When the Dollar is no Longer the World’s Reserve Currency

Published: Feb 18, 2019 10:07 a.m. ET

The prevailing mood has shifted from extreme pessimism to extreme optimism

By MARK HULBERT

COLUMNIST  

CHAPEL HILL, N.C. (MarketWatch) — Sentiment conditions on Wall Street are flashing short-term danger signs.

That’s because the mood has shifted from the extreme pessimism that prevailed in late December to nearly as extreme optimism today. Some call current conditions a “slope of hope.”

Consider the average recommended equity exposure among the Nasdaq-oriented market timers I monitor (as measured by the Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI). In late December, this average was lower — at minus 72.2% — than at almost any other time since I began collecting data in 2000.

That’s why contrarians, in late December, were forecasting a powerful rally.

Read: Should stock-market investors freak out over an ‘earnings recession’? These charts say no

Today, in contrast, in the wake of a 17%-plus gain in the S&P 500 SPX, +1.09% and a 20%-plus rally in the Nasdaq COMP, +0.61% the HNNSI has risen to plus 73%. That’s higher than 90% of all comparable readings since 2000.

In other words, as you can see from the accompanying chart, in six weeks’ time this group of short-term stock-market timers has increased their average equity exposure by more than 140 percentage points: Away from being aggressively bearish (recommending that clients allocate three-fourths of their trading portfolios to short-selling) to being almost as aggressively bullish (now recommending that three-fourths of clients’ portfolios be long).

To be sure, this does not mean that a decline back to the December lows is imminent. Nevertheless, contrarian analysts are convinced that the sentiment winds are no longer blowing in the direction of higher prices.

The usual qualifications apply, of course. Contrarian analysis doesn’t always work. And, even when it does, the market doesn’t always immediately respond to the contrarian signals. This past summer, for example, as you can see from the chart, the HNNSI hit its high about six weeks prior to the market’s. That’s a longer lead time than usual, but not unprecedented. But when the market finally did succumb to the extreme optimism, the Nasdaq fell by more than 20%.

Another qualification about the HNNSI as a contrarian indicator: It works only as a very short-term timing indicator, providing insight about the market’s trend over perhaps the next few months at most. So it’s not inconsistent with the contrarian analysis of current market sentiment that the stock market could be headed to major new all-time market highs later this year.

What contrarians are saying, however, is that even if the market does hit new highs later this year, there may be lower prices first.

Plan accordingly.

Mark Hulbert has been tracking the advice of more than 160 financial newsletters since 1980.

Published: Feb 15, 2019 2:42 p.m. ET

Gold on the rise

By MYRAP. SAEFONG &
MARK DECAMBRE
MARKETS/COMMODITIES REPORTERS

Gold futures marked the highest finish in two weeks Friday, as progress in trade talks in the final day of this week’s round of U.S.-China trade negotiations was seen as bullish for the yellow metal, overshadowing strength in the dollar and a pick up in global equity markets.

Meanwhile, palladium topped $1,400 an ounce to notch a record for futures prices, which settled with a weekly rise of nearly 3%.

April gold GCJ9, +0.84% gained $8.20, or 0.6%, to settle at a two-week high of $1,322.10 an ounce. Friday’s early gains erased a loss for the 5-day stretch, sending bullion up 0.3% for the week, based on last Friday’s settlement. The SPDR Gold Shares ETF GLD, +0.18%  was up 0.5% in Friday dealings.

March silver SIH9, +1.46% meanwhile, added 21.5 cents, or 1.4%, to finish at $15.743 an ounce, with gold’s sister metal still down 0.4% for the week.

Weeklong discussions between Beijing and Washington to resolve a protracted tariff spat wrapped up on Friday in China, with reports negotiators remain deadlocked on key issues, but will continue talks next week in D.C. A 90-day truce between the parties is set to end at the start of March.

The Wall Street Journal reported that sharp divisions remain between the two sides, with the U.S. complaining that China pressures American businesses to share technology and that its policies favor state-owned companies.

