There’s a de-dollarization process happening worldwide, but from its starting point – high up there on the currency podium – it would take an additional 10-20 years until a new contender can legitimately replace the USD.
This doesn’t mean that it’s going to be smooth sailing. I mean, as Ernest Hemingway once eloquently said, bankruptcy happens gradually at first, then all at once. We’re in a gradual phase; as America’s middle-class is losing thousands of people a day without even noticing.
It’s difficult to realize you’re racing in circles, but every 2-3 years, you’ll notice how the elite and wealthy are far better-off – while you’re standing paralyzed inside a concrete mold.
Notice that in no other time in the past decade have we even been close to this much uncertainty on the geopolitical front. What’s also clearly visible is that there is NO direct correlation between politics and stock market performance. The reason is that the economy is more important than anything else – It’s the real engine.
The stock market prospered even during WW2, and it has rallied during many uncertain times.
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To make large gains, don’t focus on politics. Instead, keep your eyes on the financial stats.
The one asset class most shaped by politics is gold, but even this one correlates far more with inflation and interest rates.
Looking ahead, you can see that the likelihood of phenomenal returns over the next 10 years is the exception to the rule.
At some point in the near future, we’re entering a low-returns environment.
The inverse relationship between P/E multiples and long-term future returns is just another way of saying that stocks represent partial ownership position in real businesses. When you overpay, the risk is high and the return is low.
What the market does overall, however, doesn’t reflect how individual stocks behave.
The next few years will prove challenging for investors, who put the majority of their savings into index funds. For those who are able to analyze individual companies, the opportunity is huge.
You can’t masquerade the fact that globalization is peaking. Free trade has significantly hurt the American middle-class, but a trade war might inflict even more collateral damage.
As you can see, the Baltic Dry Index – which I had mentioned in Tuesday’s letter – has utterly collapsed. This index represents the cost of shipping, so when demand is low due to slower economic conditions, the result is cheaper pricing for shippers.
During this cycle, only January 2016 showed a cheaper value than today’s number. Back then, the market corrected down while gold stocks soared. In other words, if the economy gets over this hump, the rally continues. But if it doesn’t, expect a dark period for stocks in the coming months.
Portfolio Wealth Global sees, in the near future, a clear uptrend for stocks: the S&P 500 just pushed past its resistance, topping the 200-DMA.
Don’t deal in should and shouldn’t. The market can gain, despite conflicting indicators; and it can sell-off, in spite of positive news. Know the companies you want to own and wait your turn. Patience is the virtue of the value investor.
Research Partner, PortfolioWealthGlobal.com
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