November 13th Weekly Recap

Special Weekly Recap Report

By Nell Sloane

“Here we go again, another round of speculation as to the first rate hike. This month’s +271k Jobs gain has led to a wide spread belief that the FED will raise rates at their December meeting. Now we are not going to speculate here and say whether or not the FED will or will not, for only they know, well in theory only they know. I think we need to look far deeper and in a way that best aligns more esoteric concerns in a fashion we like to refer to as “Cui bono.” Which is Latin for “to whose profit.” We all know that it has been nearly 10 years since the FED has raised rates. That is a decade, in fact some managers today have never even managed funds during a rate hike, so no matter what, if and when the FED does indeed do it, some mistakes are surely going to be made by some of these novice managers. The market places are far more different then 10 years ago and the dynamics that drove them back then, certainly are not the ones that drive them today, most notably Quantitative Easing induced large levered multi-national players.

“So a lot has changed since then in term of market dynamics and thus in order to induce an accurate assumption as to a “why now” rate hike scenario, we must look at the Federal Reserve and ingest any official statements made prior as to laying a foundation or groundwork for any potential rate hike.”

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Weekly Savant Report Summary

November 13, 2015
By Jordan Wirsz

Over the past year, we have seen incredible, tremendous moves in currencies. I remember 4-5 years ago when everyone was convinced that the U.S. Dollar was going to collapse, and the Euro would be the new “one-world currency.” Well, just as predicted, that didn’t happen. In fact, the exact opposite happened. Market trends end with tremendous conviction amongst the general public…When everyone was bearish the U.S. Dollar and bullish on the Euro, that was when the trend started to reverse. This new trend has huge, massive, incredible impacts on investments around the world, not just currency.

The stronger U.S. Dollar means that our exports are MORE EXPENSIVE to foreign buyers. Our IMPORTS however are cheaper. For the agricultural community, this is a rough situation. Not only have crop prices been cut in half over the last few years, but when the U.S. Dollar has rallied so much that we’re not incredibly expensive for foreign buyers, which is decreasing demand for our exports. It’s a double whammy of currency and less demand. Combine this with relatively good crops, and there are few reasons for farmers to be bullish on agriculture right now. We saw this coming years ago, hence our caution to the agriculture community. But the buck doesn’t stop there (pun intended).

Here is a chart of what the U.S. Dollar has done since 2011 when everyone was convinced the “dollar was dead”.

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Obviously, the dollar rallied from the low 70’s to now roughly the 100 mark. Dollar dead? Nope. It’s rallied almost 50%!

Now see what the dollar did against the Canadian Dollar. The U.S. Dollar collapsed in our economic crash, and now Canada is finding themselves in an economic pinch and in recession.

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The Canadian Dollar as of recent has hit lows of in the 74’s. Ouch!

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Because Canada is a natural resource based economy, exporting against a stronger U.S. dollar really hurts…And importing really hurts. And commodity prices really hurt… So to sum it up, “Canada is hurting badly!”

But what about Australia? Another natural resource based economy… See below – from 1.10 in 2011 to .70 in 2015.

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Is my point getting across? The U.S. Dollar rally was real, and it is real. We have a large number of international clients who are (A) very happy that they invested when they did in U.S. real estate – they won both in currency and in the asset itself, and (B) trying to figure out if the currency spreads are going to widen even more.

But what about the Euro you ask? Here is the Euro chart, from almost 1.50 to 1.05 since 2011…Nearly a 1/3rd depreciation in that currency over the U.S. Dollar!

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Here is my take on it: The U.S. Dollar is likely to remain strong, and it may get even stronger. Foreign currencies are going to remain weak, and could get weaker.

If you are an investor abroad, you have to be asking yourself the question, “is it too late to invest in U.S. denominated assets?” The answer is “No, it is NOT too late!” In fact, you should likely protect yourself even more from the recessions that exist and are forming abroad, and ultimately ride the stronger U.S. Dollar and economic recovery (aka bull market) in the U.S.

I’ll tell you what has my interest at the moment… Think about this:

1. The U.S. Dollar is strong.
2. The Canadian Dollar is weak.
3. Canada is in recession.
4. Natural resources/Commodities are weak.
5. The U.S. Economy, job growth, and investment assets are doing well.

Fast forward 2-3 years…

1. The U.S. Dollar will be topping.
2. The Canadian Dollar will be bottoming.
3. Canada will be coming out of recession.
4. Natural Resources and commodities will be recovering.
5. Canadian assets will be cheap…While U.S. assets might be considered “expensive.”

Follow me? Give it a few more years for the Canadian recession to fully develop and bottom, when there is lots of blood in the water, and you can invest in Canadian assets at incredible values AND at a great currency rate. If the Canadian dollar gets to $.65 or $.70, you’ll be gaining a good 30-35% as the Canadian Dollar recovers to parity with the U.S. Dollar over time, in addition to being able to buy assets (mainly real estate and equities as well as other agriculture and commodity related assets) at severely depressed prices… The perfect storm, for the Savant investor. Maybe not a fully developed strategy, but certain a good start!

That’s all for this week’s Savant Report summary. Stay tuned, and as always, feel free to email or call with questions.

God bless,

JW


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