Repeat after me:
“They are still all the same markets!”
There’s the US Dollar – and then there’s everything else. And the dollar, just days after QE2 was announced, turned up in sharp fashion. Some final nail in the coffin that was!
It appears this is STILL the only chart we need to watch. (Source: StockCharts.com)
Stock, in tandem, turned down almost exactly when the buck turned up:
Dollar up means…stocks down! (Source: StockCharts.com)
Gold turned down as well – but has fared better than stocks (just as it has over the past 10 years!) And it was up today on news of the North/South Korea skirmishing:
This mini-dollar rally has exerted more pain from the grains:
Which leads me to the following conclusions:
- The dollar is still THE market to watch.
- If you’re not up for making a bet on the direction of the dollar, the “long gold, short stocks” trade is still humming along just fine. It’s probably got a few more years to run.
- Agriculture has not yet decoupled from the buck, despite some renewed excitement for the ag sector. As much as I’d love to pile back into the grains – I feel like things got overheated (again) on the reflation trade.
For what it’s worth – I have a feeling the dollar has some room to run here. Which would bring all other markets under pressure for a bit.
So, unless you know something, or have a compelling value play, I’m not sure if there’s any upside to being in stocks. Sure, some stocks may perform well during a broad based downturn – and if you can pick ’em, then fine. But I think with investor sentiment still relatively bullish, the dollar potentially kicking off another nice rally, and stocks being very highly correlated, it would be a swim upstream to say the least.
Cash and/or gold is it for now, I think. Which one depends of course on your time horizon. Longer term, you’re probably fine dollar cost averaging your gold purchases. (Hey, remember when that was the fail proof playbook for stocks?)
But shorter term, I’m personally satisfied to sit on cash, and see what plays out over the next few months.