Then this morning, the ISM Manufacturing index came in at 50.87 for April. That was down from 51.8 a month earlier and weaker than economists expected.
Sub-indices that track new orders, production and order backlogs all declined from March, while one that tracks manufacturing employment remained below 50 for the fifth month in a row. That suggests we’re still plagued with layoffs in the factory sector.
Result: The Dollar Index (DXY) is on the cusp of a major potential collapse. Take a look here at this weekly chart and you can see that we’re flirting with long-term support around 92.50-93, support that dates all the way back to January 2015.
|What next for the dollar?|
Of course, select leading currencies are performing much better against the buck. My favorite is the Japanese yen. I recommended a few different ways for my subscribers to profit from gains in the yen months ago, and am pleased to see it just hit a 19-month high. There’s another currency that should be right behind it, and if it breaks out as I expect, it could really soar. I’ll have more for you in future updates.
Meanwhile, I suggest you strongly consider adding some dollar hedges. Gold and gold shares are one option. So are foreign bond funds or ETFs, which rise in value when the dollar falls.
Multinational stocks can be a third investment vehicle … but only IF they don’t have excessive economic sensitivity. I get so angry when these dime-a-dozen talking heads go on CNBC and say: “These companies will make more as the dollar goes down because their foreign sales will be worth more in dollar terms. Buy, buy, BUY!”
News flash, guys: If the dollar is going down because the U.S. economy is stumbling toward recession, that isn’t good for cyclical companies! Their underlying fundamentals, sales, and earnings will deteriorate along with the economy, more than overwhelming any positive influence from currency fluctuations.
So first, keep your eye on the dollar. If it breaks sharply, that requires portfolio action on your part.
Second, don’t listen to quick, off-the-cuff commentary about what a dollar drop means for your investments. The reality is a lot more nuanced.
Third, take advantage of the multiple venues where I go into much more detail about what to do in this volatile environment …
For one thing, I just held a very important call with my colleague Mike Burnick. I hope you tuned in earlier. But if you missed it for any reason, you can still catch a recording of it online here for a limited time.
For another thing, I’m going to be providing a pair of detailed briefings on the economy, the markets, and how to profit at the MoneyShow Las Vegas. It runs from May 9-12 at Caesars Palace, and you can join me by clicking here, or calling 800-970-4355, to register today. If you call, please mention priority code 040948.
What if you can’t make the trip to Nevada? Well, you still have the option of “attending” the MoneyShow Las Vegas Virtual Event online. There’s something for everyone, with advice on fine-tuning your strategies and mastering the latest concepts, to simply learning more about investing and trading from some of the best names in the industry.
You can register for free using this link. Then you’ll be able to watch one of my presentations, as well as over 30 more interactive sessions and discussions.
Meanwhile, if you have any other thoughts or comments you want to add – on the dollar, the yen, the U.S. economy, or the markets overall –please make sure you add them in the discussion section below. This is no time to hold it all in, considering the incredible recent volatility and key developments in several capital markets.
Last week was a very interesting one on the policy and economic fronts. Many of you weighed in on my interpretation of the action, and what it means for stocks, currencies, and other assets going forward.
Reader Howard said: “It would be better to face the music and rebuild while learning from the Great Recession than forgetting what the lesson was all about after eight years. True, the markets have improved — but at the expense of so many other things like real job growth, reinvestment of capital, wage growth, and genuine confidence in our own manufacturing.
“You can’t throw a party and expect everyone else to pay for it forever. Someone has to lose, and it would have been far better to see the wolves of Wall Street go down than millions of ‘mom and pop’ investors.”
Reader Robert added: “I know economists and others interested in the dismal science have settled on the ‘bubble’ as the metaphor of choice to describe our current predicament. But I suggest that ‘Foie Gras’ is a more accurate description of the world’s central bank policies.
“The practice of over-feeding the geese so as to fatten their livers for the purpose of making pate to me seems appropriate, as the practice never ends until they are slaughtered. I, for one, am feeling stuffed and wondering how long it is till my liver is served to the bankers, brokers and politicians who have instituted and benefited from this practice.”
With regards to real estate, Reader Mike S. said: “All these so-called real estate experts are caught up in the easy money/low interest rate scenario. The people who are buying homes with multiple bids are overpaying. Five years from now when rates normalize, the ability to afford a home with higher payments will affect the prices of homes downward.
“I have seen this act before and it ends badly. The Federal Reserve is causing all this, but the average American will pay the economic consequences.”
Reader Carla added the following comments, not just on inflated real estate values, but also stocks. Her take: “I see interest rates frozen low, and stock valuations high. For myself, it looks like a good time to convert to tangible assets, so I bought a new car and restocked emergency supplies, including water.
“I do see right in my own backyard unsustainable inflated prices in real estate and a lack of affordable housing and sense a bubble near bursting. The competition has never been more intense, and change is in the air.”
Lastly, with regards to the economy, Reader Monica said: “Of course consumer spending is down. People are losing their full-time jobs. The official unemployment figures and inflation figures are a joke designed to make the current administration look good — and to keep from giving COLA adjustments to seniors on Social Security.
“It’s difficult to get credit, and many folks are struggling to pay off long-held credit-card debt. What money are they supposed to use to buy things?”
And Reader Chuck B. said: “As Mike pointed out, our GDP only grew 0.5% in the last quarter, though that is subject to revision. Actually, in the last four quarters, it fell from +3.9%, to +2%, to +1.4%, to +0.5%. Will the current quarter have a minus sign when the figures are announced in July?”
Thanks for sharing your views on these important topics. I am obviously very concerned about the outlook for real estate, particularly on the commercial side of things. And given where we are in the credit and economic cycle, I wouldn’t be surprised in the least if the “R” (Recession) word starts showing up a LOT in the mainstream press soon.
Puerto Rico is officially defaulting on its debt, with the island’s Government Development Bank failing to pay $389 million in principal and interest due today. The island is buried under $70 billion of debt, and also has a massively underfunded $46 billion pension system. It is seeking emergency aid from the U.S. government, but Congress isn’t playing ball yet.
The mega-merger between oil services firms Halliburton (HAL) and Baker Hughes (BHI) just collapsed. The $35 billion deal faced fierce resistance from antitrust regulators in the U.S. and abroad because it would have combined the #2 and #3 companies in the energy services business. Haliburton will have to pay Baker Hughes a $3.5 billion breakup fee due to the deal’s failure.
Remember that huge surge in … well … every asset in China that I wrote about Friday? The one spurred by — you guessed it — too much easy money?
Well, the New York Times picked up on the topic today, focusing its coverage on EGG futures. They’ve surged by almost a third in the past few weeks for no fundamental reason whatsoever, joining other commodities like steel, cotton, iron ore, and even garlic.
What will it take to get away from these … er … “scrambled” markets? When will policymakers realize the hazards of “over easy” policy? We shall see.
Any thoughts you want to share on these stories? Or others I didn’t cover? Make sure you hit up the discussion section below and add them.
Until next time,
P.S. Click this link to read your free copy of The Mystery of the Golden Ratio. It contains important information you’ll need to protect your wealth as this crisis unfolds.