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The Worst Fears Are Coming TrueBy
Friday, April 8, 2011
Aren't you tired of "experts" warning about U.S. debts and the dollar?
I've heard the warnings of many of these "experts" for literally decades. But fortunately, I never bought into the fearmongering.
Instead, I stuck with what I do best: finding great investment opportunities for my readers. It's worked out darn well – and my readers have even made money multiple times by betting on a RISE in the dollar when the fearmongering got too great.
But times just changed, and the implications are serious...
To this point in my near-two-decade career in the investment business, I haven't worried much about the debt. It's primarily because in my research, I've found there is no way to get the timing right on when these problems will come home to roost.
The sky might fall someday, but predicting which day is tough.
I found that, for decades, the "action" in the financial markets didn't add up with predictions from the "experts"...
Every time the sky would fall in the financial markets, investors would BUY the U.S. dollar, and they'd BUY U.S. government debt. Far from teetering on the brink, the U.S. was the safe haven for decades.
But for the first time I can remember, investors did NOT flee to dollars or U.S. government bonds after a crisis. I'm talking about the Japanese disaster...
Nobody has talked about it. But today, the dollar is lower – and U.S. government bond prices are lower (interest rates are higher) – than they were before the disaster.
In short, for the first time, investors didn't flee to the safety of the dollar. You can argue that Japan's disaster didn't devastate Main Street USA, so we shouldn't have expected investors to run to the dollar anyway.
But I think this drop is significant...
This is the first time I've seen that the U.S. dollar and U.S. government bonds are no longer the world's "safe haven" investment.
While the U.S. dollar and U.S. government bonds are down, commodity prices (like gold, silver, and oil) are up. And stock prices are up.
The U.S. government has made no secret that it's cut interest rates to zero and it's "printing money" to prop up the economy. That has fueled bull markets in stocks and commodities.
As an investor, I expect the existing trend to continue from our government... which is bad for the dollar and U.S. bonds.
I can't know the day of reckoning when it comes to the debt and the dollar, but it is closer than ever. Until the day of reckoning arrives, the Bernanke Asset Bubble is in full effect in the financial markets.
So as strange as it may sound, you want to stay invested in stocks and commodities until you can't stand it anymore. Just have an exit strategy of some kind – like trailing stops – in place.
Good investing,
Steve
Further Reading:
Now that people are no longer running to the U.S. dollar to hedge against global disasters, we're left with one question: Are gold and silver the new safe havens for Big Money? Find out more here: Did You Notice This Change in the U.S. Dollar?
The U.S. dollar index is right around the lowest levels it's ever been since we went off the gold standard in the early 1970s. And now, the manager of the world's biggest bond fund is selling all his Treasurys. See what's in store for us here: "I Am Confident This Country Will Default on Its Debt."
Market NotesSTOCKS... COMMODITIES... AND NOW GOLD! The loud message from the market this week: "Get me stocks... get me commodities... get me gold... get me anything but dollars."
Over the past year, we've highlighted how stocks and commodities are exhibiting tremendous "correlation"... which is a fancy way of saying the two asset classes are moving in lockstep together as investors rush to get out of depreciating paper currency.
Well, you can lump gold into this idea as well. Below is a chart that plots the performance of gold (black line) alongside the performance of stocks (blue line) since last August. As you can see, gold and stocks are moving higher in a similar fashion... and sport similar gains.
Unlike many investors, we don't consider gold a traditional commodity like copper, corn, or crude oil. We consider gold "money," and that's it. But as we've shown you with stocks vs. commodities – and now with stocks vs. gold – folks are plowing wealth into all three ideas... for now.
Remember... trends never go up and up without interruption. If folks fall out of love with the "everything up and up" phenomenon, a huge wave of selling could hit everything at the same time.
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