The incredible heaviness of the dollar


First quarter GDP growth seems to be following a long-running trend.

Once again, the US economy is having a hard time generating any momentum.

The last revision to the fourth quarter GDP was unchanged at a 2.2% annual growth rate.

 

dollar-power

 

Fed Timing

In my opinion, the rising prices on US Treasury bonds indicate that investors believe the economy is slowing and the Federal Reserve will hold off on raising rates.

In addition, March’s employment number came in at a paltry 126,000 hires. The Labor Department also reduced the hires initial estimate for January and February.

In my opinion, there several causes for the fall in output. The strong dollar has slowed US exports and hurt earnings.

 

Earnings Hit

Among the companies listed on the S&P 500 Index about 40% of their collective revenue is from overseas.

On the plus side, consumers are saving, or reducing debt, both of which bode well for future spending.

As winter weather leaves consumer spending should began to increase in my opinion.

 

Energy Prices

The end of labor troubles at Western US ports and modest improvement in Europe have put a floor under oil prices.

Another event helping oil is that demand for refined petroleum products is increasing worldwide.

US refineries are about finished with their spring turnaround and are adding about 125,000 barrels a day of production each week, according to my research.

By May these refiners should be back to consuming sufficient oil which should begin to reduce the amount in storage based on my analysis.

 

Portfolio Strategy

We are beginning to add to our energy positions in the Pure Growth portfolio.

We are staying with energy companies that have strong balance sheets such as Linn Energy (LINE), EOG Resources (EOG), ConocoPhillips (COP) and Concho Resources (CXO).

In the natural gas sector, we like Gastar (GST) and Range Resources (RRC).

 

Mid-Stream

The mid-stream sector has stabilized some what from the initial over reaction to the fall in oil prices.

These companies derive most of their income from fee based revenue through their pipelines and natural gas liquids (NGL) processing.

Our two favorite names in this space are Enterprise Products Partners (EPD) and Kinder Morgan (KMI).

These companies are adding pipelines to export natural gas to Mexico as well as to export condensate and NGL’s.

 

Consumer Stocks

These projects should keep their revenues increasing as they move forward in my opinion.

At the same time, we are adding to our positions in the consumer sector.  We are currently bullish on Kroger (KR), Walt Disney (DIS), and Home Depot (HD).

In my opinion, these are companies that will benefit as the consumer starts to reaccelerate their spending after having paid down their debt balances.

 

Industrials

We are not adding new money to our industrials positions at this time, but we are not selling out of them either.

These companies are holding up fairly well in spite of the strong dollar. We will continue to watch the dollar and to their next quarterly reports.

Among our favorites are Honeywell (HON), United Technologies (UTX), Emerson Electric (EMR) and Rockwell Automation (ROK).

Meanwhile, Westlake Chemicals (WLK) and LyondellBasell (LYB) are showing good profit gains on a year over year basis.

 Photo Credit: DonkeyHotey via Flickr Creative Commons

The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
The investments discussed are held in client accounts as of April 14, 2015. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

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Ben Dickey
Ben Dickey
BSG&L is a Texas-based registered investment adviser. Our founding principals, Ben Dickey and Kevin Londergan, have more than 30 years experience in both accounting and financial services.

At BSG&L, we believe that greater and consistent returns can only be achieved by identifying long-term tendencies in the investment markets and understanding fundamental shifts in expected investment returns.