Friday, June 13, 2008

Recent Dollar Strength

The dollar rally continues into the weekend, with two main drivers to thank:
  1. The belief that the Fed will raise rates later this year to combat inflation.
  2. The belief that the US economy will turn up soon, and the world will again look to the US as a place to invest.
I don't think either of these reasons hold much water. Instead, I'll go with the fact that everyone was short the dollar, so it was due for a rally.

Regarding the belief that the Fed will soon raise rates, I think Chuck Butler said it best in his newsletter this morning:

Listen to me now, and hear me later... THE FED ISN'T GOING TO RAISE RATES! The ECB IS, but the Fed ISN'T! At least not for sometime, THE ISN'T GOING TO RAISE RATES! Did you hear me? Oh, just in case you were busy listening to someone on CNBC tell you that everything is beautiful, I said... THE FED ISN'T GOING TO RAISE RATES!

As for when the economy will turn around - that's a bit tougher. I'm a fan of John Mauldin's point of view that we will experience "Muddle Through" growth over the next several years.

Everyone knows the negatives - skyrocketing oil and commodities, indebted consumers, gov't debt, etc. On the positive side though, when this alternative energy does begin to come online, I believe it will most likely be driven by American entrepreneurs.

It's dangerous to short America - though I think that's still the right trade, at least when this dollar rally is over. But it is likely that different parts of the American economy will experience vastly different fortunes over the next 5-10 years. And don't forget the Midwest - the US is a huge grain exporter, and eventually grain prices will get high enough for our farmers to make a lot of $$$.


Heem said...

Good Luck with the corn, I don't have balls to buy it at these levels. I did buy some cotton on Friday though as it broke through its moving average. I'm also bullish on the meats and cocoa, planning on buying some soon. I like the Feeder Cattle contracts because they have not run up, is there a particular reason why you bought those feeders instead of all live cattle?

SugarHigh said...

Thanks bro - wish I had found my balls sooner on the grains trade, but I guess that's always the case.

To be honest, only reason I bought the feeders was the price strength, which evaporated right after I bought. Actually sold both earlier this week - like the way the Live contracts are acting better now.

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