3 Trends The Experts Got Dead

Wrong
BRET JENSEN

MAY 3, 2015

One thing that can be said with almost certainty, take what you hear on the mainstream
financial media outlets with a grain of salt. Here are the three biggest trends going on right
now, how the mainstream experts got them wrong, and three investments that take
advantage of the medias missteps.
It always amazes me how many times the economic consensus is wrong but yet how many
investors still follow the so-called experts when it comes to macro forecasting. At the
beginning of the year, the International Monetary Fund as well as most well-known
economists predicted once again this would be the year that the United States would break
out of almost a decade of below trend growth. GDP was widely forecasted to increase at a
3.5% annual clip or better despite the fact the Federal Reserve had finally exited over five
years of extraordinary liquidity support in October as well as tepid global growth prospects.
Recently printed first quarter GDP growth of just 0.2% put those optimistic forecasts to rest
for now and investors can expect another year of 2.0% to 2.5% GDP growth in what remains
the weakest post-war recovery on record.
There also seemed to be no end in sight a few months back to the huge plunge in crude
prices. However, oil markets have strengthened in April and oil stands near $60 a barrel from
its recent lows in the mid $40s. The bottom happened right around the time more and more
forecasters were calling for oil to hit $30 or even $20 a barrel.
It seems only last month the consensus was the dollar would soon reach parity against the
Euro and continue to strengthen against other major currencies as well. This made sense on
the surface as the greenback had been on a massive run against other currencies since
early summer, gaining more than 20% against the Euro in less than nine months. The Euro
dropped over 11% against the dollar in the first quarter alone, the biggest movement from
this currency pair since the Euro was adopted in the 90s. With the European Central Bank
just initiating its own huge quantitative easing program, which some have dubbed money
printing, the consensus made sense logically that the Euro would drop further against our
currency.
It also turned out to be dead wrong.
Since dipping below $1.05 against the greenback, the Euro has strengthened to $1.13 in
recent weeks confounding the predictions of pundits. The driver of this reversal is weaker
than projected growth in the United States which is also pushing off the time of the Federal

Reserves first interest rate hike since 2006. In addition, some green shoots are starting to
appear in the European economies. Growth prospects should continue to strengthen on the
continent provided another funding agreement with Greece can be reached so the country
does not have to withdraw from European Union causing disruption.
If the dollar stays at its current level, earnings from American multi-nationals whose profits
were crimped significantly in the first quarter by a strong dollar should improve in the second
quarter. It is one more reason to add some shares in the likes of Microsoft (NASDAQ:
MSFT)which managed to post strong first quarter results despite some substantial currency
headwinds. Those headwinds could turn into a slight tailwind if the recent ebb in the dollar
continues throughout the second quarter.
Commodities and emerging markets have also started to behave better since the dollars
recent run has started to fade. The recent rise in crude has happened as the dollar has
weakened with oil up some 25% from where it ended the first quarter. This is a correlation
that is not coincidental as other commodity prices have also bounced off recent lows. The
temporary halt to the dollars rally is helpful to commodity export emerging markets such as
Brazil, Russia, Canada and Australia.

I have started
to add a bit of exposure to emerging markets by picking up some shares in one of the largest
ETFs in this space. I recently bought some shares in the iShares MSCI Emerging Markets
ETF (NYSE: EEM) which at the end of the first quarter was selling pretty much in line to
where it was to begin 2012. Expectations around emerging markets have been pretty dismal
for quite a while, any improvement in sentiment could trigger a significant rally. In addition,
valuations in emerging markets are much lower than for domestic equities as well as
European stocks.

I have added a
couple of small stakes in large global miners,Vale Inc. (NYSE: VALE) andFreeport
McMoRan (NYSE: FCX) recently, both of whose stocks have behaved much better as dollar
strength has reversed and commodity prices have ticked up. Both stocks have rallied
recently off multi-year lows. Vale is a low cost iron producer

seeing
record
production and cutting costs. Freeport has cut costs including reducing dividend payouts and
the company may soon divest itself of its energy exploration assets. Both will benefit from a
lower dollar as well any kind of renewed growth in China.
I know most of what I have outlined is contrary from what CNBC and other mainstream
financial outlets are currently touting. However, one thing I have learned over the past three
decades of investing is being contrarian usually pays better dividends than investing along
with whatever the consensus is at the moment in the markets. This is especially true for
patient investors with longer term investing horizons.

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Positions: Long EEM, FCX, VALE