Huge Investing Error

Two of last week’s Wall Street Journal articles revealed how many investors are making a huge mistake.

The first article “This Market Really Is Different This Time” tells how small investors are moving away from the overheated US stock-market.

The article says:  The market has hit Dow 22000 not because of the individual investors Wall Street calls “the dumb money” but in spite of them.

Over the past month, small investors have pulled $17 billion out of U.S. stock mutual funds and exchange-traded funds and added $29 billion to bond funds. That’s the latest leg of a long-term trend: Since the internet-stock bubble burst in 2000, investors have withdrawn half a trillion dollars from U.S. stock mutual funds.

That’s smart, but guess what…

Small investors are jumping out of the frying pan into the fire, because their exodus comes from rebalancing.  As Americans reach retirement age, they shift from stocks to bonds.

There is a flaw in this massive trend.

Investors “rebalance” using pre-set proportions of stocks and bonds.  If  the proportion, for example, is 50% in stocks and 50% in bonds, when stocks go up their value becomes more than the value of bonds in the portfolio.  The investor automatically sells stocks and buys bonds to get back to 50% stock and 50% bond values..

It is reckoned that trillions are managed this way, to automatically scale back stock holdings as investors age and the US stock market rises.

The big mistake is that the US dollar shares sold are invested in a weak and dangerous bonds and a weak and dangerous US dollar.

The math is simple and reveals a huge error.

Bonds pay lousy returns at this time.

A Wall Street Journal article about the basic weakness of the US dollar (2) explains why the dollar will slide more.

This article says: Currency’s slide since January has near-term upsides for manufacturers, multinationals and the Fed.

The U.S. currency has been in a steady decline since January after reaching a 15-year high.  The WSJ Dollar Index, which measures the dollar against the currencies of major trading partners, is down about 8% since the beginning of the year, including a more than 2% drop over the past month. Its decline has been especially pronounced against the euro, 15%, and the Mexican peso, 28%.

It makes U.S. exports cheaper overseas, and thus helps to drive production at home.  In June, exports were up 7% from a year earlier.  That’s a sharp reversal compared with the 9% drop from 2014 to 2016, when the dollar was climbing rapidly.

This article points out that the current federal administration likes a dollar that’s not too strong.

Hold on just a second…

Why do they want a weak dollar?   Softening of the greenback makes the politicians look good. US exports become cheaper.  This helps American manufacturing, mainly the top executives and big investors who are not investing in low yielding bonds.

What’s the catch?

Those same weak dollars can ruin your and my purchasing power in two ways.   First, bonds pay lousy yields.   Second, everything we buy from abroad costs more… in US dollar terms.  Our German and Japanese cars,  Canadian lumber, Mexican tomatoes and Chilean grapes and every other darn thing we have become reliant on that is grown or made outside the USA.  This creates increased costs for US business and hinders the entire economic system in the US.

wall street journal

Chart from the Wall Street Journal article on the crash of the US dollar.


“If I Live Long Enough, I’ll Really Cash In Next Time”

Periods of good investing performance are always followed by periods that are bad.

Think about this…

The US dollar has risen over 50% above its lows of 2011.   The greenback is at its highest level versus the Chinese yuan since 2008.  India’s rupee is at an all-time low against the buck.  Other Asian currencies, the Singapore dollar and Malaysian ringgit have plunged to depths not seen since the financial crisis of 1997-98.  The euro, Mexican peso and Canadian dollar have crashed.  In other words, the US dollar is in a period of high performance.

What happens is the greenback is in a free fall.  Smart investors can cash in huge profits.

Yet there is a bigger economic problem that can ruin the purchasing power of your cash faster than you can imagine.

While the dollar was rising non US governments and businesses accumulated almost ten trillion dollars of debt denominated in US dollars.

The terror in this debt is that it acts as a destructive and very rapid financial amplifier.  Dollar debt is like a short position.  When the dollar rises, borrowers scramble to short-cover their position by selling their own currency.  This defeats the purpose of their hedging as it increases the strength of the dollar.  So they short even more.  Those short sales create an upward dollar spiral.  The buck rises higher and higher, based entirely on fear and speculation.

When that leverage energy is spent the currency stalls and plummets out of control… like now.

The last time we saw such a upwards spiral was from 1980 to 1985.  The dollar rose 50% in those five years.

Guess what?

Then it collapsed 50% in just two years.

The US dollar is in a similar position as at the beginning of Ronald Reagan’s first term in the 1970s.  This was a time of widening budget deficits, rising interest rates and a US dollar surge.  This created a problem then, as it does now, and creates huge opportunity for those in the know.

The rise of the dollar, the debt and the US stock market creates an especially dangerous conflict because Donald Trump wants to balance America’s trade.  A stronger dollar makes this impossible because it pushes up the cost of US material, US labor and US exports.

The overpriced dollar, the poor value of the US stock market (compared to other markets) create a dollar crisis and a special opportunity for you and me as investors.

“If I Live Long Enough, I’ll really cash in next time”.    I made this promise to myself in the 1980s.   A remarkable set of economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  I invested as much as I could handle then as the profits rolled in for about 17 years.  I had wished I could have invested more.

Now those circumstances are here again.

And I have…

invested more… a lot more… betting again the dollar.

The swollen stock market prices, huge dollar denominated debt and weakening dollar are three patterns that can create a fast 50% profit.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  The trends are so clear that I created a short, but powerful report “Three Currency Patterns For 50% Profits or More.”   This report shows how to earn an extra 50% from currency shifts with even small investments.

There is a way to accumulate good value equities denominated in the following currencies of special strength, including the Euro, Canadian dollar, Singapore dollar, British pound, New Taiwan dollar and Chinese yuan.

The report reveals 21 special non dollar equities that have the greatest opportunity for safety and appreciation.

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The report shows 22 good value investments and a really powerful tactic to use that allows you to inexpensively accumulate these bargains now even in very small amounts (even $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

Research shows that most people worry about having enough money if they live long enough.   I never thought of that.   I just wanted to live long enough to see the remarkable economic opportunity that started in 1980 come again so I could hit the jackpot.  This powerful profit wave has begun.  I have made the investment myself  suggest you investigate this in my report “Three Currency Patterns For 50% Profits or More.”

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(1) This market really is different this time

(2) Dollar weakness article