Every year around this time, I have the pleasure and privilege of addressing readers of the German-language version of Safe Money Report. I find these trips valuable for many reasons, not the least of which is the insightful and probing questions I receive about U.S. markets, the global economy, and more.
I can’t provide all my insights, investment advice and views here, of course. But in the spirit of helping you become a better investor, I would like to share some of the major points I’ll touch on.
First, the markets are awash in liquidity thanks to a Global Money Tsunami of unprecedented proportions. This giant money wave … this wall of capital fleeing for safer shores … is creating both huge losers and winners in the global marketplace. The key to surviving and thriving in this environment is to be like reporter Bob Woodward in the Watergate era: You have to “Follow the Money!”
|“The situation in the euro area remains extremely fragile.”
–German Chancellor Angela Merkel
Second, “Big Money” is the main driver here. Think of the sovereign wealth funds of the world’s richest nations … the pension funds and institutional managers who have to help millions of workers support themselves in retirement … and increasingly, even global central banks!
I’m talking about organizations like the Norway Government Pension Fund, with $893 billion to manage, and the three major sovereign wealth funds in China, with $1.5 trillion. And of course, the Bank of Japan and Japan’s Government Pension Investment Fund just said they would shovel even more money into domestic and foreign stocks in the coming year — rather than allowing actual, underlying market fundamentals to dictate price.
Third, it’s not just U.S. stocks that scared foreign capital from all over the world is pouring into. Large real estate projects and high-end properties are attracting billions of foreign dollars in cities like Miami and New York. One Florida mansion that won’t even be finished until the end of next year recently hit the market with a list price of $139 million — the highest-priced public listing in U.S. history.
Fourth, this Global Money Tsunami is driving the U.S. dollar and U.S. asset prices up at the expense of currencies and markets overseas. To cite just a few examples: The Russian ruble just plunged to a record low, while the Brazilian real hit a six-year low. The euro just breached 1.25 to the downside, leaving it at its lowest level in 26 months!
Fifth, the markets are behaving in what seems (at first) to be a very odd fashion. But it’s really not when you think about it.
Simply put: The worse things get overseas in Eastern Europe or Russia because of the sanctions and territory clashes there … in the Middle East because of the fighting between ISIS and regional militaries … or in China because of that country’s slumping economy and real estate markets … the more money that flows to the “least bad” alternative destination. That remains the U.S.
I believe there are several ways for you to preserve and build your wealth in this environment. Among the most important tips?
Avoid stocks that are too heavily reliant on Europe, China or Japan for sales and profit growth. Also, invest in the dollar on short-term pullbacks, and avoid currencies from countries with central banks that are actively trying to devalue.
Most of all: Watch for signs that the Global Money Tsunami is no longer carrying all U.S. stocks along for the ride. I’m seeing some divergences already between select markets. That’s why I’m focusing on only the “best of the best” — stocks with high Weiss Ratings, in powerful sector bull markets, and with individual fundamental forces that can allow them to prosper regardless of more macroeconomic factors.
Good luck with your portfolios — and auf Wiedersehen!
Until next time,