Jack Crooks: US Dollar Has Room To Run

Jack Crooks, one of the most successful currency investors of all-time, told DailyWealth's Steve Sjuggerud that he believes the US Dollar will perform quite well over the next few years.

We take a contrarian view. We'll get nervous when everyone loves the dollar. In our view, since people still don't like the dollar, there are a lot more potential buyers of dollars left out there.

In this whole global morass, the relative winner is the U.S. Here's why:

The U.S. still has the deepest capital markets. It's still the world's reserve currency, so money will flow into dollars. It also has the strongest consumer, relatively speaking. So we think the U.S. dollar is the relative winner over time.

Crooks' favorite long-term trade is long the US Dollar, short the Japanese Yen, as he believes poor economic fundamentals are finally catching up to the Yen.

Weekly Commodities Report - Dropping Dollars From Helicopters

Bernanke Fires Up the Printing Presses

Earlier this week, Ben Bernanke announced the US Federal Reserve will buy up to $300 billion of US long-term Treasury securities over the next 3 months.  Where will the Fed get that money?  It will essentially create it out of thin air - also known as "printing money."

Surprisingly, the markets were not amused by Ben's announcement, as the dollar suffered it's largest one-day decline since 1971, while gold got a nice pop, rallying from sub $900, currently sitting around $950 as I type.  

Gold's recent rally may have had something to do with the fact that it, unlike the US Dollar, cannot be created out of thin air.

Amusingly, this accouncement comes on the heels of a key Chinese official lamenting the bad stench emanating from US Treasury Bonds.  Some reports I've seen recently suggest that foreign investment in US debt has fallen precipitiously, and this represents the Fed's last gasp to hold interest rates low - possibly attempting to drive them all the way down to zero.

If you've been thinking that deflation would rule the day, I'd highly recommend revisiting an important guest piece penned for us by Bud Conrad about this epic battle between inflation and deflation.

If You're Short the Yen, You're Long the Dollar - Oops

The past couple weeks I've been on my soap box, calling the demise of the Japanese Yen.  I made the case that the Yen was circling the toilet bowl at a faster rate than the US Dollar.

Oops.

The Yen spiked sharply, and unfortunately I was stopped out of my short position at a large loss.  After I was stopped out, then Yen continued to rise a bit, and has since corrected back down.

This is why my wife yells at me for trading currencies.

Ah well, sucks, but have to respect your stops.

I have to admit, this trade gone awry may have killed my appetite for currency trading for awhile.  It was easy when the dollar was on a one-way trajectory to the cellar.  

Things are just a bit too crazy in the currency markets right now for an armchair trader like me to figure out.

Depression Economics for Kids

And just when you thought things couldn't get any stranger in the financial world, Disney announces a new exhibit at EPCOT center called "The Great Piggy Bank Adventure".

The exhibit will teach kids such valuable life lessons as staying ahead of inflation, and diversifying your investments.  

You can't make this stuff up.

Current Futures Positions

Date Position Qty Month/Yr Contract Entry Last Profit

02/27/09 Long  1  MAY 09  Sugar #11  13.79  13.42  ($414.40) 

Net Profit/Loss On Open Positions ($414.40)

Current Account Value: $25,312.72

Cashed out: $20,000.00
Total value: $45,312.72
Weekly return: -12.7%
2009 YTD return: -50.2% (yikes)

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Weekly Commodities Report - Waiting on the Grains and Softs

Grains and Softs Showing Some Signs

With the stock market showing some signs of life this week, many of the agricultural markets followed suit.  Corn put in a particularly strong week, driven by reports of strong export sales of the past couple of weeks, as well as strong equity and oil prices.

Seasonally this is the time of year for corn to rally - as the saying goes, if corn doesn't rally by the Fourth (of July), it's not gonna happen.

We reported earlier this year that farmer's may have a difficult time making money with corn at $4 - and speculated that some may switch their crop to soybeans.  This may be an interesting time to take a flyer on corn and see if it can make a run back up towards $5.

We are in "wait and see" mode across the board with respect to agriculture.  We continue to hold our sugar position, and coffee looks particularly interesting once again, as I continue to see reports of disappointing supply this year.

