I’m writing to you today from the 30th floor of the Hilton Chongqing in Chongqing, China — where I just arrived to kick off a two-week tour of China’s Silk Road 2.0 — the 21st century version of the ancient, 2000 year old Silk Road trading route that connected China to Europe and beyond.

You probably never hear of Chongqing. Yet it’s a city of 8 million people and the capital of the province, where nearly 34 million Chinese make their home.

Chongqing covers a large area crisscrossed by rivers and mountains. The Daba Mountains stand in the north, the Wu Mountains in the east, the Wuling Mountains in the southeast, and the Dalou Mountains in the south.

The province slopes down from north and south toward the Yangtze River. I’ll be here for a few days scouting opportunities for my subscribers to my Real Wealth Report.

From here, I’ll cruise down the Yangtze River to various spots along China’s entirely new Maritime Silk Route which will create a new trading route from China down to Indonesia.

And then, I’ll be off to Xian and Lanzhou, two more cities along China’s new Silk Road — all in the name of finding my subscribers the many new opportunities here for enormous wealth creation …

In what is rapidly becoming the biggest infrastructure build out in the history of civilization. A nearly trillion dollar project that is unprecedented in scope and size.

Don’t worry, if you are not a subscriber to Real Wealth Report, you’ll still be able to follow my travels and learn of the luscious profit opportunities. I’ll make sure of it.

Also, don’t worry: Though I’ll be traveling through some pretty remote places in China via water and rail, I have full access to the Internet to monitor the markets, speaking of which …

The U.S. Dollar Remains in a Raging New Bull Market

Sure, there will be some setbacks along the way for the dollar. But the recent rally in the greenback — a whopping nine-month 20.9 percent gain in the Dollar Index, a basket of six currencies including the euro, the Japanese yen, the pound, Swiss franc, Canadian dollar and Swedish krona — is merely just the beginning phase of the dollar’s new bull market.

There are several reasons the dollar is strong. I’ve covered most of them in various columns and in even more detail in my Real Wealth Report.

For now, simply know this: All the pundits out there calling for the death of the dollar and hyperinflation in the United States are dead wrong!

They simply don’t understand the global economy. They don’t understand that the trillions of dollars printed by the Federal Reserve mostly went to foreign investors, who in turn, used those dollars to borrow still more dollars.

They don’t understand that private sector dollar-denominated loans around the globe are now as high as $3 trillion, meaning not only that the world is awash in dollars, but the constant creating of new dollar loans as well as the rolling over and paying off of older dollar loans means dollar demand is also soaring.

And they don’t understand that the fiscal and monetary measures being taken by the leaders of Europe are also dollar bullish, euro bearish.

What’s worse is that they can’t see the writing on the wall: The leaders of Europe and Washington are both waging tax witch hunts on their citizens, actions that are also dollar bullish …

As Europeans seek shelter outside their own country …

And Washington wages a witch hunt on every American citizen, myself included, who has money overseas.

All this is dollar bullish and it will remain so for many months to come. It will only end, unfortunately, when the dollar becomes so strong — and deflation in the U.S. so bad —

That the Treasury and the Federal Reserve both begin to aggressively devalue the U.S. dollar once again.

That’s many moons away. For now and for the foreseeable future, you can expect …

FIRST, more downside pressure on the euro. In fact, as I pen this issue from my hotel room in Chongqing, the euro is approaching a new low, the Dollar Index a new high.

SECOND, a continued bear market in commodities. Yes, there will be some short-covering rallies now and then, in the precious metals, in the energy markets, in grain markets and more.

But overall, the commodity sector, precisely as I have been forecasting, remains in a bear market that has not ended …

And will not end until we see rivers of blood in the streets in all commodity sectors … including fresh new lows in virtually all commodities.

For now, stay safe and stay tuned …

Best wishes,

Larry

– See more at: http://www.swingtradingdaily.com/2015/03/04/larry-here-reporting-from-china-on-silk-road-2-0/#sthash.Iq6yFiDE.dpuf

Going into 2015 the economic outlook held by the U.S. investment establishment could not have been much more positive, and more unified. Pundits saw all the variables aligning to create the best of all investment worlds, a virtual “no-brainer” of optimism. Many believed that the 5.0% annualized growth in 3rd quarter would stay strong in the 4th Quarter and then usher in a strong 2015, which many believed would be the best economic year since the crash of 2008. The only question that divided most forecasters was how good the year would be.

