- The belief that the Fed will raise rates later this year to combat inflation.
- The belief that the US economy will turn up soon, and the world will again look to the US as a place to invest.
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 $$$.