Update on Japanese Yen Short Position

The Japanese Yen was quite volatile this week - down, then up, then down again - ending the week about where it began.  

Japan posted it's first trade deficit in 13 years, as exports have fallen off a cliff.  But then the man known as "Mr. Yen" made a bullish statement regarding his expectations for the Yen, propelling it above the 104 mark mid-week.  Finally the market refocused on Japan's deteriorating GDP, sending the Yen back down.

Japan seems to be in a real economic pickle.  The country has serious demographic problems, and it's likely that Japan as we know it has entered what will be a long, terminal decline.  Everyone is just getting too old, and there will soon not be enough people left to work.

Since Japan's economy is largely export driven, expect Japan to do whatever it can to weaken the Yen vs. the dollar.

Around the Investing World

• The Swiss - of all people - give up on their own currency in a last ditch effort to stoke exports.  Expect this move to spark further rounds of competitive currency devaluation, which can only be bullish for gold.

• Jim Rogers continues to wait for a chance to short US Treasuries, noting that it's feasible that Bernanke could drive interest rates to zero in the short term.

• "Perma-bear" Jeremy Grantham is starting to deploy some capital into stocks, as he estimates the fair value of the S&P to be about 900.

Current Futures Positions

Date Position Qty Month/Yr Contract Entry Last Profit

03/02/09 Short 1 JUN 09 Japanese Yen 1.0271 1.0222 $612.50
02/27/09 Long 1 MAY 09 Sugar #11 13.79 12.89 ($1,008)

Net Profit/Loss On Open Positions ($395.50)

Current Account Value: $28,992.67

Cashed out: $20,000.00
Total value: $48,992.67
Weekly return: -0.4%
2009 YTD return: -42.9% (yikes)

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Yen Falls as Japan Posts First Trade Deficit in 13 Years

Today, Bloomberg reported that the Japanese Yen dropped today against the dollar, euro, and Swiss franc as Japan posted its first trade deficit in 13 years.

“The poor Japanese trade-deficit data are giving further fuel to the idea that Japan, or the yen, is no longer the safe haven as the country’s external position deteriorates,” said Adam Cole, London-based head of global currency strategy at the Royal Bank of Canada.

We continue to follow developments in the Yen as we continue to monitor our short position.

Chuck Butler, my favorite currency analyst, also weighed in this morning on the comments from "Mr. Yen":

I mentioned to Chris Gaffney last week, that I had been seeing more yen selling coming across the trading desk than I had seen in a long time. I said that these people, if they had held it long enough, were probably taking profits. And why not? In this day an age with deflationary pricing pushing most assets downward, when you see a profit, you take it!

The guy known as "Mr. Yen", Sakakibara, told the press last night that he believed yen may rise to a record 70 VS the dollar... WOW! He also said that it would range trade between 100 and 70... He believes that the yen will be afforded the same kind of love the dollar has received since the financial crisis began in the U.S. With Japan posting a large economic contraction last week, Mr. Yen, is of the opinion that it will help the currency gain to 70.

Hmmm... I just don't know about all that... For one, I'm not convinced the flight to safety that has underpinned the dollar with buying of Treasuries, will be duplicated in Japan... And two... The only thing I saw pushing the yen stronger in 2008 was the unwinding of the Carry Trade, which I said had come to end about a month ago. So... There you have it... I don't like yen's chances to go to 70, but do agree that it could hold 100... It's darn close to 99 as I type...

Shorting the Japanese Yen - Weekly Commodities Report

Why We're Shorting the Yen

Last Monday, we shorted the Japanese Yen.  Longtime readers may be wondering what we're smoking, as we've been playing the long side of the Yen (with relative success) on and off over the past couple of years.

My thinking is that the carry trade has been completely unwound, and fundamentals will now start driving the currency markets once again.  It's a tricky environment, as nation-states engage in an escalating battle of competitive currency devaluation.  I do believe that most of the world's currencies are "circling the bowl", just at different rates.

This should ultimately be quite positive for gold and silver, which may continue to regain their status as "sound money" while this plays out.

