Of course, last week, on June 6, the West marked the 74th anniversary of the allied "D-Day" landings in Normandy, France.
This anniversary, though, was capped off by a G7 summit in Charlevoix, Canada.
Right now, relations - at least, on the surface - between the modern Western allies are mighty frosty, dominated by Twitter and press conference feuds between Canadian Prime Minister Justin Trudeau, French President Emmanuel Macron, and U.S. President Donald Trump, largely over the subject of the multilateral trade war breaking out over protectionist tariffs. Of course, they've largely kept quiet on social media, but it's no secret British Prime Minister Theresa May and German Chancellor Angela Merkel aren't thrilled with Trump's positions, either.
I'm hard-pressed to recall any recent G7 (maybe call this "G6+1") meeting as tense as this one, though a few probably come close.
On the other hand, dispassionate observation and analysis of market action tell us that all this hostility and discord has been baked into prices - discounted.
But our Capital Wave Strategist, Shah Gilani, is watching a "split" of sorts beginning to open up between the United States and the European Union - one that's got nothing to do with politics or soundbites and everything to do with... growth.
I caught up with him to get filled in on the details, but he did me one better...
He told me how to play this emerging situation that's coming and going - there are going to be some pretty big swings.
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Greg Madison: Shah, great to talk to you, thanks for calling.
Shah Gilani: You bet - my pleasure!
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GM: So, tell me what you're seeing here.
SG: Slowdown.
GM: Sorry?
SG: (Laughs) An economic slowdown, in fact. One that's very real, but that we're not hearing too much about right now, with all the hubbub over trade. But it is developing.
I was looking over some charts and analysis the other day, and I came across a report from IHS Markit. It's got a producers' manufacturing index of over 5,000 businesses... and business in the Eurozone looks to be slowing way down.
GM: How bad?
SG: The index came in at 54.1 in April - that's down from 55.1 in March. And it's now the lowest reading in 18 months.
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That's the backdrop.
GM: I get the feeling there's another shoe out there waiting to drop.
SG: There is. And it's one we're looking at playing in my Zenith Trading Circle service. (Note: Click here to learn more about Shah's research.)
Here, in the United States, Fed Chair Jerome Powell and the U.S. Federal Reserve are essentially committed to hiking the Fed funds rate, which sits at 1.75% right now, at least three, maybe four times in 2018. As we've all seen, they won't want to back down and look dumb unless the economy is literally on fire.
Across the pond, in the Eurozone, the picture is very different. "Super" Mario Draghi's European Central Bank is dead set on keeping policy on Easy Street.
Of course, the Fed's 1.75% is, in historical terms, still very easy, but here's the thing: Europe's key rates are at below-the-basement levels. They're nailed down at -0.40%, 0.00%, and 0.25% - the lowest rate, the deposit rate, is an eye-watering 417 and a half basis points below where we generally are.
GM: (Whistles) So dollars are getting more and more expensive, and should continue to do that, while euros are cheap-as-free.
SG: Yep. And remember: Money goes where it's treated best. That's the flow. This is what's pushing the capital wave headed our way from across the ocean.
And we're going surfing. (Laughs)
SG: So if European economies continue to diverge from the ongoing, steady growth in the United States and the Federal Reserve raises rates here while the European Central Bank (ECB) keeps rates in negative territory across most of Europe, more money will flow into the dollar and into U.S. equities, driving both higher.
That means the euro will keep falling, which "proves" economic weakness, and, importantly, gives Draghi and the ECB all the cover needed to keep their multibillion-euro quantitative-easing program in place.
That means buying debt, loads of it - Eurozone sovereign and corporate debt, specifically.
GM: So we should see the dollar strengthen even more against the euro; see more investors getting into dollars and dollar-denominated assets.
SG: Yes, and here's where it gets emotional: Investors everywhere, especially here, are going to watch Europe and get nervous.
I think we can expect an initial "risk-off" sympathy sell-off if investors get nervous, but that's going to be a buying opportunity. Because U.S. equity markets will consolidate, will take a look around and see that - hey - companies are cash-rich, reporting stellar earnings, and will power their way through to higher highs.
GM: So bullish in the intermediate term? How do we get long on this?
SG: You can make money coming and going, up and down, on this thing, Greg. With exchange-traded funds (ETFs).
GM: I thought you were a little leery of those, given their potential for market-wrecking you told us about last month.
SG: That's true, but this isn't a buy-and-hold situation; it's a series of fairly quick moves. I'll use ETFs all day long if I think the risk/reward picture looks right. It's going to pay to be nimble, aggressive, and attentive.
GM: Sounds good: What's the play?
SG: Like I said, U.S. stocks could have a sympathy sell-off - if that happens, take a position in the ProShares Short S&P 500 ETF (NYSE Arca: SH), which will pay you the inverse of the S&P 500's dip - minus an expense ratio of around 0.89%. Most all of the ETFs I'm going to tell you about here have a decent, 0.89%-or-lower expense ratio.
Watch the markets closely, and when the selling stops, exit the position. If you're feeling aggressive and you've got the stomach for it, you could opt for a leveraged inverse ETF like like the ProShares UltraShort S&P 500 ETF (NYSE Arca: SDS), which pays twice the inverse of the S&P 500. Of course, you can lose twice the money if the index swings back quickly, so keep that in mind. Be careful.
GM: And when we see the markets catch a bid and begin to rebound?
SG: That's easy, too. Just get long the S&P 500 with the SPDR S&P500 ETF Trust (NYSE Arca: SPY). It tracks the S&P 500, goes up when it does. And again, if you're feeling aggressive, get leverage with the ProShares Ultra S&P 500 ETF (NYSE Arca: SSO).
GM: Sounds nice and easy to me. How do we play the currency action, the rising-dollar/falling-euro setup?
SG: That's the other "leg" to this. In the intermediate to long term, this transatlantic divergence in growth and monetary policy is bullish for the dollar. And there's an ETF to play for that, too. This could be a longer position, so set whatever stops you're comfortable with.
For this, I like the Invesco CurrencyShares Euro Trust (NYSE Arca: FXE). It tracks the performance of the euro against the dollar, which, as I said, I expect should be in a downtrend. You can short shares of FXE - "borrow" them from your broker, watch them fall, sell them back, and pocket the difference. It's not always a good idea to do that with ETFs, but FXE is nice and liquid, with tight bid/ask spreads, so you shouldn't have trouble getting out of the position when you've hit your target or it's time to leave.
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