Market Predictions: 'Crazy' About the Dollar 12 comments
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By Louis Basenese
I'm no stranger to controversial stock market predictions. In fact, a few weeks ago I angered an entire room of investors at the Agora Financial Symposium with my latest trio of "crazy" recommendations…
- "Take profits on your gold, while the getting's good."
Since uttering those words, the yellow metal's dropped $108, or roughly 12%.
- "Get short oil. It's going to $100 before it touches $150."
And oil obliged by dropping to $113, a move that silenced everyone who was calling for $200 oil just weeks ago.
- "And do the unthinkable. Get long the U.S. dollar versus the euro."
Last Friday, the euro endured its worst single-day slide in eight years, breaking through a key technical support level at $1.50.
Bullish Dollar Predictions
Now, before you cry "foul," I'll confess… I did issue similar bullish dollar predictions here on two occasions (The End of the Weak Dollar and Weak Dollar Rising). And I know they weren't well received because my inbox immediately filled up with "positive" reinforcement. Such as…
- "I would stick your dollar where the sun don't shine."
- "I'm still questioning your intelligence."
- "I really am amazed that people who are so well educated could be so ignorant… to send out a newsletter saying how the weak dollar is looking up is very irresponsible."
And yes, I kept every one of them in hopes of eventually being vindicated. But that's not why I'm writing today. Gloating doesn't put money into my portfolio. Only successful investments do.
Instead, I'm writing to make one last appeal for you to consider initiating a long dollar/short euro position, before it's too late…
4 Great Investors Badmouthing the Dollar…
Recall in March everyone, including four of the greatest investors of all time (with much more experience than me) - Warren Buffett, Jim Rogers, Bill Gross and George Soros - were publicly badmouthing the dollar. By June, Soros changed his mind, mostly. He went from being a dollar bear to neutral. A sentiment change is afoot…
And after last Friday's move, the dollar bull officially charged off the endangered species list. Here are a just a few sightings, culled from recent articles in the financial press…
- "The U.S. [dollar] multi-year down trend is over." - Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
- "Since reaching an all-time low against the major currencies in mid-March, the U.S. dollar has climbed 6%… The currency has seen several larger, temporary gains during its 38% slide since 2002, but this one could have legs." - Sal Guatieri, economist at BMO Capital Markets.
- "The dollar's surge against the euro has prompted Bank of America Corp. to tell its customers to exit trades betting on more gains." Bloomberg.com, August 14, 2008.
Trust me when I say there are countless others. Instead of listing them all, I think it's more important to understand the three factors prompting the sudden and massive conversions.
- First, investors finally woke up to the decoupling farce. Just like the United States, the rest of the world (at least this time around) is staring down the double-whammy of slowing growth and rising inflation. That includes Europe and (gasp) China. In fact, going into today, the U.S. markets were performing better than all of the highly touted BRIC-countries, year-to-date. In a truly decoupled world, that wouldn't be happening.
- Second, the latest reading of the Economist's Big Mac Index confirmed the euro is grossly overvalued, by as much as 50% versus the U.S. dollar. The most it has ever been.
- For the skeptics in the bunch, here's one more point to chew on… It's a fact the dollar moves in five to seven year cycles. It's a fact the dollar's already endured a six-year drubbing. So odds are the latest rally marks a legitimate reversal. And that means the euro is in store for an epic tumble.
So instead of merely daydreaming about the return of an affordable European vacation, I encourage you to do something that will actually help you afford it!
Stock Market Predictions - Get Long The U.S. Dollar
Here's a stock market prediction - get long the U.S. dollar versus the euro. (See the Investment U Crib Sheet for two ideas.)
And I know. I've insisted on the same move twice before. But as one of you put it, my prognosis was just "a bit premature. [The dollar] will get much worse before it gets better."
It did. The euro hit an all-time high of $1.6038 on July 15. But now it's at a five-and-a-half-month low… with a long way to go.
Remember, if you're early, there's still time to get it right. But if you're late, there's only time for regrets. Here's to investing with no regrets.
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It was interesting this week to see euro-zone, French, Italian & German GDP growth for the 2nd qtr. were all negative. Despite Trichet's hawkish stance I suspect euro-zone slowing will become more and more pronounced in the coming weeks and months The cacophony of calls to lower rates will only get louder and louder.
The BOE's quarterly inflation report this week was striking in how dovish it seemingly was....almost hinting rate cuts may come even before CPI, PPI and import/export input indicators show signs of slowing. The idea being that as long as it was evident that inflation had peaked or was cresting....rate cuts would happen sooner rather than later.
My suspicion is the same may happen in euro-land and that markets haven't priced in this possibility.
All your debt is being recycled from Treasuries held by Foreign Central Banks into pesos,reais,rubles and gold and other hard assets.
For your stinky $ to go up the Fed must rise rates to 10% and even then it will be too late as you are all,as a country just went bankrupt.
