The U.S. dollar just closed its worst quarter in five years.
The dollar is the world’s most important currency. Every major financial institution and central bank in the world holds dollars. The dollar makes up 64% of all global currency “reserves,” or currency held by central banks.
Because of its huge importance, small moves in the U.S. dollar can have an outsized effect on asset prices around the world. Think of it like the “butterfly effect,” an idea in science that a butterfly flapping its wings could theoretically alter the path of a hurricane.
Last quarter, the U.S. dollar index fell 4.2%, its worst quarter since 2010. This created major ripples around the world…
• Commodities staged a big rally…
Lumber has jumped 17% this year. Gold has jumped 15% and is coming off its best quarter in thirty years. Silver is up 9%.
This is a major shift for commodities. They’ve been in a bear market for the last five years. The Bloomberg Commodity Index, which tracks 22 different commodities, crashed 55% from April 2011 to December 2015.
Most commodities investors “think” in dollars. When you look up the price of soybeans or gold, the price is listed in dollars. When the dollar loses value, it takes more dollars to buy a bushel of soybeans or an ounce of gold. That’s why a weak dollar is good for commodities.
• The weakening dollar also caused a rally in emerging market stocks…
Emerging markets are countries on their way to becoming “developed” like the U.S. and Germany. Brazil, Russia, and China are examples of major emerging markets.
The iShares MSCI Emerging Markets ETF (EEM), which tracks over 800 emerging market stocks, has surged 20% since January. It’s up 6% this year. For comparison, the S&P 500 has gained just 1.4%. The market value of emerging market stocks jumped $1.8 trillion last month. That’s the largest one-month gain since 2007.
• Many emerging markets depend on commodities…
Countries like Brazil, Russia, Venezuela, and Saudi Arabia export far more commodities than they import. When commodity prices fall, they earn less money for everything they sell.
Years of falling commodity prices slammed emerging market stocks. EEM fell 36% from April 2011 through December 2015. With commodity prices on the rise, many emerging market stocks are now rallying.
• Brazil is this year’s top-performing stock market…
The São Paulo Bovespa, Brazil’s main stock index, is up 16.6% this year.
Regular Dispatch readers may find that surprising. For the past couple months, we’ve been telling you that Brazil is having its worst economic crisis since the Great Depression…
Brazil’s economy shrank 3.8% last year, the biggest decline in 25 years. Unemployment has surged 7.9% to a six-year high. Inflation is above 10% for the first time in twelve years.
Brazil’s socialist president, Dilma Rousseff, hasn’t helped matters. She’s taken the country from a 2.3% government surplus in 2011 to a 10.3% deficit last year. And now, millions of Brazilians are protesting in the streets because of a massive political scandal. In short, Rousseff appears to have been involved in a giant money laundering scheme with Brazil’s state-owned oil company, Petrobras.
• Nick Giambruno, editor of Crisis Investing, has been closely following the crisis in Brazil…
Most folks see Brazilian stocks down 30% in the last five years and run the other direction. Nick sees crisis as an opportunity. When everyone is selling, he looks to buy. This strategy often allows Nick to buy a dollar’s worth of assets for less than a dime. Nick calls buying during a crisis “one of the world’s great wealth secrets.”
In 2013, the tiny European island of Cyprus had a devastating banking crisis. Its stock market crashed 99%. Nick recommended buying several absurdly cheap stocks. His readers made gains of 97%, 172%, and 214% in less than two years.
Nick’s been waiting for a similar opportunity in Brazil. Given the recent rally in Brazilian stocks, we asked Nick if investors missed their chance to invest in Brazil at its cheapest.
• Nick says the crisis in Brazil is far from over…
The fallout from Brazil’s Enron-type scandal continues. It could lead to the ouster of Dilma Rousseff, the country’s left-leaning president.
Whenever it looks like Rousseff is going to be impeached, foreign investors buy Brazilian stocks. The opposite happens when it looks like she’ll stay in office.
Right now, it looks like she could get the boot. That has helped Brazilian stocks soar this year.
Still, Nick says don’t be fooled by this year’s rally.
According to Bloomberg, the only buyers of Brazilian equities in March were foreigners. Local investors have been selling.
As far as I can tell, foreign investors are buying on the notion that a new government will magically make things better. I don’t see this happening.
Brazil’s economy is shrinking. Unemployment and inflation are rapidly rising. Credit rating agencies have downgraded the country’s sovereign debt to junk status. This will make it more expensive for Brazil to borrow money. It could trigger another leg down in Brazilian stocks.
Nick says it will get worse.
Brazil’s currency is still down 38% since July 2014. But it could go much lower.
Brazil has completely destroyed its currency five times in the past 75 years. That’s one currency collapse every 15 years. The last one occurred in 1994. Brazil is due for another currency crisis.
Replacing one corrupt government with another is not going to fix these problems. The worst is yet to come in Brazil. It’s shaping up to be a lovely train wreck.
Nick is waiting for Brazil’s crisis to become the front-page story on first-world newspapers. That will get Wall Street to say “sell anything Brazilian.” And that should give us the opportunity to buy Brazilian stocks at the best prices in decades. Nick will let his readers know when it’s time to buy.
You can get in on this opportunity by taking a risk-free trial to Crisis Investing. When you do, you’ll also learn about the world-class Brazilian company on Nick’s radar. Click here to learn more.
• A FINAL reminder: Mark Ford’s offer closes today…
Our friend Mark Ford is a multimillionaire author, serial entrepreneur, publisher, and real estate investor. He has founded, co-founded, and worked with dozens of businesses—including one now worth more than half a billion dollars.
Mark has put together a special program to share his wealth-building secrets. It’s much more than investment strategies…or even wealth-building ideas. It’s a blueprint for building a steady stream of cash that will last a lifetime.
Don’t wait, though, because this offer ends tonight. Click here to secure your spot, risk-free.
Chart of the Day
Gold stocks have never been cheaper…
Today’s chart shows the ratio of the Gold Bugs Index (HUI), a major gold miner index, relative to the price of gold. The lower the ratio, the cheaper gold-mining stocks are compared to the price of gold.
Gold stocks are leveraged to the price of gold. This year, a 15% rise in the price of gold has caused the Gold Bugs Index to jump 62%. Still, gold miners have a lot of “catching up” to do. The HUI/gold price ratio is coming off all-time lows. It’s 58% below its historic average.
As we’ve been writing, gold stocks have HUGE upside today. If this ratio were to simply return to its historical average, gold stocks would have to rise 136%. And that’s before accounting for any increase in the price of gold.
Of course, regular readers know we think gold is headed much higher. Casey Research founder Doug Casey thinks gold will at least triple in value over the next few years. Doug says this will spark a gold bull market for the ages. During the 2000–2003 rally, gold stocks surged 602%.
Doug expects the best gold stocks to go much higher than that. We’re talking gains of more than 10x. Those kinds of returns may sound unbelievable…but they’ve happened before.
Delray Beach, Florida
April 4, 2016
We want to hear from you.
If you have a question or comment, please send it to [email protected]. We read every email that comes in, and we'll publish comments, questions, and answers that we think other readers will find useful.