I was up to my eyeballs in stocks. “If I’m wrong, we’re done,” I told my wife.
It was February 2009. As the markets were crashing in 2008, I had made an ALL-IN bet on the U.S. stock market going up. Every dollar I had was in the market. And then, I borrowed money and bought even more stocks.
In hindsight, I bought too early. By February 2009, every single stock that I owned was down big. Another month or two, and I would have had to sell and take huge losses. And I’d be ruined.
However, as crazy as it sounds … I wasn’t that worried. That’s because I could tell that the tide was going to turn and soon.
I figured this out by watching the markets day and night. When you track things obsessively, like I was doing, you figure out the key things driving markets.
In an earlier Sovereign Investor Daily, I told you about one of these things. Today, I’m going to show you the second critical component.
This second thing is why I wasn’t worried about being wiped out. It’s what told me that my ALL-IN bet made during the worst financial crisis in modern history was going to start paying off soon.
What you should have been watching during the financial crisis was the value of the U.S. dollar — the easiest way to do this is to follow the U.S. Dollar Index, which measures our currency against a basket of major currencies such as the euro, the yen and the Swiss franc.
The U.S. dollar is the titanium of currencies worldwide. In a crisis, everyone buys dollars, because people worldwide are willing to accept it. In my travels, I’ve used dollars to buy a Coke in a village in West Africa, buy souvenirs at the pyramids in Egypt, buy food in a small town in India and pay for a bunk at a mountain hut high in the Swiss Alps.
Dollar Falls, Stocks Rise
This wide acceptance of the U.S. dollar was incredibly valuable during the 2008 financial crisis. Around the world, people were selling stocks in a panic and putting their money into U.S. dollars. As a result, the dollar soared higher as stocks crashed. As you can see in the chart below, the stock market (represented by the S&P 500 in the blue line) plummeted every time the U.S. Dollar Index (red line) rallied.
And then in March 2009, the dollar peaked, allowing U.S. stocks to put in a bottom before soaring once again.
This pattern, which I worked out during the 2008 financial crisis, has continued to work through the current bull market. Every time the U.S. dollar has rallied, the stock market has crashed. And when the dollar crashes, the stock market soars.
This pattern has begun to play out once again. From its low point in May 2014 to its early high in March 2015, the U.S. Dollar Index has jumped 25%. And through 2015 into February 2016, the index has soared even higher. And of course, just like the pattern predicted … stocks around the world plunged.
In other words, people who control the big money at banks, hedge funds, etc. are still programmed to do as they did during the financial crisis. So, the moment there is something to worry about — Greece, China, the oil price crash, rising U.S. interest rates — people dump stocks and buy U.S. dollars.
Bottom line: If you own stocks, you want a weak dollar. Why? Because the big-money investors are programmed to buy stocks when the dollar drops.
A New Fly in the Ointment
Will this system continue to work flawlessly?
Well, there’s a new detail that’s just become more important to investors. It’s one that I believe could cause the value of the U.S. dollar to crash.
The businessman, who is now set to be the Republican Party’s nominee for U.S. president, has promised to spend as much as $1 trillion to rebuild American infrastructure. Now, I don’t know if Trump is going to be elected president. However, it’s clear that if he gets elected, the U.S. dollar is going to crash.
That’s because his $1 trillion in spending is going to flood the market for U.S. dollars as the government suddenly increases the supply of U.S. dollars worldwide. And unless someone wants another $1 trillion in our currency, the U.S. dollar is going to go down. That’s just basic supply and demand. Supply is going to vastly outpace demand, pushing the value of the commodity down — in this case, it’s the dollar.
And since people still have the same habit from the last financial crisis, we know what’s going to happen when the dollar tumbles — stocks are going to go up.
Two ETFs for the Trump Dollar Crash
Companies that directly benefit from Trump’s $1 trillion infrastructure spending could also see their shares skyrocket. And so could stocks that directly benefit from a crashing U.S. dollar.
A good bet for infrastructure stocks is the Industrial Select Sector SPDR ETF (NYSE Arca: XLI) that I first told you about on March 3.
And a good bet for stocks that benefit from the crashing dollar is the gold mining exchange-traded fund (ETF) that I told you about first on April 21.
Both these trades are set to soar if it becomes clear that Donald Trump is going to be elected president.
Editor, Profits Unlimited