Wow! Just wow. Friday's release of the preliminary data for August for the widely-followed University of Michigan Consumer Sentiment Index was jaw-dropping. A reading of 70.2 not only fell short of the consensus estimate of 81.2, but the survey print was the lowest since December 2011.
The stock market is not reacting at all, however, with all three major indexes hugging the flatline as of this writing. But the writing is on the wall. From my early days following the U.S. auto sector, I know that consumer sentiment has a very strong correlation with durable goods purchases: houses, cars, and so on.
It also has a strong correlation with election results, and declining sentiment has always impacted the ruling party the most. So, as the Biden Administration lurches from one embarrassing gaffe to the next -- falling down the steps to Air Force One and constantly referring to notes -- it is obvious why the consumer is uneasy.
I believe the U.S is heading for a fall, and that will obviously impact the financial markets. I am in Brazil now, and, though my Brazilian Portuguese is terrible, I do hear one word quite often in my meetings: "Fauci." How to respond? Of course, I believe he's incompetent, but every country has such people. Most don't put them in a position of power, though.
So, between Fauci, New York's soon-to-be former Gov. Andrew Cuomo, Biden and California Gov. Gavin Newsom, the Democrats have put themselves in a position to face a great backlash. I believe there will be a Red Wave of epic proportions in 2022. I could see 20 House seats changing hands and the Republicans will almost certainly retake control of the Senate. Herschel Walker, a former Donald Trump employee with the New Jersey Generals of the USFL, could ensure that if he decided to run for Senate in Georgia in 2022.
The idiotic orgy of government overspending that the Democrats are foisting on this country will lead to pain down the road, as it always does.
But how far down the road? And how to play it?
The dollar is going to crumble. With crazy spending, interest rates that in no way reflect the actual cost of money (thanks, Janet Yellen and Jerome Powell) and newfangled alternatives to "King Dollar" that's a great bet. Invesco's US Dollar Index- Bearish exchange-traded fund (UDN) is a good way to play that.
Also, crude oil benefits from a weaker dollar, as black oil is typically denominated in dollars, and if it takes more dollars to buy a barrel of oil, the price (expressed in dollars) would necessarily rise. I am not a fan of any of the oil ETFs, as the plunge below zero during the COVID crash last year was even more evidence of how unreliable those funds are. So, just stick with Exxon (XOM) and Chevron (CVX) and remember that non-U.S. producers like Total (TTE) and Eni (E) get a double benefit through their U.S.-listed ADRs from a weaker dollar.
Finally, there is crypto. If the dollar is sliding, it is obvious that people will seek an alternative currency. So, I am not a "crypto" guy, but I certainly can see the appeal of an alternative currency these days, especially Bitcoin.
Smart people will adapt to changing circumstances. Make sure your portfolio will, as well.
