One of the greats discusses why he remains a bear on the US dollar with the price of gold continuing to trade above $1,300.
Gold And Why I Remain A Bear On The US Dollar
February 12 (King World News) – Here is a portion of what Peter Boockvar wrote today as the world awaits the next round of monetary madness: The US dollar is approaching a big level as another .50 rally in this euro heavy index would place it at the highest level since mid 2017 (see chart below).
I’ve listened to a bunch of earnings conference calls and plenty of multinational companies were citing it as a crimp on earnings. That said, I remain a bear on the US dollar, especially now with the Fed backing off from more rate hikes and gold trades pretty well in the midst of the dollar bounce…
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ECB’s Massive Failure Over The Past Few Years
As for when the ECB will try to get out of negative rates, which would theoretically be euro positive and damaging to their bond market, Governing Council member Ewald Nowotny today said they will look at that in the summer. If there is one monetary experiment that includes NIRP and QE to generate higher inflation, we’ve certainly seen a massive failure over the past few years.
Also of importance…
Here is a portion of today’s note from legend Art Cashin: Earnings Season – A Review – With earnings season nearly two-thirds over, there are some hints of pressure on profit margins. Here’s an analysis by two very sharp golds. The two gurus at Data Trek – Nick Colas and Jessica Rabe:
Three points on this subject today:
A quick review of our “first half 2019 earnings recession” theme, using the latest analysts’ data courtesy of FactSet:
Earnings reports are still coming in below their usual “beat rate”, with the average S&P company exceeding estimates by only 4%. The mean beat rates over the last 1/5 years are 6.0%/4.8%.
Wall Street analysts continue to reduce their expectations for Q1 and Q2 2019 earnings growth rates. They currently forecast a -1.7% decline for Q1 2019 versus last year’s Q1, a sequential cut from the -0.8% growth rate they had in their models last week. Q2 expectations are declining as well, down to +1.2% now versus +1.6% last week.
Revenue growth expectations for Q1/Q2 2019 are still positive to the tune of +5.4%/+4.7%, highlighting expected margin pressure as the driver of lower earnings.
The upshot here: the probability of a US corporate earnings recession – two quarters of negative growth through 1H 2019 – is still increasing. First quarter is already there; second quarter estimates will likely drift down to negative comps before the end of March.
Next we want to highlight a clever bit of FactSet data analysis: the difference in revenue/earnings expectations between companies with more/less international exposure. Much of the sluggishness in Q1/Q2 earnings growth comes down to global macro issues like a stronger dollar and weaker non-US markets. The FactSet data supports that line of reasoning:
In Q4 2018, companies with +50% of their revenues from the US market saw better revenue and earnings growth than more-international firms: +7.2% sales growth vs. +6.7%, +16.6% earning growth vs. +8.4%.
Analysts expect this differential to continue through 2019. Domestically oriented (+50% of US revenues) S&P companies should post 5.9% revenue growth/6.7% earnings growth versus 3.1%/1.9% for more global firms.
Overnight And Overseas – Tokyo reopened after a national holiday and closed with a fractional gain in rather light trading. Hong Kong also scored a minor gain, while Shanghai closed with a more credible gain. India saw a moderate selloff.
In Europe, stocks are trading generally higher with several central bankers speaking.
Among other assets, Bitcoin is slightly weaker, trading just below $3700. Gold is flat to a touch firmer. Crude is seeing a smart rebound rally. The euro is flat against the dollar, while yields are a tick, or two, higher.
Consensus – Markets have an early bid thanks to remarks that Kellyanne Conway made about President Trump wanting a China deal soon and hints that a government shutdown can be avoided.
Powell speaks at midday but the topic is rural poverty so it is not likely to be market moving. East Coast storm may make trading light.
Stay very, very nimble.
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KWN has now released the fascinating KWN audio interview with Rick Rule CLICK HERE OR ON THE IMAGE BELOW.
***Also just released: US DOLLAR ON A TEAR: A Look At A Strong US Dollar’s Impact On Gold CLICK HERE TO READ.
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