The Federal Reserve has spent the past year-and-a-half telling people that the super easy money was gone. Sure, easy money is still around, and more is probably coming by next year, but short of a crisis – which we’ll have someday, probably in the 2020s – there isn’t going to be super-easy money again for a long time. The quick take is that investors need to stop falling into the TINA – there is no alternative – trap that they have to be in stocks because interest rates are low. The Fed is telegraphing a strong dollar event. When it happens, you’ll want cash to go out and buy stocks favored by government fiscal policy. Accumulate cash on all market strength – we’re at around 50%.
Over the past few years I have been telling people that the dollar would firm and move into a new higher range that would last for decades. I recently talked about at least five reasons to expect the dollar to get stronger this summer and none were the Fed raising rates – even though they might. Regardless of the very short-term, because the U.S. has the strongest economy on the planet and the Millennial generation to offset our aging Boomers, the dollar will be relatively strong versus other major currencies for a long time.
Regardless of what you think of the Fed, they have been very clear that they are looking for a stable dollar at or around the current levels, with the drift being upward, not downward. That means that American purchasing power should do well and that certain exporters won’t. However, as I have covered at great length, since many U.S. exports are necessities or have other favorable trade characteristics, that makes many America products and services less price elastic, so, the firm dollar won’t have a major impact on the corporate earnings of those companies. In fact, some companies will earn more with a stronger dollar because their sales won’t fall and they’ll simply receive a better price.
Back on topic – when global markets shake, and they seem likely to do so this summer, the dollar gets stronger. The Fed knows that. Thus, they have been hinting, ebbing and flowing, bobbing and weaving, whispering and clearing their throats about raising interest rates for a long time now. Why? It’s to let you know the dollar is still king. As I discussed a few blogs ago, with the U.S. less dependent on imported energy, the strong dollar story is only going to grow stronger.
A year ago the wealthy started moving to cash on the first hints, but retail investors still have a disproportionately high level of invested assets in stocks. If you are not holding a high level of cash, it is time that you did.