Progress on trade negotiations can be bullish for gold because China is one of the biggest purchasers of the yellow metal, commodity traders said.

“Anything that is positive coming out of these [U.S.-China] talks is deemed to be supportive for gold,” Fawad Razaqzada, technical analyst at Forex.com, told MarketWatch.

The Forex.com analyst said that a trade deal could be supportive for the Chinese yuan USDCNY, +0.0133% USDCNH, -0.1372% strengthening the currency, which could help commodity buyers in Beijing purchase assets mostly traded in U.S. dollars like gold.

Meanwhile, the U.S. dollar on Friday, as measured by the ICE U.S. Dollar IndexDXY, -0.10% was trading 0.1% lower at 96.844, but was trading 0.2% higher for the week as gold futures settled. A stronger buck tends to, but not always, make purchasing dollar-priced assets comparatively more expensive for those using other monetary units.

“The dominate thinking of speculators is that [the] U.S. Federal Reserve is on the very verge of easing monetary policy,” said Ned Schmidt, editor of the Value View Gold Report. “General this view is built on belief th at [the] U.S. economy is about to fall into a recession this year.”

It “does not matter whether or not any of the above is true,” he said. “It is what speculators believe” that moves gold. Precious metals tend to draw buying in a low interest-rate climate. Rising rates make nonyielding gold less attractive to investors who will chase higher yields elsewhere.

Among other metals, March copper HGH9, +1.48%  added 0.9% to $2.799 a pound, for a weekly loss of 0.4%. April platinum PLJ9, +2.43%  rose 2.2% to $806.90 an ounce, ending down about 0.5% higher for the week.

March palladium PAH9, +1.65%  settled up 1.5% at $1,407.20 an ounce — a fresh record high, based on FactSet data going back to November 1984. The most-active contract was up 2.6% for the week.

Prices for the metal have been climbing to new highs for months now, buoyed by rising demand, particularly from the auto sector, and tight supplies.

There are very few factors that could stop the “runaway” rise in palladium—among them, a “global economic collapse to stop car sales in their tracks,” or a “major palladium dump from a Russian stockpile” of the metal, both of which aren’t likely, R. Michael Jones, chief executive of Platinum Group MetalsPLG, -0.72%  told MarketWatch.

Published: Feb 12, 2019 5:00 p.m. ET  

By Jeffry Bartash, a reporter for MarketWatch in Washington.

U.S. financial picture getting worse in wake of Trump tax cuts

The U.S. national debt topped a record $22 trillion this week, less than a year after it crossed the $21 trillion mark, indicating a further deterioration in the nation’s finances.

The Peterson Foundation said the U.S. national debt has risen by $1 trillion in the past 11 months, calling it “the latest sign that our fiscal situation is not only unsustainable, but accelerating.”

The foundation drew its estimate from the Treasury Department’s daily statement on the government financial assets and liabilities. The group has long called for reducing the national debt to ensure the nation’s long-term financial health.

“We already pay an average of $1 billion every day in interest on the debt, and will spend a staggering $7 trillion in interest costs over the next decade,” asserted Michael Peterson, CEO of the foundation. “In order to build the strong and stable future that we want for America, we must put our fiscal house in order and begin to manage our national debt.”

Economists agree the U.S. will suffer in the long run if the government fails to rein in the debt, but that day may still be a long way off.

The standard method of judging a nation’s fiscal health is to look at the level of debt relative to GDP — or the size of the economy. The ratio of publicly held debt-to-GDP is seen rising from about 78% in 2019 to 106% by 2029 and to as high as 193% by 2049 under current tax and spending policies, the Brookings Institution calculates in a new report.

While the interest payments on such a large debt would siphon off a lots of money the government could use for other things, it’s by no means clear how much the economy would suffer.

Japan has run huge debt-to-GDP ratios for years and it still has one of the strongest economies in the world. The country’s debt is around 236% of GDP.

