Please note: I am trying to catch up on some email backlog. I received this email from a foreign subscriber on October 19th, and it was written before the stock averages climbed higher and the USDX stabilized. Managing currency risk is important to him.
I like to give you my market observations – please be aware that I am not a professional in this field like you, but nevertheless.
As you observed, the FED is printing money. Not surprisingly, the $DXY US Dollar index declined. Whether there is causation here or not I do not know.
As the value of the USD declines, US stocks denominated in USD should rise to maintain value for that reason alone. But in general (S&p500, Russell 2000, especially DJI), they did not do that. I tend to believe your prognosis that stocks should rise with money printing. But at the moment, they don’t. They declined a bit.
Now as the stocks on average do not rise (actually quite a few declined), some stocks need to rise to make up the difference. I need to learn which stocks these rising stocks are because I am desperate to get some speculative gain (because I lost a lot of money following Armstrong in the past).
I discovered something that I cannot explain that you might find useful:
Following Oil shipping company stocks rose sharply from 2019-10-04 to 2019-10-17:
TNK, CMRE, EURN, NMM, TNP, DSSI, INSW, FRO, STNG, DHT, LPG
These come out of a scan that I designed, together with a few others that gained from the BREXIT hope and some other random retail stocks. The oil shippers were by far the most stocks that were included in the results. It might be that this was some kind of short cover rally but still, some gains are quite spectacular.
Generally, I thought it might be good to invest in companies that can benefit from the lower USD such as those that export their products. Otherwise I think I am in a fairly difficult situation because if stocks do not appreciate even with a declining USD, then there is no gain, and in fact there is a loss because I am not living in the US.
Here is my response:
Thanks for the email. I am sorry for the late response.
I am also sorry to hear you were listening to Armstrong. He has a set of objectives and they are not aligned with your well-being. His primary goal is to create a need and to make you feel dazed and confused, so you buy his expensive services and reports, and attend his conferences. Given that his “Big Bang” was a big bust, he now spends most of his time covering his tracks and diverting his readers. His stuff is now like a hall of mirrors.
A weaker dollar does not encourage higher stock prices
Here is my macro-thesis about USD-based assets, especially stocks. But this could also apply to domestic real estate, private businesses, and U.S. Treasuries. US stocks should hold up as long as the dollar remains firm and the Fed adds to its massive stimulus. The only USD-based stock market is in the US (of course), but with the dollar as the reserve currency and with this global monetary regime holding up, these massive pools of worldwide dollars need to seek USD-denominated assets. Thus, domestic stocks and dollarized debt are the natural choices. That’s by default.
Notice how the US stock market fell last decade when the USD tanked to the low 70s on the USDX. Notice during last decade’s crisis how all the major markets performed when the USD tanked and even the mainstream doubted the system’s integrity. Why would a foreigner hold domestic stocks when the USD is weak? They wouldn’t. Why would a US citizen be over-weighted in domestic stocks if the dollar is fading? They would be looking to diversify into international holdings. Thus, the longer the USD holds up, the better the stock market does here.
On an a priori basis, one may think that the firm USD has not really benefited the U.S. Treasury market, since yields are relatively higher on U.S. government debt, but I beg to differ. I say the strong USD has helped the U.S. Treasury market tremendously, especially when we consider the sheer size of all the U.S. sovereign debt outstanding. If the USD were weak here, I suspect that the treasury market would be having problems. While we continually hear how Russia has been moving away from dollarized assets and debt, we need to keep in mind that it has lost many billions in the process trying to prove a point.
It may be logical to assume that if the USD goes down for the dirt nap we could see something akin to how the Venezuelan stock market performed in nominal terms, but a dollar collapse would infer some sort of crisis situation in the global monetary system. I don’t see that happening yet. The USD’s role in international finance precludes this potential of an upward stock market spiral from a weak dollar.
The dollar is holding up despite the Fed’s attempts to weaken it
Another observation here; notice how the USDX has held up, despite the massive FED monetary stimulus. I am encouraged how the USD has held here, which says something; the other major central banks will have to follow and ramp up their monetary stimulus. I think the market is anticipating this. I also think that if the yields on the 10’s and 30’s move higher, we will see the Fed begin to buy longer-dated securities.
Political change agents make sure power flows only one way
My observation is that the globalists continually push for more centralized control, and once they achieve their objectives, they never relinquish it. It’s all about consolidating the wealth and power of the new world order. Thus, the EU and euro will never break up; no one will ever be allowed to leave. The elites make sure their change agents are elected to high offices in those countries and that diffuses any nationalist tensions. Italy and Greece come to mind.
Shortly after the BREXIT vote in June 2016, I theorized the elites would manipulate the outcome by placing their change agents into positions of power, which would delay or overturn any hope of a successful BREXIT. It’s been almost 3.5 years since that vote and we are still at square one. It seems that the British government continues to fumble and stumble, which is actually the intended result.
I would not be investing based on a weak dollar
Be careful if you intend to invest based on a weak USD.
If we consider the shipping tanker firms; Geopolitical risk in the energy industry is pushing dayrates higher across the industry. Not only is the attack on Saudi Arabia’s oil supply leading to fears that more oil will need to be shipped around the world over the next few months, but the Trump administration is also putting sanctions on foreign suppliers to the industry. China’s Cosco, one of the world’s largest vessel owners, was hit with sanctions recently, and if companies with U.S. ties can’t use Cosco, it will put quick pressure on rates in the spot market.
I know this may leave you at square one, but I would rather invest based on observations and reality. If we invest based on trying to double down, we usually end up with losses by taking undue risks. I know that asset values look rich here, and they are. But if we know the agenda, we can invest with more confidence. The primary objective: the central banks need to do whatever it takes to keep the nation-state governments in business. We need to plan accordingly.