills and prairies.

In five hours of driving today, we only saw a handful of other cars. We only passed a couple of gas stations.

We’ve just pulled over. We’re in a town called Valentine, Nebraska, and we’re going to set up camp here in the city park.

Our campsite costs $5 a night and we’re the only ones here. A little creek runs behind our camp…

Hong Kong Dollar Weakness:
Nothing to Gain, Everything to Lose

“Hong Kong’s unshakeable dollar suffers sudden bout of weakness,” says Bloomberg.

Early last year, as we traveled through the Middle East, we passed through Lebanon. They had a currency peg with the U.S. dollar, too.

They’d been using this peg since 1997. We changed our dollars into the local currency at the rate of 1,500.

The peg broke earlier this year. Today, there are 10,000 Lebanese lira to the dollar.

One of the reasons we went to Lebanon was because it was experiencing a long and terrible recession, crowds were protesting in the streets, and I suspected the peg was going to break (even though nobody else did at the time).

I wanted to see for myself. Here we are observing a protest…

We also went to Hong Kong last year. There’s a terrible recession and the people are protesting there, too. (I got teargassed at one of the protests.)

Now comes news that foreign companies are abandoning Hong Kong real estate. From Yahoo Finance…

Multinational companies surrendered more office space in Hong Kong last quarter as the economy deteriorated amid the pandemic, pushing the city’s vacancy rate to the highest in 15 years, according to Cushman & Wakefield Plc.

Foreign companies made up of 61% of the total surrender of office stock in the second quarter, up from 47% in the previous quarter, the property agency said in a briefing with reporters Tuesday. Cushman didn’t name any of the firms vacating space.

And more news that the Trump administration wanted to sanction China by cutting off the dollars to Hong Kong, undermining their currency peg.

From Bloomberg:

Some top advisers to President Donald Trump want the U.S. to undermine the Hong Kong dollar’s peg to the U.S. dollar as the administration considers options to punish China for recent moves to chip away at the former British colony’s political freedoms, according to people familiar with the matter.

The idea of striking against the Hong Kong dollar peg – perhaps by limiting the ability of Hong Kong banks to buy U.S. dollars – has been raised as part of broader discussions among advisers to Secretary of State Michael Pompeo and hasn’t been elevated to the senior levels of the White House, suggesting that it hasn’t gained serious traction yet, according to people who discussed the matter on condition of anonymity.

This week, Trump rejected the idea of breaking the peg. But I still suspect the Hong Kong dollar’s peg is about to break.

At least, if I had money in Hong Kong dollars, I’d be turning it into U.S. dollars – or gold – as fast as I could right now.

Why would anyone stay in Hong Kong dollars? There’s nothing to gain and everything to lose.

This is the classic mindset people get before a run on the currency starts. We’ll see…

– Tom Dyson

P.S. I have no financial interest in the Hong Kong dollar. But for me, this simply marks another major crack in the global dollar-based financial system. And it’s another reason I’m so happy we turned our money into gold when we did…

Like what you’re reading? Send your thoughts to [email protected].

A reader wants to know Tom’s take on owning property, while others are curious about gold and mining stocks…

Reader comment: Hi Tom. Thank you for sharing your adventures and family with us, the readers. In addition to your travels, I was wondering if you own land or property that you call home. You speak a lot about getting into gold and dividend stocks as we prepare for the upcoming economic events. However, what is your stance on owning physical properties and why?

Tom’s response: I can’t speak for Kate, but I don’t like how home ownership feels to me. My homes have always felt “needy” and “high maintenance,” especially when I owned one. Gold is far more comfortable.

Reader comment: Have followed your Postcards for more than a year and truly look forward to them. My question for you is as follows: Do you consider ownership of stock in AAAU and CEF as fulfilling your advice to own physical gold? I am 91 years old with children and grandchildren, am in good health, and hope to preserve some of my wealth for my family. Thank you for your attention.

Tom’s response: Yes.

Reader question: Hi Tom, When you say you turned everything into gold, do you mean physical gold alone? What is your opinion about gold stocks like CEF, or PHYS? Are you against mining stocks also?

Tom’s response: I like CEF and PHYS. I also like gold mining stocks. But I would only buy them as a “kicker” to a holding of physical gold.

And another reader wonders about the Dysons’ spiritual practices…

Reader question: Tom and crew: In your travels around the world, you no doubt encountered people with many different religious beliefs. Do you teach your kids anything about spiritual matters? My wife and I homeschooled our three daughters from pre-kindergarten through twelfth grade. Part of the curriculum was daily Bible reading. Just a thought…

Tom’s response: Yes. I answered that in more detail here.

And, as always, thank you for writing in! Please keep sending us your thoughts at [email protected].