When the Chickens Come Home to Roost
Growing up on a farm provides one with a lot of rich sayings, my dad’s favorite when we were growing up was, “were you born in a barn ?” when we you did something wrong around the house.
Free Range Chickens, this was back before the term was trendy, are known for a tendency to wander around during the day, but they always come back to the chicken house at night, some later than others, barely escaping the roaming fox or raccoon.
So here we are in a great free roaming currency situation. The goal of the FED and U.S. paper asset players has been and is to have a weak dollar and a rising stock market. When the dollar broke out to the upside last October the stock market starting having fits, the October min-crash and the following seven months of a tough slow attempt at making impressive new highs. At the moment the S&P is roughly 4.5 % above the September 2014 highs, up, but not nearly impressively as the bulls think is warranted.
Now we see a carefully orchestrated sell off in the dollar. The CNBC talking heads say we have seen a major top in the dollar since the first of the year, and true to form, predict sharply higher stock prices. Here is where the chickens come in for review and the dollar returns to the hen house.
My view is simply:
1) Global demand of goods and services is weak and which country is weakest seems to change monthly. Right now it seems to be believed that the US is weak, and Europe is strong, i.e. the current pressure on the dollar. This will change.
2) While the FED’s QE1 and QE2 effort were needed rescue projects, the QE3 effort of cheap rates is and has been breeding deflation. Now Japan, Europe, China, the world, are jumping on the train.
3) For me the macro dollar play will be a safety play as no asset class for any country will be in demand as real deflation unfolds. Even gold, while more valuable than stocks, will become second fiddle to the dollar.
4) We will let the Macro situation unfold.