Back to the Yen - the fundamentals are not good, even worse than the dollar, I believe.  Japan's economy, which is export driven, has seen exports absolutely collapse.  The Bank of Japan has not been shy recently about expressing an interest in halting the Yen's rise.  A weak Yen is in Japan's best short term economic interests.

With the Yen "breaking down" on the chart, it's time to short it.

Source: Barchart.com

Other currencies with poor fundamentals that may be good short candidates are the British Pound and the Euro.  

Recession and Muddle Through Recovery, or Greater Depression?

This is going to be a long, drawn out recession, and a slow slog of a recovery, I believe.  I see one of two scenarios unfolding, and have spent a lot of my recent time and energy figuring out of we'll see:

1. A deep recession, but only a recession.  Followed by a slow recovery that is drawn out due to the massive government measures we're seeing.  But ultimately, the world, and the US, recover, and we're back on track with a new boom around the middle of next decade.
2. The Greater Depression, as Doug Casey postures, where things get really ugly, and we see something on par or even worse than the first Great Depression.  Social unrest and upheaval are possible, and perhaps even probable, in this scenario.

Scenario #1, the Muddle Through Economy, is a phrase coined by financial analyst John Mauldin.  If you're not familiar with Mauldin, I'd highly recommend you check him out.  He has a free weekly newsletter that is excellent.

Mauldin has a new service that I subscribe to, where he shares audio recordings of conversations he has with other financial gurus in his rolodex.  The most recent edition, recorded last week I believe, featured Nouriel Roubini, as they discussed the global economic outlook over the next 3-5 years.

While Mauldin and Roubini are both bearish in the short term, both seem to believe that things will eventually get back on track, led by the emerging markets.  Essentially we'll have our deep recession, with a slow L-shaped recovery, but eventually we'll get on with things.  

On the other side of the coin, Doug Casey and the folks at Casey Research believe we are in for some very bad things.  Since they have been relatively on the money regarding the current mess we're in, I can't disregard their opinion that things are going to get flat out ugly.

For the full monty from Doug Casey, check out this guest article he penned for us at the end of 2008 about The Greater Depression.

My conclusion?  I'm cautiously optimistic that Mauldin's view will prevail,  but can't rule out the warnings being issued by the Casey folks.  So I try to be a good trader and keep an open mind to all possible scenarios - so that when the facts change, I can change my outlook accordingly.

As a side note, I've been ruthlessly unsubscribing from most other financial publications I have.  Just too much noise - I don't need to have hundreds of stock ideas, and dozens of different opinions.  I've picked a few voices that I trust, and have gotten things mostly right to date in terms of the current economic situation, and will focus on them moving forward.

What I Do All Day

This blog is really just a fun side project for me.  I would love to spend all day on it if I could - and maybe someday I will if I can develop real business model around it - but for now, it's a labor of love.

These days, my days are quite busy, as my software company just released it's first product to the market.  We've built an automatic time tracking tool that helps people figure out where their time goes, by capturing and categorizing how they spend time on their computer.  

It seems to be most useful for folks who need to meticulously account for their time, such as attorneys and other folks who bill hourly, by serving as a "personal timekeeper" of sorts.

I'd welcome your feedback and thoughts on Chrometa's website and concept.  There's also a free 30-day trial available on the site.  To chat more about this, you can ping me direct: brett - at - chrometa - dot - com.

Hanging Out on Twitter

I have to admit I'm getting more addicted to the strange universe that is Twitter by the day.  You can find me there @brettowens.

Current Futures Positions

Open positions

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry	Last	Profit/Loss
03/02/09	Short	1	JUN 09	Japanese Yen			1.0271	1.0204	$837.50
02/27/09	Long	1	MAY 09	Sugar #11			13.79	12.79	($1,120.00)
Net Profit/Loss On Open Positions									($282.50)

Account Balances

Current Cash Balance	$29,388.17
Open Trade Equity	($282.50)
Total Equity	$29,105.67
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$29,105.67

---------------------------------------------

Cashed out: $20,000.00
Total value: $49,105.67
Weekly return: 0.4%
2009 YTD return: -41.3% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00