A special, urgent event this afternoon at 4 PM ET … the myth of the “safety” of the dollar … revealing what a trainwreck it actually is … what to do with your wealth now
We begin today with a reminder to join expert investors, Eric Fry and Louis Navellier, this afternoon at 4 PM ET for a special live event that focuses on one big question:
How do you position your wealth to handle the historic challenges facing the markets today?
Now, a quick digression…
We’re publishing today’s Digest early in light of today’s event. The unfortunate side effect is we’re unable to bring you news on the outcome of the Fed’s meeting today. We’ll cover that tomorrow.
However, we don’t need to know the outcome in order to look squarely at the main problem that investors face right now. And this ties in with Eric and Louis’ event.
So, what’s the problem, put simply?
Well, on one hand, the stock market has just triggered a very dangerous “sell” signal, that we’ll discuss in a moment. So, keeping your wealth in the average S&P 500 stock brings significant risk.
On the other hand, moving to the “safety” of cash for any significant amount of time is a guaranteed way to destroy your wealth.
Let’s begin our analysis with the “cash” issue because few investors realize just how dangerous it is to hold cash today – and not simply because of surging inflation over the last 12 months or so.
As you’re about to see, if you’ve been in cash over the last five years, it’s had an enormous negative impact on your wealth.
And it’s only going to get worse.
***The hidden trainwreck of cash
Let’s start by looking at the U.S. Dollar Index. It’s a measure of the value of the U.S. dollar relative to the value of a basket of six major global currencies – the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona.
Below, we look at a chart of the U.S. Dollar Index since January 1, 2021.
Now, the unassuming investor might look at this and say, “wow, the dollar is surging! That’s strength! This is showing that my bucks are able to buy me more stuff. Keeping my wealth in dollars is not only preserving my purchasing power, it’s increasing.”
Well, yes and no.
Remember, what is this chart actually showing us?
Well, we’re seeing the dollar relative to a basket of other global currencies. So, all we’re getting a feel for is whether the dollar is stronger or weaker than these other currencies.
But what if all of these currencies were getting weaker?
As an analogy, imagine a handful of ships in the harbor. It turns out, they’re all sinking. However, the “dollar” ship is sinking slower than the other ships. So, by comparison, it looks great.
I want to get on that ship!
But do you?
Well, yes, if all you’re looking at are the adjacent sinking ships. But what would happen if you compared the dollar ship to a fixed point like, say, a sturdy, wooden dock?
Well, you’d realize you’re in trouble.
Let’s introduce a few “docks” to help us see what’s really happening with the dollar.
***The illusion of dollar strength revealed
When we think about the price, we think about the value of the object – say, real estate – manifested in dollars.
The unspoken implication is that what’s changing is the inherent value of the real estate. The dollar is the sturdy, fixed point in this comparison. The North Star.
So, when a home price rises or falls, that reflects movement in the value of the home itself, since the good ‘ole dollar is as enduring as an oak tree.
But as a thought experiment, let’s switch this…
What if the real estate itself was maintaining its value? What if it was the sturdy oak?
Instead, what if what was changing was the dollar and its ability to buy more or less real estate?
What would that look like?
Well, below is the Case/Shiller Index. It’s a benchmark of the average single-family home price in the U.S.
Now, this chart alone won’t make our point, but we have to start here. So, notice this housing index up 46% in over the last five years.
Meanwhile, look at gold over the last five years. It’s up 62%.
Now, here’s where we things get tricky.
***If real estate and gold are the “docks” in our analogy, then they should stay pretty fixed if we compare them to one another, right?
It’s logical.
After all, if they’re actually the sturdy oaks here, then their multi-year values should remain largely constant.
Well, as you’re about to see, though there’s been some volatility in their relationship, the price of real estate relative to gold is at roughly the same point it was five years ago.
It’s not just real estate and gold. Let’s now swap in the Reuters/Jefferies CRB Index. This tracks a basket of commodities.
Below, we look at the relationship between commodities and gold over the last five years.
Again, you’ll see volatility, but their relative values remain largely the same.
Even if we look at gold relative to stocks, this value-sturdiness largely holds up.
Here’s the relationship between gold and the S&P over the last five years.
Now, for the eye-opener, let’s compare the U.S. Dollar Index – remember, it looked so amazing compared to other global currencies – to the S&P 500 over the last five years.
Here’s your sinking ship.
Are housing, commodities, and stocks surging? Or is the dollar actually melting down when compared to sturdy assets rather than global currencies?
As our CEO, Brian Hunt, says, keeping your wealth in dollars is similar to watching an ice cube melting out in a hot summer day.
But let’s return to the problem at the top of this Digest. If dollars aren’t safe, what do you with your wealth?
After all, stocks just flashed a very dangerous signal.
***The S&P just experienced a “death cross”
In our March 3rd Digest we profiled “simple moving averages” (SMAs).
We noted that the S&P 500 was approaching a situation in which the 50-day SMA would fall through the 200-day SMA. This is something that technical investors call a “death cross.”
We pointed out that over the last 10 years, every time the 50-day SMA has fallen through the 200-day SMA, the S&P has seen a substantial pullback. The exception is the 2020 bear market, which happened so fast (while the recovery was equally fast) that these moving averages didn’t cross until the stock market damage was already in the rearview mirror.
Well, we’ve now officially had that death cross, as you can see below.
Though this doesn’t guarantee that the stock market is headed lower, this is certainly not a good sign. And it suggests investors need to be especially careful about throwing money into the average S&P 500 stock today.
But historically speaking, stocks are the best game in town for growing your wealth in order to meet your retirement goals. And we just saw that moving to the dollar is a nightmare.
So, what’s the answer?
***That’s what this afternoon’s special live event is all about
Just because the broad market appears to be on thin ice, that doesn’t mean that certain stocks can’t do incredibly well in this market climate.
The challenge is being able to separate the good from the bad. And that’s where market veterans Eric and Louis excel, sharing a combined 70 years of investing experience and market analysis between them.
Today’s market is the definition of a “stock picker’s market.” This is not the time to be an ETF investor. And it’s certainly not time to hide out in the dollar.
Join Eric and Louis today at 4 PM ET to get their thoughts on the market, what’s coming next, and what to do about it right now. There’s no obligation. At a minimum, join just to hear what these two experts see coming. Click here to reserve your seat.
We’ll see you there.
Have a good evening,
Jeff Remsburg