High degrees of certainty can be dangerous. Herd mentality can cause investors to chase returns en masse and pile into positions that may already be overvalued. But herds can be spooked, most often by unexpected developments which can catch the herd wrong-footed and spark major movements when the masses scatter at the same time. When that occurs, those who resisted the herd may find themselves rewarded. We believe that we are approaching such a point.

Although the employment reports continue to bathe the economy in the diffuse light of recovery, many of the less followed economic indicators have further diverged from expectations in the opening months of 2015. Many economists initially believed that GDP in the 4th quarter 2014 would come in at an annualized pace north of 3.0%. But, in January the actual number came in at 2.6% (which was revised down to 2.2%). Recent data in such categories as consumer spending (which after falling in December, declined again in January – the first consecutive monthly declines since 2009), factory orders, trade, manufacturing, and business investment have missed on the downside. But these lesser reports are often explained away and have not made much of a dent on overall optimism.

In the six years since the Great Recession began in 2008, the economy has been boosted by both monetary and fiscal stimuli. The Federal Reserve has held its overnight rate at 0% while expanding its balance sheet by almost $4 trillion, and the Federal government had run four consecutive $1 trillion plus budget deficits (before pulling back to less than half a trillion annually more recently). But despite these unprecedented levels of stimulus, real GDP growth in the U.S. averaged just 2.2% from 2010 through 2014, which compares with an average of almost 3.5% in the post-WWII period. If this substandard growth is all we could achieve with the floodgates wide open, why should we expect that the economy will improve in 2015 if the stimulus doesn’t return, as few expect it will?

Despite the records being set almost daily on Wall Street, (today the NASDAQ eclipsed 5,000 for the first time in almost 15 years), optimists claim that the market is not overvalued because the current S&P 500 price-to-earnings ratio, of about 19 times trailing 12 months earnings, is not too far above the historical norm of about 14. But most investors have not considered the extraordinary factors that helped push up earnings, artificially we believe, in 2014. 

According to Bloomberg, in 2014 S&P 500 companies spent an estimated $565 billion (or 58% of corporate earnings) on share buybacks, a figure that is extremely high by historical standards. Money spent on buybacks is not available to purchase new plant and equipment, to fund research and development, or to spend on marketing and logistics. In that sense, buyback spending generates current earnings at the expense of future earnings. Corporate results have also been boosted by zero percent interest rates, which have allowed businesses to borrow cheaply.

To factor out these short-term earnings distortions, we suggest that investors should look past current P/E ratios and instead look at Cyclically-Adjusted-Price-to-Earnings (CAPE), which is also known as the Shiller Ratio, a metric that looks at earnings over a 10-year period thereby smoothing out cyclical and economic anomalies. Looked through a lens of CAPE ratios, the U.S. markets begin to look very expensive in comparison to other global markets. The graph below tells the tale:

In addition, U.S. stocks currently offer some of the lowest dividend yields to compensate investors for the higher valuations (see chart above). The current estimated 1.87% annual dividend yield for the S&P 500 puts it far below the annual dividend yields of Australia, New Zealand, Finland and Norway.

In 2014 the S&P 500 outperformed stocks in the rest of the world (as represented by the MSCI Index of non-U.S. global markets) by an astounding 20%. This was by far the largest gap in the past 13 years. But on Wall Street, investors generally chase returns. After six consecutive years of positive gains in the S&P 500 (and more than 200% return since March of 2009), few forecasters see any reason to suspect that the upward run of U.S. stocks will end anytime soon.

But should we really expect another year of such results? Would it not be more logical to suggest that the slowing economy will crimp potential over-performance of U.S. markets in 2014? Given that the S&P 500 has not been among the top performers over a 10-year timeframe [see 2015 Global Investor Newsletter] news, would we not at least expect the index to begin moving back to trend, and perhaps underperform world markets in coming years?

Don’t be fooled by the madness of the crowd. The U.S. is not the sole remaining engine of world growth as the talking heads would seem to have you believe.

The good news is that unloved assets may be attractively priced. At a time when energy and labor costs are at multi-year lows, and gold priced in some non-dollar currencies is approaching all-time highs, there are overseas gold mining stocks trading at levels consistent with lower gold prices. The fall in oil has pushed many energy stocks down by 50% or more. In addition, currencies issued by fiscally solvent nations are at fresh multi-year lows.

The above is an abridged version of a longer article that appears in the Winter 2015 Euro Pacific Global Investor Newsletter