| Tracking the Dollar |
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| Written by Christian DeHaemer, Editor, Crisis Trader | |
| Thursday, May 07, 2009 10:54 | |
And the Dollar Will Fall...I’ve built my portfolio for this quarter around a few basic ideas. The first is that the U.S. dollar will fall. The second is that this dead cat bounce will climb 40% off the bottom and will reverse when the S&P 500 hits 949 (currently at 896 – up from a low of 666). The third is that emerging markets like Russia and China will bounce back faster and climb farther due to their solid balance sheets. As you can see by this UUP chart (UUP is an ETF that moves at twice the speed of the dollar), the dollar is breaking down.
The next drop will send it to $24. As the dollar falls, real assets like oil and gold will go up in price. The dollar will fall because politics in this country demand low interest rates so homeowners can refinance their houses before they get hit with the huge Alt-A loan defaults that are coming down the pipe in the first quarter of 2010.
I’m sure you’ve seen this chart before, Monthly Mortgage Rate chart; it’s been making the rounds for the past few months. It shows that the next round of housing defaults will be just as bad as the last round, as the balloon payments show up along with the end of low trial rates. Seeking Low, Long-Term Interest RatesThe problem is that bond yields are going up. Twenty-year Treasuries recently hit 4%, back to where they were in November. In order to push them back down, the Fed is buying long-term Treasuries. But it’s not working because with the other hand, the government has to sell tons of debt to cover all of those bailout packages. The great thing about the markets is that the truth will come out over time. Central banks always try to control their currencies – and they do for a time – but given enough stress, currencies go where they will. Long-term yields on government paper are set by what the buyer expects the long-term rate of interest will be when weighted against inflation. Many buyers see inflation that will far exceed 4%, thus making Treasuries worthless. You add to this the fact that the stock market is up 28%, which means that investors no longer believe the world is ending. The fear that sends money into the safety of U.S. Treasuries is turning into the belief that more money can be made elsewhere. The upshot is that the Feds must issue debt to pay for the $12.8 trillion in bailout loans and backstops. Investors are increasingly leery over inflation in the future, which pushes rates up and the dollar down. What goes up are things measured in dollars, like gold, oil and contrasting foreign currency. Looking for hot, commodity investment opportunities? Join Crisis Trader today. Taipan DailyJust the Right Balance of Safety and Adventure for Your Investment Profits
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