As we have recently talked about the secular bullish dollar (that may be currently developing), we should point to a few things that can corroborate with this idea.
This is a group of stocks ($EEM) that have been dramatically underperforming the US Stock Market for basically 4 years. Look at the difference in performance since the end of 2010 (as per J.C.Parets):
Now add to that negative scenario, the devaluation of most currencies in relation to the dollar.
According to Ryan Detrick, “the US Dollar Index hasn’t been down on a weekly basis in 10 weeks. This index compares the US Dollar versus six other large foreign currencies. What we’ve seen from the US Dollar recently isn’t just amazing strength, it is the best rally in more than 30 years. Again, something has changed here, we need to listen.”
Here’s a bigger-term picture of the US Dollar. It is breaking out of a very nice multi-year bottoming pattern that should only increase the odds of future strength longer-term.
In other words, don’t be surprised to see commodities continuing their breakdown within the next 5 years or so… and this is definitely bearish to emerging markets, especially Brazil.
And don’t be surprised to see the Brazilian Real devalued by another 20% or so within a year.