The phrase “Mission Accomplished” entered our lexicon on May, 1 2003, when the Bush II administration hung a huge banner across the bridge of USS Abraham Lincoln aircraft carrier…
Of course, the U.S. mission in Iraq wasn’t accomplished at all. U.S. troops were mired in the Iraqi civil war for 8 more years. And the phrase “Mission Accomplished” now conveys a sense of hubris…
So, I definitely raised an eyebrow at a Bank or America report this morning, declaring this week’s 3% read from the Consumer Price Index (CPI) signaled Mission Accomplished for the Fed’s fight against inflation.
But, I don’t think BofA is trying to be ironic. The trend that’s taken inflation from 9% to 3% is as solid as they come. The decline from 4% in May to 3% in June is a pretty convincing exclamation point.
And BofA notes that investors have responded in a huge way this week. $17 billion has been pulled out of cash funds this week. $12 has flowed into bonds to grab yield while it’s still high and also have a shot at some capital appreciation as yields inevitably come down and bond prices rise.
Another $11.5 billion went into stocks. More on that in a minute…
But first, a humorous side note: investors pulled $500 million out of gold. I don’t why investors continue to fall for the whole “gold will protect you” thing. Gold sold off into the October 2022 lows right along with stocks. And it rallied off those lows right along with stocks, except not nearly as strongly.
Because gold is a liquidity trade, just like any other asset. If investors are truly scared about recession (like they were in October), they’re going to cash instead of gold, or any other asset (like they did in October).
Collect shiny coins if you want, they are kinda cool. But lord I wish could stop talking about gold as a viable asset class.
So, BofA also notes that Tech is attracting the lion’s share of new investment money — $2 billion this week.
But also, healthcare stocks saw $1 billion in outflows. This is significant because healthcare stocks are considered to be defensive stocks. Healthcare earnings tend to stay pretty consistent in both up and down markets. So they offer protection during the bad times, but they don’t necessarily offer much upside in good times…
A rotation out of defensive stocks is another indicator that investors are getting bullish and going on the offensive.
But the most important catalyst the BofA rightly points to is the situation with the US dollar. It’s weakening against other currencies…
And no, that is NOT a bad thing. I know you’ll probably hear some talking heads bemoan the weakness in the dollar, as if it’s a direct result of “de-dollarization” and obviously a strong U.S. economy should mean a strong dollar — like it’s a point of pride.
The fact is, the dollar is declining because the U.S. has the strongest economy in the world…because the U.S. Fed was so aggressive with interest rates that it’s basically done, while the EU, UK, Canada and Australia are all still hiking.
A weaker dollar makes U.S. exports more competitive. And while a weaker dollar does make commodities like oil more expensive, guess who benefits? U.S. oil companies. Our imports from Saudi Arabia are barely a trickle these days…
And I guess that’s a good entry to talk about de-dollarization for a minute.
If Saudi Arabia, Russia, China, Iran and Brazil wanna get together and price oil in yuan, rubles or frickin’ Kohl’s Cash, who gives a crap? Like we should take the “full faith and credit” of Russia, China and Saudi Arabia seriously.
These countries trying to link up will be a disaster. You just know each of them has a secret plan to gain power over the others by “sharing” their currency with the others.
Now, the U.S. absolutely should be doing more to keep Brazil on our side of the fence. But let the rest of them squabble amongst themselves.
The U.S. is the strongest economy in the world. And the construction boom for manufacturing and other infrastructure that we are seeing — a trend I call the Second American Industrialization — means that the U.S. economy will be more self-sufficient than it has ever been.
If those “de-dollarization” countries don’t wanna play nice with us, screw ‘em. Or more accurately, let them screw themselves.
One Last Thing…
I haven’t talked about Aehr Systems (NASDAQ: AEHR), which is featured in the amazingly prescient Pro Trader Today Special Report: The Diamond Chip.
I pegged Aehr System as a great way to play the trend for silicon carbide chips. That report recommended Aehr at $26. Well, it looks like Aehr Systems had a pretty good second quarter. The company reported earnings this morning and the stock is flying 15% higher today, to around $46.50.
That’s it for me today, have a great weekend and I’ll talk to you on Monday.
Chief Investment Strategist
Pro Trader Today