|Dow||-117.16 to 17,959.03|
|S&P 500||-10.22 to 2,089.28|
|Nasdaq||+9.55 to 4,992.38|
|10-YR Yield||+0.027 to 1.977%|
|Gold||+$19.30 to $1,170.60|
|Crude Oil||-$0.70 to $43.96|
Here’s What it Means …
The U.S. has joined the fight! Not a new shooting war, but a battle over money!
Or as Bill Gross, the telegenic portfolio manager from Janus Capital, put it yesterday:
“Central banks around the world are fighting a currency war and it’s about time that the United States joined in this particular conflict.”
So just what is a currency war? And what are the consequences for you as investors?
Let’s try to keep it simple. Many, many countries have been cutting interest rates and spending billions on QE every few days. They’re doing so with one goal in mind: To devalue their currencies against the U.S. dollar. The idea is that a weaker currency will boost domestic inflation and make their exports cheaper on the world market, therefore giving them a competitive advantage.
|Many countries are seeking to devalue their currencies against the U.S. dollar.|
The U.S. kept its mouth shut about that for the past several months. And because our Federal Reserve policymakers, Treasury officials, Congressmen, and others were willing to take the beating without fighting back, the dollar skyrocketed. In fact, it rose the farthest distance, at the fastest rate, in more than three decades!
I helped my Safe Money subscribers ride that rocket rally for many, many months with an ETF that’s meant to rise in value along with the dollar. But I recently told them to pocket those profits because the move was getting so extreme, I anticipated a policy response.
Shortly thereafter, the multinational Organization for Economic Cooperation and Development (OECD) added its forces to the fight. It said the greenback’s appreciation is suppressing growth and inflation here, yet another shot across the bow — or as a Bloomberg headline today put it: “Dollar Bulls Left Second Guessing by Fed’s Nod to Currency Wars.”
Does this guarantee the euro is going to turn tail and surge back to last spring’s highs? That contra-dollar assets like oil or gold are going to head into the stratosphere overnight? Of course not!
|“You need to start bottom-fishing in beaten-down, incredibly cheap assets and stocks.”|
But the unfolding moves on the currency market battlefield only reinforce my belief that you need to start bottom-fishing in beaten-down, incredibly cheap assets and stocks! The bargains are ridiculously attractive, and so much excess has been wrung out, that the risk-reward equation looks very attractive here.
So what’s your take, now that we’ve heard from Fed policymakers … and now that the markets have had time to digest their comments? Do you think yesterday’s Fed meeting was a game-changer for the currency market? Or is it just meaningless noise in the longer term? Can the U.S. win this currency war? Or is it a lost cause?
Definitely head over to the Money and Markets website and add your voice to this discussion. It could make or break your portfolio in the months ahead!
|Our Readers Speak|
Today’s topics over at the website included the job market, the Fed’s next move, and the global currency war. Talk about some meaty discussions!
Reader James said the following in response to my note that employment has improved: “Do you really believe the employment statistics from the BLS? Their birth/death model as a tool is laughable. it’s called ‘cooking the books.'”
Reader Edward also picked up on the discrepancies in the jobs data, saying: “You make a good point about people giving up looking for work, but also need to look at how many people are under-employed, how many people are in part-time jobs who would like full-time work, and lastly, how many more people have been given permanent disability status. They are not included in the employment numbers. There are so many more people added into in this category in the last few years that the government is running out of funds to pay them.”
Thanks for noting these things. But I don’t know how much more I can add considering we’ve had this exact same discussion every single month, after every single jobs report.
Here’s the bottom line: The jobs figures are not perfect. They have flaws. But to deny things are getting somewhat better in the labor market — after five years of data showing the same thing, month-in and month-out — is ill-advised, in my book.
As for the direction of interest rates in the wake of yesterday’s Fed meeting, Reader Howard said: “Our country is about to raise the debt ceiling again because, well, the economy is so great? So the answer is to raise interest rates? Who’s going to pay the increasing interest on our debt? The rest of the world does not give a stuff about us. We are in a deflationary spiral and a currency war.”
When it comes to the impact of low rates on the economy, Reader Mike S. had the following observation: “Housing prices are too high because we are in a bubble right now because of low interest rates. Do you think that housing prices would be where they are today if a fixed 30-year mortgage was 6 percent?
“This has all been created by the Federal Reserve’s easy money policies, like the bubble that is in the stock market now. This is a false economy we are living in now. This is not a free market economy.”
I appreciate the feedback. There’s no question that record-low interest rates distort economies and markets. That’s why I believe we will face “Bloody Wednesday” consequences as rates are normalized. But it’s important to remember that different asset classes and different sectors will be affected in different ways at different times.
Want to add anything more to these discussions? Then definitely use the website as a resource!
|Other Developments of the Day|
Banks have a habit of jumping into booming sectors, lending a ton of money, then turning tail when that sector experiences a setback. Sure enough, Citigroup (C, Weiss Ratings: B), Goldman Sachs (GS, Weiss Ratings: A-) and others are reportedly looking to unload energy loans they made last year. The Wall Street Journal says smaller hedge funds and distressed debt investors are likely buyers.
Guess what? It’s time for yet another European summit on the Greek debt crisis. This one will be held in Brussels, and will be attended by German Chancellor Angela Merkel, Greek Prime Minister Alexis Tsipras and other European officials. Further talks are expected to be held Monday in Berlin.
Retailing giant Target (TGT, Weiss Ratings: C) is seeking to make amends for its massive 2013 customer data theft. The electronic break-in compromised the data of 110 million customers, who will now be eligible for up to $10,000 in compensation if the multi-million dollar settlement is approved by a federal judge.
Tunisian officials are investigating the gunmen responsible for yesterday’s massacre at a Tunis museum popular with tourists. At least 20 people died in the attack. It may have been the work of terrorist groups seeking to establish a conservative Islamist republic in the country, which had been moving toward democracy since a 2011 Arab Spring uprising.
Thoughts on these stories? Or others I didn’t mention? Then head over to the website and put them in writing when you have a minute.
Until next time,