Volatility, Rates, the Dollar... and Europe?

Written by Gerardo Del Real
Posted October 29, 2018 at 3:45PM

Rates have been all the rage when it comes to the mainstream media trying to explain the recent volatility in the overall stock market.

Yes, rising rates and the collateral damage that accompanies them are important to keep an eye on.

The combination of rate hikes here in the U.S. and central bank tightening around the world is not sustainable and is simply a way for central banks to make room for what in the end will be QE ’til infinity.

I see the recent weakness in the dollar as a short-term pullback before a slingshot move higher.

The European Central Bank continues to do everything it can to blow its bond market up while Angela Merkel has misplayed her hand in the handling of the refugee crisis. The result is a European Union that looks more fragile every day.

Why the rant about Europe? Because European capital has been a main driver of recent highs in the U.S. stock market and that is a trend that will only accelerate.

Another driver has been share buybacks. Earnings season is over and companies are once again free to buy back shares.

They will.

The recent volatility in U.S. markets is capital’s way of trying to determine what the investment landscape will look like after the midterm elections.

Expect that volatility to continue and intensify. Don’t expect a bear market in the major U.S. stock indices.

There’s too many dominoes lined up to fall before the U.S. is toppled over.

Capital will continue to seek refuge where it’s treated best and for the time being that is the U.S.

Capital looking for a new home is part of why I believe gold is catching a bid. You know my views, I don’t believe the move is sustainable yet but it may have legs.

I’m encouraged by the fact that gold and the dollar have risen together for multiple sessions but don’t expect that to be the new norm…yet.

The recent reverse in the dollar is already affecting balance sheets here in the U.S., as a higher dollar is hitting exports.

Companies like 3M, UPS, and Anheuser-Busch among others have cited a strengthening dollar as a growing concern that is already affecting the bottom line.

They better buckle up.

It’s no coincidence that the dollar has gone one way while the S&P has moved in the opposite direction.

As we approach the last two months of the year, be mindful of tax-loss selling season where losers — and there are plenty this year — are sold off to offset the tax liability from the winners.

Expect that to last for another month and a half or so.

Companies with good share structures that are actually exploring — and hitting — are being rewarded. Look at Great Bear, West Haven Ventures, etc.

Companies that are sitting idle, collecting checks while trying to wait out this resource bear market are rightfully running in place.

I’ll be at the New Orleans Investment Conference from November 1-4 and will be presenting alongside Outsider Club founder Nick Hodge.

If you’re around, say hello. If you haven't registered yet, it's not too late and you can do that here.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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