We were willing to look the other way as the dollar soared of late, and I found it surprising given that it's just a giant earnings cut for the S&P 500. We had been so focused on it for so long, it was strange that the bulls decided to pay no attention during the collapse of other currencies, notably the euro, against it.
Today it seems that's not the case. It's come home to roost. Not only that, we are still in the grips of a massive commodities downturn that seems to have encompassed all but chicken -- did you see Tyson Foods (TSN)? -- and oil, which, while down year over year, keeps fighting to stabilize at these levels.
In particular, I am fascinated and perturbed by the incredible decline in copper as tracked by the Copper Subindex Total Return ETF (JJC), which has gone from $61 to $23 in the last four years with hardly a lift. This is an astounding decline for a metal that's regarded as a barometer of economic activity.
Now if I were Klaus Kleinfeld, CEO of Alcoa (AA), I would say some of that decline is because aluminum has been able to replace copper in many users. Others might say the issue is production. The big-time copper companies haven't made anywhere near the cutbacks that they should have if they were rational.
Still others might say, no kidding, copper is a proxy for Chinese growth, which is still slowing. It's hard to argue with any of these, but the most important thing to realize is that this decline is chilling because it is a reminder of how fraught a rate hike will be. Last week, not only did we champion a higher dollar but we seemed to welcome the return to normalized Fed fund rates. Have we had buyer's remorse?
I think it's too early as we need more than one day down. We had our best week in ages last week, so a selloff is to be excused.
Still, though, there's no doubt after today that we have reached a level where people are worried about what they seem to have forgotten: the skyrocketing dollar and the commodities collapse. Seems like a reasonable fear given how breathtaking both moves are.