Wednesday, March 11, 2015

The Contrarian View


While the markets are busy building in expectations of a Fed rate increase sooner, rather than later (creating a stronger $US and sending financial markets into a more volatile state) there are signals that may suggest that the $US strength may already be having a significant impact on the US economic outlook:

Courtesy of Paul Tepsich, a Managing Partner at 
High Rock Capital Management:




Well a picture is worth a thousand words.  This chart shows the release this morning in the US of Wholesale Inventories and Wholesale Trade Sales for January.  It was the worst of all worlds...US Wholesale Inventories went up...ie...businesses sold less product, arguably exports dropped...and Wholesale Trade Sales went  down...again arguably exports dropped.   Why?

Because of the massively overbought, most-crowded trade ever...the strong U$.  It has appreciated so much so fast that it has finally strangled the US economy.  Heck, the FOMC doesn't need to hike front-end rates at all to tighten monetary policy because the strong U$ has done the tightening for them.  

Our last post talked about Global Competitive Currency Devaluation...well, I think we just hit the breaking point where the weakness in every other currency is too weak to buy U$ goods and services.  That is the breaking point.

So if the Fed raises interest rates, they would be adding fuel to this currency fire and it appears that the US economy is already weaker because of the rapid strength in the U$. 


  • If inventories are rising (goods are not moving off the shelves), production will slow.
  • US companies will have to reduce prices to move goods.
  • Not so good for earnings.
  • Not so good for equity markets.


The views expressed are those of the author, Scott Tomenson, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.




















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