Look for ECB (European Central Bank) to begin rise rates as we,Europeans,know what your economy is worth.
EUR will rebound soon to 1.70 and USD will stay at this or lower levels before you will not open your cards as you are bunkrupt.
Bankrupt currencies are not worth much.
Interesting take. So you basically want euro to go 1.70 thereby choking off and killing euro-zone exports even more so than is happening now? Great idea.
Interest rates to 10%? Too funny. While the ECB will be lowering rates in 09' - 10'.....ours will be rasing them.....making America's assets more attractive than the euro-zones.
Euro-zone unions aren't doing you any favors either. Because you're so unionized compared to us "stupid Americans" many euro-zone employees have already won outsized wage increases. Betcha can't guess how euro-zone companies are going to compensate for higher unit labor costs. Can you say wage-price spiral?
EU Industrial production, manufacturing, consumer sentiment, consumer spending, business confidence....all falling off in dramatic fashion.
The EU is about to find out if the twelve gold stars on their flag are in deed representative of unity and perfection.
I'm sorry you resent America so much.
Instead of wishing us catastrophy, you should be praying our economy holds up so we can continue to have the only military on the planet capable of protecting Europe from a resurgent Russian bear.
You should probably be a little nicer to us, too, since we may eventually have to save your precious little EU from becoming an annex of Russia. How much do you think the Euro would be worth THEN?
Regards,
The Capitalists
Everyone needs a weak currency to survive the global economic meltdown, you guys are just all the wrong side.
So the truth is revealed.....you're a Jew hater and your opinions read like some hack partisan blogger.
Mark is a racist from Europe although we have them too where they come from the left.
The drop in commodities is reminicent of the 1987 crash when one sold everything. The difference this time around is that it is our Financial Instutions selling assets to raise much needed capital. A new shoe to resole called Auction Rate Securities. They are selling liquid assets.
By the middle of September, with the Dow above 12,000 another shoe or two will kick in: 1. Without much fanfare the Minimum Wage, part 1 went into effect(core inflation anyone) and 2. Currency translation on the International sales front.
In the next month or so, Europe will have a new inflation scare and the US economy will start to suffer on the exporting side. While Mark may be a little Rabid, he is probably right on the toll our markets will suffer from the Dollars rise in the short term. Why?
Because fundamentals don't change on a given months data but the favorable international trade data is definitely evaporating because of the Dollars strenght. Where are the Earnings going to come from now to support the PE ratios of the S&P?
This is not a reason to like the Jews.
Bush is a puppet to Israel and not only Israel but to Saudi and king Abdullah the oil tycoon. these sick bastards have been manipulating the markets and creating wars out of any crisis they can find so they can push their own agenda like oil and war profits that do not benefit the average American. By the way Bush has the lowest approval rating even lower than Nixon. Bush would just love to impress his Israeli buddies (who he serves not us Americans) and find a backdoor way into getting into a war with Iran such as though provoking Russia. Bush is an ass hole he is ruining all global diplomacy. Who cares about Israel, it doesn't concern the US and there should not be troops deployed in the Middle East which is another Vietnam. WWIII is possible because of zionist war mongers promoting wars. Cheney is another sick lowlife bastard Israeli puppet that is profiting from making wars.
The USD itself has to choose between having exports though a devalued dollar or to letting the economy rebound. With the economy slowing it may allow commodities to retreat. However the economy itself is basically ruined long term because of government spending (Bush's drunken sailor spending / war mongering for his zionist jew buddies) and massive deficits that are over 50 trillion for American tax payers. Nobody hates America more than the Bush administration and the American government so think twice about who you say is anti-American because apparently you are so dumbed down by refined foods and what's shown thought the propaganda machine you don't have any concept of it.
Mark is a racist from Europe although we have them too where they come from the left.""
I suppose you think that if you mention race it dismisses all the fact of what the Bush administration and anti-American US Government is doing? What does it make you for liking the bastards in power who are the lowest scum on earth? You may be able to toss around the term racist but where are your own morals? Do you have any morals or are you just a parasite?
You bring up some great points.
I could be mistaken but I thought the increase in minimum wage was going to get phased in over time. Plausibly this could mitigate wage pressures in the near term keeping us out of a wage-price spiral situation.
I agree with you about the auction rate securities mess. Pretty daunting. I think most companies are working hard to re-imburse investors though and it appears the Fed is going to keep lending to commercial banks for some time to come.
My sense about the negative effect a strengthening USD would have on American exports is would have to appreciate much, much further for that effect to be truly palpable. The flip side is a stronger dollar will help to tamp down domestic inflation and gives Americans more purchasing power. We'll see.
So S&P earnings will drop and either the PE ratios rise or the S&P drops. I figure, it drops because of the ongoing Housing Mess, the addition of Auction Rate to the mix and the expectation of higher Core even if Headline drops.