Tahoe Market Pulse: The big moves in 2015
February 4, 2015
Normally an article so titled would appear at year-end. But these are not normal times. After only one month, there are more than a few big moves worthy of a year-end piece.
Here are three:
The dollar. After rising 13 percent last year the greenback jumped another 4.8 percent in January and even more against the euro. Why? We are ending QE while Europe is beginning theirs. A strong dollar makes imports and foreign travel less expensive and keeps inflation at bay. Good. However, there is a downside. Corporations will find their exports more expensive to foreigners and sales and profits will suffer. Companies with foreign sales in other currencies will have fewer dollars when they convert overseas revenues back to greenbacks, so sales and profits will also suffer. We are seeing that now with earnings reports from Procter & Gamble and others.
Interest rates. Interest rates have continued their downtrend. The 10-year Treasury began the year at 2.17 percent. It plunged to 1.66 percent this week. This is a terrible investment. I expect only central bankers and traders are buying Treasuries. That said, I don't expect rates to rise much and the Fed won't increase rates this year. That would only push the dollar even higher and the move would go against what other central banks are doing.
Bitcoin. In 2013 I wrote that a Bitcoin ETF would be the last thing I'd want to own. That was an easy call. Bitcoin, which lost 58 percent in 2014, is already down nearly 20 percent this year. The Winklevoss brothers recently filed to open a Bitcoin ETF. Given the price plunge, they are lucky they didn't launch a fund earlier.
These are unusual times and many markets are volatile, more so than even professionals would like.
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The extreme and fast moves in the dollar and interest rates are why preferred stocks are in the sweet spot (see last week's article).
They provide an attractive return and are not volatile, in fact quite the opposite. In times like these, preferreds should be in everyone's comfort zone.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.