This one comes up a lot. “JC, what has you concerned?”.
This morning I was on the Alpha Trader Podcast with Aaron Task, former Digital Editor of Fortune and Editor-in-Chief of Yahoo! Finance. It was fun. I’ll post the link when it’s up next week.
But that’s what he asked. What has me concerned?
And what’s interesting is that nothing really “concerns” me. Because I don’t really care. I’m too old for that shit. I can’t worry about the economic and social implications of the market going up or down.
Stocks can get cut in half from here. Or they could double. I’m good either way. Bitcoin can go to zero. Not my problem. Gold can go to $100,000, or $100. Doesn’t matter to me.
So I’m not “concerned” about anything. I just take it how it comes, when it comes. As investors, we have no choice. Well, as open-minded investors, anyway.
Now, if you ask me what it’s going to take to shift to a more defensive approach towards equities, I think I’ve already done a good job of laying that out. We weren’t seeing a bid in those safety trades then, and we’re still not today.
That’s just not happening.
Taking a step back, let’s think about where we’ve seen leadership. It’s been International, Emerging Markets, China, Taiwan, South Korea. China, obviously, being a huge weighting there.
Base Metals have been ripping. Think Copper, Aluminum, Nickel, Lead, Tin, Zinc…
Caterpillar, Honeywell and other Industrials roaring higher.
Aussie/Yen keeps making new highs.
Freeport McMoRan new 6-yr highs!
This is all the same trade/story, as far as I’m concerned.
And you know what they all scream?
Weaker U.S. Dollar….
And that’s precisely what we’ve seen:
All of the trades that have been working are trends that make sense with a weakening Dollar. The fact that Gold has struggled and actually down double digits since the Summer shows you how little demand there is for these rocks, when stocks are doing as well as they have been. Just look at how well Small-caps have done:
But Gold is another story altogether.
For me, it’s the list above: EM, Copper, Freeport, Industrials, Aussie, etc.
All of these scream weaker Dollar.
So what if the Dollar is not going down. Then what?
Click on the charts to zoom in
What I’m trying to show here is that 91 and change level. That’s the 38.2% retracement of the entire 2008-2016 rally in the Dollar, but it’s also where it stopped going down in 2018, precisely when stocks all over the world stopped going up.
I don’t think that’s a coincidence.
All of this rotation into those risk assets I mentioned started when the Dollar peaked in March last year.
Again, I don’t think that’s a coincidence.
Are we overthinking the Dollar here? Maybe.
Willie mentioned in a meeting yesterday that people love overthinking the Dollar because it makes them sound smart when they talk about it.
And this is probably true. Willie’s good with that stuff.
But for me, smart or dumb, I don’t care about all that. It’s about managing risk. And to get back to Aaron Task’s question from this morning, what has me concerned? While nothing technically “concerns” me, what is it going to take to get us more defensive?
Well, other than bids in these 4 indicators, I think a US Dollar Index above 91.25 is probably a good start.
BUT BUT BUT…..
If we’re going to make the bearish case for equities, based on a stronger US Dollar, don’t we have to make an equally bullish case if the Dollar rolls over again and collapses down towards 83?
I think we do have to.
And, in fact, that’s the bet we’re making: The Dollar falls apart. And these global growth trades keep working.
Will you keep an open mind?
What do you think?