The U.S. national debt soared in the aftermath of the 2007-2009 recession, accelerated again after the Trump tax cuts in 2017 and an increase in federal spending.

AFP AFP•February 10, 2019
Christine Lagarde met Imran Khan on the sidelines of the World Government Summit in Dubai
Christine Lagarde met Imran Khan on the sidelines of the World Government Summit in Dubai (AFP Photo/KARIM SAHIB)
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Dubai (AFP) – The International Monetary Fund on Sunday warned governments to gear up for a possible economic storm as growth undershoots expectations.

“The bottom-line — we see an economy that is growing more slowly than we had anticipated,” IMF Managing Director Christine Lagarde told the World Government Summit in Dubai.

Last month, the IMF lowered its global economic growth forecast for this year from 3.7 percent to 3.5 percent.

Lagarde cited what she called “four clouds” as the main factors undermining the global economy and warned that a “storm” might strike.

The risks include “trade tensions and tariff escalations, financial tightening, uncertainty related to (the) Brexit outcome and spillover impact and an accelerated slowdown of the Chinese economy”, she said.

Lagarde said trade tensions — mainly in the shape of a tariff spat between the United States and China, the world’s two biggest economies — are already having a global impact.

“We have no idea how it is going to pan out and what we know is that it is already beginning to have an effect on trade, on confidence and on markets,” she said, warning governments to avoid protectionism.

Lagarde also pointed to the risks posed by rising borrowing costs within a context of “heavy debt” racked up by governments, firms and households.

“When there are too many clouds, it takes one lightning (bolt) to start the storm,” she said.

Published: Feb 8, 2019 8:11 a.m. ET  0 

By William Watts

DEPUTY MARKETS EDITOR  – MarketWatch

Gold futures edged higher early Friday but remained on track for a small weekly loss in the face of a stronger U.S. dollar, though bulls remained encouraged by the haven yellow metal’s resilience.

Gold for April delivery GCJ9, +0.34%  on Comex was up $2.20, or 0.2%, at $1,316.40 an ounce, leaving it down 0.4% for the week. Gold remains up 2.7% since the end of last year. March SIH9, +0.84%  was up 6.7 cents, or 0.4%, to $15.78 an ounce.

Gold bulls said growing concerns about global growth should provide underlying support. The European Central Bank last month took a more dovish-than-expected stance amid continued weakness in European data, while the Federal Reserve last week surprised investors with a dovish pivot, putting future rate moves on hold until further notice. The Reserve Bank of Australia has also struck a dovish tone and the Bank of England on Thursday offered a downbeat outlook for growth amid Brexit uncertainty.

“The fact that we are seeing major central banks turn dovish at the same time is probably alarming for some investors, which may explain why stocks have failed to sustain their rally. But this is good news for bonds and therefore noninterest-bearing and low-yielding assets such as gold and silver,” said Fawad Razaqzada, market analyst at Forex.com, in a note.

“What’s more, with the dollar index having just completed a six-day rally, you would think that these dollar-denominated metals would simultaneously be down for the same number of days. However, over the last six trading days, gold has only been down on three occasions, while silver has been down on 5 occasions, although higher today,” he said.

The ICE U.S. Dollar Index DXY, -0.12% a measure of the U.S. currency against a basket of six major rivals, was up 0.1% on Friday, leaving it on track for a 1.1% weekly rise. A stronger dollar can be a negative for commodities priced in the unit because it makes it more expensive to users of other currencies.

U.S. stock-index futures pointed to a lower start for Wall Street, putting equities on track for a three-day losing streak.

In other metals trade, April platinum PLJ9, +0.59%  was up $2, or 0.3%, at $799.30 an ounce, while March palladium PAH9, +0.59%  rose $17.90, or 1.3%, to $1,376 an ounce.

March copper HGH9, +0.02%  was off 0.6 cent, or 0.2%, at $2.8225 a pound.