ETF Expert

Several days ago, I addressed an unsettling “arrangement” between 3 asset classes… gold, treasuries and U.S. stocks. Uncharacteristically, they’ve been moving in the same general direction since mid-June.

Well, the plot is thickening.

By way of review, investors began taking significantly more risk in the beginning of March. People wanted stocks and commodities, and they began dumping U.S. treasuries.

In June, however, U.S. treasuries began gaining fans as well as capital appreciation. Either that, or the U.S. government’s actions to purchase treasuries has created artificial demand for U.S. debt.

Regardless, the iShares 10-20 Year Treasury Bond (TLH) is currently above its 50-day and 200-day exponential moving average. This suggests bullish momentum for longer-maturity U.S. treasury bonds, even at historically unattractive yields.

Typically, when investors run to the safe arms of  U.S. treasuries, they may also run to the perceived safety of the largest economy’s currency, the U.S. dollar. Yet nothing could be further from today’s truth.

The U.S. dollar has been getting battered on a daily basis. Moreover, the PowerShares US Dollar Bullish Fund (UUP) demonstrates just how undesirable the greenback has become.

If the dollar is this banged up, wouldn’t that represent trouble for U.S. stocks? Granted, multinationals that earn 50% of their money from abroad might succeed due to their foreign operations. And exporters typically benefit from a weaker dollar.

Still, 70% of the U.S. economy is the consumer, and the consumer is losing purchasing power. A higher cost of living means that fewer folks in the U.S. can afford what businesses sell us. Worse yet, businesses that need to import foreign goods are unable to do so… except at exorbitant costs.

One might think that the dollar’s rapid descent might cause some concerns in equity markets. But alas… U.S. stocks are continuing their ultra-hot streak.

Treasury bonds are climbing (risk aversion), the dollar is falling rapidly (uncertainty), and yet U.S. stocks are flying high? Yep! And U.S. stocks haven’t been this far above moving averages since 1983.

Perhaps some sanity exists out there. Specifically, while gold may be traveling in the same direction as stocks, gold is at least a legitimate hedge against inflation/dollar devaluation. GLD has maintained a steady uptrend above its 200-day moving average for more than 6 months.

Now for one of the most challenging pieces to the puzzle. Up until 12 weeks ago, you could count on a total commodity basket to move in the opposite direction of the U.S. dollar. The weaker the dollar, the higher the price of oil, gas, base metals and a host of popular commodities.

Well… we’ve got an exceptionally weak dollar. Still, commodity indices like the DJ Total Commodity Index (DJP) have been pretty flat over 3 months. Are investors spooked by pending legislation from the Commodities Futures Trading Commission… or is this just one more asset whose direction is entirely unnerving?

If you’d like to learn more about ETF investing… then tune into ”In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod.

Tags | "etf bonds", "etf commodity", "etf economy", "etfs and treasuries"