It's That Catalyst Again...

JC Parets
July 12, 2023

While many investors have been focused on arbitrary lagging indicators like the economy, we rather keep our attention on reality.

We're grown adults. We don't need bedtime stories to go to sleep at night. So fairytales about recessions, or inflations, or bidens are just not anything we're interested in.

We get paid to sell things at higher prices than where we buy them.

And the bet we've been making for a long time is that the negative correlation between the US Dollar and stocks will remain in place.

That bet has paid off handsomely for us and anyone listening.

So as investors we all have a choice. Do we bet that the correlation is all of a sudden going to change tomorrow? Or do we bet that things just remain the same?

Here is the US Dollar Index consolidating in what appears to be a classic continuation pattern, within an ongoing downtrend:

What does a lower Dollar mean for the S&P500, and equities in general?

A weaker Dollar has been a tailwind for stocks. It's when the Dollar has been strong that stocks come under pressure:

How the US Dollar Index resolves this consolidation is front and center for us.

The "reasons" for a weaker Dollar are not our concern. The permabears tell us that if the Dollar is weakening "because of a recession", then it's not good for stocks.

There's a reason why the permabears are the laughingstock of the financial industry.

They seem to focus on things that don't pay anyone, like economics, or earnings, or politics.

It's no wonder they got this totally wrong. They're not even looking at the price of assets.

It's like going up to bat with a blindfold on. How could you possibly expect to make any contact with the ball.

Take the blindfold off. Look at what is ACTUALLY happening.

Yes we "could" go into a recession. The entire financial system "could" collapse. Maybe Biden does "ruin everything". And quite possibly, something "could" happen that no one even expects.

Yes.

Any of those things are possible.

But the only way to get paid around here is to make money in the market environment we're actually in, not the one someone thinks maybe we "should" be in.

In my experience, focusing on the facts is really helpful. It's listening to fairytales that gets you into trouble.

 

 

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