Rumors of the US Dollar’s Demise Have Been Much Exaggerated

The second segment I did on Yahoo Finance last Thursday was not a new one for long time readers. As many of you know, I turned very positive on the US Dollar right about the time Bear Sterns needed a bailout in March 2008. That was long before any QE (money printing) began.

Historically, the dollar spent most of its life oscillating between 80 and 120 on the US Dollar Index, an index containing a basket of currencies with the majority of the weighting against the Euro and Yen.

When the economy is strong and interest rates are typically in an uptrend, the index rises and vice versa. Usually, the US Dollar Index in anticipation of a weaker economy and lower rates and bottoms in anticipation of higher rates and a better economy. Remember, this is all relative against the rest of the world, but primarily against Europe and Japan. Additionally, in times of international crisis, the dollar is typically viewed as a safe haven.

For the past 6 years, the greenback has and continues to be one of the most hated investments, especially by the general public. They very wrongly assume that printing $5 trillion would devastate the dollar as the doomday’ers would have you believe. I can’t tell you how many times I have heard pundits talk about the “plunging dollar” or how Ben Bernanke’s money printing continues to punish it. The truth is, the US Dollar Index has never been lower than it was in March 2008.

Anyway, I didn’t mean for this post to be this long and go on and on. The segment I did last week on Yahoo Finance is below.

Why the Dollar Bears Have Been Wrong for the Past 5 Years

If you would like to be notified by email when a new post is made here, please sign up, HERE.

If you would like to be notified by email when a new post is made here, please sign up HERE

Bernanke’s Worry Lines & CNBC’s Closing Bell

I will on CNBC’s Closing Bell today, Friday, at 4:00pm discussing the lack of any taper from the Fed, what they see that the masses don’t and where the markets are ahead.

Earlier this week in Street$marts (click on link to see) and on my blog, www.investfortomorrowblog.com I spelled out the three scenarios that could result from the Fed meeting. While I did not believe any taper was warranted, the market was expecting a token $10-$15 billion. When Bernanke & Company did nothing, risk assets soared, almost as if the heroine addict was given a reprieve from going to rehab.

In my view, the Fed clearly sees something that the masses do not and I have long argued that the markets and economy cannot stand on their own two feet without support. With Janet Yellen (thankfully) seemingly a shoe in to succeed Bernanke, it will be interesting to see if the Fed even tapers at all before she takes office in January.

The Fed’s lack of stimulus reduction does little to change my intermediate-term outlook. It does not make me any more bullish than I already am. I continue to believe that after the next pullback which I expect over the coming 4-8 weeks, stocks should rocket to fresh all time highs well north of 16,000 during the first quarter of 2014.

Regarding bonds as I have written about before, I was waiting for the taper to signal an all clear to buy bonds because negative sentiment had risen to record levels. Anyone even thinking about selling would have done so. It would have been the classic case of the selling the rumor and buying the news. While I am still positive on bonds over the intermediate-term, my conviction is not as high as it would have been had the Fed cut back its purchases.

Bonds are in a bottoming process that should lead to a significant rally sooner than later.

The dollar finally breached its June low which I have been patiently waiting for. I remain (as I have since March 2008) very positive, long-term on the greenback. While it may not be rosy in the U.S., it’s still the best house in a bad neighborhood. I fully expect the dollar to bottom by Thanksgiving and embark on the next leg of a secular (long-term) bull market.

At the same time, that should mean a tailwind for energy prices this fall followed by a significant decline over winter.

Finally, today is the Dow Jones rebalance of Alcoa, Bank of America and Hewlitt being removed and Nike, Goldman and Visa being added. It doesn’t involve a lot of money, but I continue to find it “curious”.

Have a great weekend!

In CT, it’s fall country fair time, apple picking, softball and tee ball for my kids and a celebratory dinner for my closest friend on Saturday. With rain in the forecast for Sunday, I hope to get some TV time with the NFL and season ending golf tournament from East Lake in Atlanta.

If you would like to be notified by email when a new post is made here, please sign up HERE

Gold to $2000 and Beyond

Here is the second video I did with the folks from Yahoo! at their beautiful new studio in the city.  Anytime there are bold statements on gold, people come out of the woodwork to comment.  And I would be surprised if they aren’t at least 100 comments by the time you read this. 

One of the great myths is that gold goes up when there is inflation. I think the 1990s is the perfect example of why that isn’t true.  A better statement would have been that gold goes up anticipating inflation…

http://finance.yahoo.com/blogs/breakout/easy-money-low-rates-gold-2000-end-134943224.html

If you bought gold nine months ago at a record high and have since seen the price decline by 15% or $300 an ounce, you’re not the unluckiest investor alive, you’re just a little early.

“This is not a pullback, this is a full fledged correction,” says Paul Schatz, President of Heritage Capital in the attached video. “We’re shaking out every weak-handed holder possible.”

His case for owning gold is three-fold but also comes with the self-disclaimer that he’s “not a gold bug” that reflexively sees the precious metal as the answer to all investment questions.

First off, there’s the fundamental backdrop that the world is full of accommodating central banks right now, least of which is our own Fed. As Schatz says, “the ECB (European Central Bank) is just getting started.”

Add in super low interest rates and just enough inflation and we find ourselves facing so-called ”negative real rates of returns” and you’ve got an environment where something like gold, that protects purchasing power, should do well.

There’s also a timing and technical component to Schatz’s bullish call on bullion. As much as he thinks it would be ”nice” to see gold bottom out around $1500, he’s counting on a sharp snap-back to the previous high of $1900, that will ultimately break through psychological resistance of $2000 by the end of this year or early 2013.

“Once we exceed the old highs in the $1900s, we certainly go to $2000 and that sets the stage for the next run” he says, pondering the next high-water mark, “Is it $2200? $2300?”

“I don’t think the secular bull market in gold is over,” Schatz concludes. “I think you have years left in it.”

If you would like to be notified by email when a new post is made here, please sign up HERE