US Stocks and Currency Headed Lower…Time to Buy Canada
With US stocks priced for perfection, it won’t be long before stock investors figure out what the USD currency traders have already. Which is the Fed can’t move rates in either direction, there are $19 trillion reasons (the national debt) they can’t raise rates. They can’t lower rates because they are still so close to zero, and the Fed really doesn’t want negative rates, that would signal undeniable systemic problems. The currency traders have figured out that the Fed won’t be raising rates this year, which has put the USD index under a lot of pressure in the past few months and it looks to have much lower to go. While the currency market figured out no more rate hikes, stock investor’s took this as evidence the Fed will be there to support the stock market. This party is about to get interesting.
There is a strong argument for further weakness in the USD, and also that the risks in the stock market are high and a steep decline is very close. I’m talking days over the next couple weeks for a significant pullback to start. The USD under further pressure will drive gold, oil and other commodities prices higher which will be great for many of the resource companies, big and small, listed on the Canadian exchanges.
I’ve been banging the desk about how overvalued the USD index was and that it was ready for a correction since the beginning of 2016, it has been getting pummeled in the past few months and the trend looks very bearish and still a long way from bottoming. Actually, it is on a downward trajectory which is suggesting the USD index is heading back into the 80s over the next year or so.
US stocks have benefited mainly from stock buybacks and a Fed that had changed their mandate from that of full employment and inflation under control to the constant savior of the stock market. It is clear from their actions that their masters are on Wall Street and their number one job is to keep the market from crashing.
They have been trying for a long time to sell this idea that they are data dependent and want to normalize rates. They know that having interest rates virtually at zero for extensive periods of time is very risky, if there are significant economic issues they have no bullets because they can’t let the US have negative interest rates.
The Fed looked after their bankster masters after the global economic collapse that started in 2008 by paying off their bad bets, recapitalize their balance sheets, and provide them with confidence that the Fed will be there if they screw up. While they were shilling this scam, they pumped trillions into the system, if you look at the weakness in the employment market and consider the under employed and those that have left the labour market, the real economic benefits have been poor. Massive success at bailing out the banksters that has done little for Main Street.
The Fed will roll out their stats trying to use them to justify their moves, or lack there of, but those stats aren’t telling the story. All one has to look at is the average wage of Americans, and in around the past 40 years, they haven’t received a wage increase. Yes, that is correct and depressing. Meanwhile, the banksters that made all those bad bets that drove the global economy into the ditch are doing fine while the gap between rich and poor grows.
It is clear to a growing crowd that the Fed has painted themselves into a corner where they can’t do anything but talk, lately I’ve been enjoying every time Fed Chair Yellen speaks in public. Her comments are soothing comfort for the USD bears of late, they saw the fear in her eyes when she raised interest rates in the last meeting of 2015 when the stock market had a fit. Since then, the market bounced, but that looks a lot more like a sucker’s rally than any kind of sustainable recovery.
Of course this has been great for the price of gold which has been the best performing asset of any of the major asset classes. It has also put some wind in the sails of oil and other commodities, with more downside ahead for the USD index, I’m expecting these trends for gold and other commodities to continue for the short and midterm.
US stocks are priced for perfection trading at the high end of the historical range of price to earning multiples whether looking at forward or trailing. At the same time, earnings growth is slowing and it looks like this earnings season is shaping up for a lot of negative surprises. Multinational corporations have been feeling the pain of trying to sell goods and services with such a high currency, and when they report their softer earnings in the USD it makes things look even worse.
In this kind of environment, there is much more downside risk to the USD and US stocks than upside potential and long is a risky bet. With he stock market priced for perfection the start of a correction is just one bad news event away, any excuse will do for investors to sell in droves.
Investors will be much better treated in gold, commodities, resource stocks that explore, develop and mine. Canada is the best place to find those stocks, which has a currency tightly correlated to the movement in commodities. Investors outside of Canada that pick their stocks wisely will get added bang for their buck in strong stock performance and currency gains. Canada is the best place in the world to invest, if you want to outperform the averages.
I’ve put together a strong group of sponsors and should have more to announce soon, I also have a strong group of stock picks in the reports and it is time for an update report which I should have out this week. These companies are participating in the improving market for gold and I will talk about their recent news, key developments and goals I’m watching for them to hit in the near term.
All the best,
Allan Barry Laboucan
PS, my reports are for information purposes only, before making any investment decisions it is important to do your homework and speak with your financial advisers.
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