USD $ Index Daily: Everyone seems to love the dollar for all the reasons we already know about, such as: relative yield, US growth, safe haven play, China, Europe, Brexit, the Tooth Fairy, and Santa Clause. I hope I haven’t missed anything. But, the Joker of the Market loves it when everyone is facing the same direction. So, if you love the dollar, be careful; as there are longer term rationales suggesting the dollar may turn lower soon and enter a long-term bear market. These include: US recession, political upheaval, Chinese e-yuan leapfrogging SWIFT technology, a positive Brexit surprise, money flow to Europe on big fiscal stimulus from Germany and others, commodities bull market, the Tooth Fairy, and Santa Clause. We may not be at the point of a major turn, obviously; however, we can hear the Fat Lady warming up her voice…
Stocks to Commodities Ratio and US $ Bull and Bear Market: Note the stock/to commodities ratio as shown below is very much near where the last commodities bull market cycle begun back in 1999. I.E. a bull market cycle in commodities (lower stocks to commodities ratio) has been equivalent to a bear market in the US dollar. (Think of it as real goods priced in dollars going up; or relative value of the dollar declining.) So, maybe we are getting close to a turning point.
Dow Theory Confirmation: We are not experts on Dow Theory (we aren’t experts on anything really); but it doesn’t seem we have seen the Transports validate the latest high in the Industrials. Robert Rhea phone home!
Gold and the US Dollar Index: We like gold long-term. And usually gold and the dollar are negatively correlated; i.e. gold up dollar down, and vice versa. This relationship goes to that idea a good suit should cost one ounce of gold priced in dollars. Granted ,I don’t wear $1500 suits, but the really important people do.
US 10-year bond yields: Many, including Karl Marx, believe zero interest rates mark the end of capitalism. Money can no long find profitable places for investment. Thus, reflecting the end of capitalism as a dynamic system. So, we have placed Elizabeth Warren’s upcoming presidency (not sure how to really weight that possibility) as marking the effective end of capitalism in America and possibly marking the low in interest rates. A scary outcome for those who understand socialism and believe Mrs. Warren is a practitioner (she may be no such thing of course; and instead be the true champion of middle- and lower-class Americans, and implement policies that rebalance the skewed positioning that cannot be denied: Those who have access to capital to grow their wealth are doing very well; those who depend on their labor are not.) We may find out soon. We use Mrs. Warren as the example because she is leading in the national polls as the 2020 challenger to President Trump and it seems Americans are warming to socialistic policy ideas. We do not want to get into the morass of politics in this publication. Politics in America is now extremely polarizing, and we don’t care to play.
Happy Friday. Enjoy your weekend.
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Black Swan Capital