How to Benefit From the Dollar’s Reversal by Jeff D. Opdyke, The Sovereign Investor.
In case you need another reason to prepare for a reversal of today’s dollar strength, pay attention to what happens with the Standard & Poor’s 500 Index.
The 500 companies inside America’s primary indicator of stock market health are set to report a cumulative decline in earnings for the first quarter. By most estimates, the S&P’s first-quarter earnings will be down between 3% and 5% compared to last year’s numbers — and, remember, last year’s effort was hamstrung by one of the worst winters we’ve seen in many a year.
The result is just more proof that the Federal Reserve will not raise interest rates soon and that “normalized rates” will be much lower than anyone expects … and all because the Fed desperately needs a weaker dollar to extract itself from the mess it has created over the last couple of decades.
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It’s also more proof that your salvation as an investor rests in owning currencies from elsewhere in the world — particularly those from the economies of the future.
And investors need what little salvation they can get: S&P earnings are going into an “earnings recession,” or two consecutive quarters of earnings decline. Earnings plunged in the fourth quarter by 14%, which means a decline this quarter would officially mark an earnings recession. And, just to prepare you, there’s quite the good chance we will see lower earnings again in this year’s second quarter.
The reason for America’s corporate weakness is twofold: the impact of the strong dollar and oil.
The greenback has risen more than 20% in the last year, and that’s taking its toll on American exporters. U.S.-made products are no longer price competitive overseas. For four consecutive months, the “new export orders” sub-index inside the ISM Manufacturing Index has fallen. And for the last three of those months, it has come in below 50, an indication of economic contraction.
Equally detrimental is that foreign-made products are more price-competitive here at home.
That’s a bad combination for U.S.: American exporters suffering from weakening profits from overseas sales because softer foreign currencies do not buy as many dollars when repatriated, and weakening sales for domestic companies from increasingly competitive import products.
Oil’s Drop Damaged the Economy
As for oil … oil prices might not seem a direct play on the dollar, but they are: Oil and the dollar move in opposition.
I stand by my call that the market’s excitement over low gasoline prices tied to oil’s price decline is enthusiastically mindless. Low oil prices do not happen in a vacuum. They have negative implications in an economy where energy production has become such a boon.
Oil and gas companies have radically slashed spending on exploring for and developing new oil reserves, which means they’ve radically slashed spending on all the ancillary oilfield services that are necessary. That means reduced income all across the oil patch, as well as mass layoffs, which, because these are routinely high-paying jobs, impacts consumer spending.
The New Leaders of the Global Economy
A weaker dollar would reinvigorate export-oriented companies. It would reduce pressure on domestic companies competing against suddenly cheaper imported goods. And it would see oil prices rise, ultimately reviving spending in the oil patch.
Thus it is that the Fed needs our dollar to reverse course before raising interest rates, and thus it is that the Fed is angling for a weak dollar by talking down the scale, scope, timing and ultimate destination of U.S. interest rates. It’s aiming to weaken the dollar with words so that the Fed can finally begin to lift rates — a very little — without causing additional harm.
Now is the time to take advantage of what’s coming, before it arrives.
The best strategy now is to take your strong dollars and move them into currencies that are temporarily weak. When the greenback reverses direction — and I’m 100% confident it will — other currencies will rise in value.
You can do that easily with a new five-year, EverBank Future EconomiesSM MarketSafe® CD that wraps into one CD the future economies of the world: Brazil, India, China, Mexico, Indonesia and Turkey. These are six of the seven economies that are next in line behind the big G7 economies in terms of size.
What makes these future economies stand apart is that last year the combined economic output of the New G7 surpassed the output of the old G7 for the first time in history. From here on out, it will be a New G7 world … which means these are currencies that could be positioned to do well against the dollar. The best part: Because it’s a MarketSafe, you have zero risk to deposited principal. If I’m wrong about the future economies, you’ll get your full principal back.
But if I’m right, you will get back a minimum 10% return after five years … or, if the currencies are up more than 10% against the dollar, you will see the full return as your gain (meaning that if the CD’s return is up, say 15%, you get the full 15% at maturity). This CD does not pay a periodic rate of interest or annual percentage yield.
For the sake of full disclosure, we have a marketing relationship with EverBank. But, honestly, we’d work with them regardless.
This is the safe, easy way to benefit from the dollar’s reversal with no risk to your capital.
Until next time, stay Sovereign…
Jeff D. Opdyke
Editor, Profit Seeker