Dollar Becomes Safe Haven for Preserving Capital – 2008 Repeat

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This single signal alone is absolutely screaming that a major financial crisis is imminent. The US Dollar surged right before the financial crisis of 2008 and now it’s occurring again.

On November 12th I shared with you one sector that would have a huge moved based on a strong dollar rally titled: What does the breakout of the US dollar mean?

Below are two charts showing what happened with stocks and the dollar index during financial uncertainty:

uup-2008

uup-2015

A rising US Dollar puts pressure on emerging markets all around the globe. These emerging markets have been on a massive ‘debt binge’ since 2008. Currently, most of that debt is denominated in US Dollars.  Emerging markets are finding that it takes more from their own local currencies to service and pay back those debts.  Defaults are rapidly rising, resulting in emerging market economies all over the world plunging them into “severe economic contraction”.

If the FED does follow through with an interest rate hike in December 2015, it will make things even worse.  The U.S. Dollar will surge even more, leaving emerging markets in more trouble.

The prospect of the FED hiking interest rates in December has pushed the dollar higher. The question is; how fast will it raise interest rates in a world where other central banks are moving in the opposite direction, toward easier policy.

The US Dollar in the Asian markets last night, November 22, 2015, broke above the 100.00 mark to register a recent new high of 100.04. Its multi-year high so far has been 100.72 on March 16, 2015.

It’s my belief that the FED may very well raise their short-term rates. I believe that they will initiate a new quantitative easing programs to ease rates for the long term to counter the rise in the short term rate increase. This would flatten the yield curve and in return support the housing market.

The FED expect that the US economy will meet the conditions for raising interest rates by their mid-December 2015 meeting. If and when the FED moves rates higher, the subsequent path of increases would be exceptionally shallow and gradual.

All of the financial markets are waiting for the FED to act in December 2015.

The minutes from the October 2015 Federal Open Market Committee meeting revealed that “most of the 10 FOMC members thought that conditions for a rate hike could well be met by the time of the next meeting “

Another passage noted that “it may well become appropriate to initiate the ‘normalization process’ at the December 15-16 FED policy meeting “. The minutes also stated that “economic conditions may, for some time, warrant keeping the target federal-funds rate below levels that the Committee views as ‘normal’ in the longer run”

It’s a holiday week in the USA, markets will be closed on Thursday, November 26, 2015, in observance of Thanksgiving. This is really the start of the holiday season in the United States, which will last through the rest of 2015. For retailers, success or failure for the year depends on sales during this season.

Stay ahead of the market and make money trading ETF’s with me at: www.TheGoldAndOilGuy.com

Chris Vermeulen

[Image Courtesy of Wikipedia]

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