What is going to happen next?
They say the flapping of a butterflies wings in China can cause massive changes on the other side of the world. Well, I can't monitor butterflies in China so I monitor what I call the Big Four. The chart above shows the Big Four. They are: - 10 year treasury yields
- Gold
- US Stock Market
- US dollar
You can tell a lot about what is going on in the whole world by just looking at those four factor. I use gold as a proxy for inflation and the domestic value of the dollar. I use the dollar to tell me what the international value of the dollar is. I use the stock market to tell me what stocks are doing and as a leading indicator of the economy. I use the interest rate to tell me more about inflation, Fed policy, and the economy. Is it perfect? Of course not but there is still a lot of value is examining it. So what are the Big Four telling us now? | |
There are several things that jump out at me. First, the acceleration of interest rates follows the acceleration of gold prices. Since gold is a good proxy for inflation, the increasing inflation is causing bond investors to require higher interest rates to compensate them for the poor inflation prospects. the acceleration of interest rates coincides with the drop in the stock market. Increasing interest rates create competition with stocks. Should I buy stocks or bonds. The higher the bond yield the more competition. Also, the higher interest rates have caused a flood of money to come into the US thus causing the USD to climb higher. But the strong dollar is a killer. First, it is a form of monetary tightening that the Fed simply ignores. So it is also starting to crush the US economy. But, in addition, it will crush the global economy particularly emerging markets. The world is heavily in debt in US dollars and an increasing dollar combined with increasing interest rates creates a vicious double whammy on other countries. So how do we make money? | |
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There are so many ramifications to the interactions of the Big Four. Here are just a few trade ideas to capitalize on the Big Four trends: - Short emerging market debt
- Short emerging market currencies
- Short European stocks
- Buy gold
- Short US bonds
- Buy US dollar
- Short the US stock market
There, that should keep you busy! Of course, to see my exact trades that I'm doing, you should check out the Wall Street Winners where I reveal my own personal trades. Look over my shoulder! It's like having a hedge fund trader. Click here to learn more. Good trading, Courtney Smith | |
Words To Live By Again, said Rhea, "the final stage is sometimes recognizable because people then buy stocks simply because they go up, and because other people are buying them. They consider it old-fashioned to regard earnings or prospects. Speculation is rampant. In-and-out traders exchange their patched pants for gaudy attire, and become boardroom oracles. We soothsayers get to explaining why there never will be another bear market. Statisticians look backwards and figure out how it happened." Richard Russel quoting Robert Rhea In a way, we are passing through the phase that Rhea is describing. Rampant speculation is everywhere in things like: - Meme stocks
- The housing market
- Crypto
- NFTs
- and the stock market in general
It is still going on but we must always change our strategy when we get into this phase. We keep a lot of longs to take advantage of the suckers, er, investors coming into the market but we must also be starting our bear operations in the market. | |
 | COURTNEY SMITH WealthBuilder LLC Work (702) 761-6837 | Text Message (702) 718-8588 Support@WealthBuilderLLC.com CourtneySmith.com | | |
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