Politicians to the World: “Forget All Those Trillions, the Dollar’s Doing GREAT!”
Politics / US Dollar Jun 17, 2009 - 10:40 AM GMTBy: Graham_Summers
As a general rule of thumb, anytime a politician (especially a finance minister or central banker) comes forward to assure investors that his country’s currency is sound, you better believe the currency is in BIG trouble.
So it’s with some serious concern that I noted not one but multiple world leader touting the dollar’s quality over the weekend. On Friday, the Wall Street Journal ran an article saying that the US Federal Reserve wouldn’t perform much more quantitative easing.
Then, on Saturday, Japan’s Finance Minister Kaoru Yosano stated, “our trust in U.S. treasuries is absolutely unshakable.” World leaders echoed this sentiment at the G8 summit (a meeting of the eight most powerful world economies) in Southern Italy. They also began discussions on how to unwind the massive stimulus programs once the world economy regains its footing.
However, the most bizarre comments came on Monday when Russia’s Finance Minister commented the US dollar is in “good shape.” Bear in mind that Russia, along with China, was one of the loudest dollar bears even going so far as to suggest dropping the dollar standard.
What does this tell us?
The dollar is in SERIOUS trouble.
The dollar is now not only the base currency for the world, it’s also THE most critical investment to watch. It is the linchpin, the keystone, the one piece of the puzzle that will dictate everything that is to come. It is the reason stocks and rallied, lead by commodities in the last three months (the dollar was weakening so investors sought higher returns from riskier assets. It’s also the reason why oil has doubled from its bottom. And it’s the reason why gold nearly tested $1,000 again.
Make no mistake, the dollar is a seriously flawed currency. And the US Federal Reserve has bet the farm by printing dollars around the clock to support the financial system. With $65 trillion in liabilities (counting social security and Medicare) the US financial system was already a rickety house of cards. The Fed’s money binge may actually be what brings this whole mess down in the coming months.
However, in today’s market of “trade first, think later,” the pro-dollar statements made by politicians over the weekend will mark a temporary top for commodities and a temporary bottom for the dollar. Commodities across the board are up between 30% and 100% in the last three months. They’re due for a cooling off period of correction. Ditto for stocks.
So if you’re sitting on commodities now, it may be time to take some profits off the table. If you’re long stocks you may also want to consider opening up some shorts to profit from the correction that will grab equities markets in the coming weeks.
Indeed, readers of my weekly investment advisory Private Wealth Advisory just closed out three positions for double digit gains (14%, 35%, and 19% all within the last three weeks). We’ve also just opened a new short that is already up 6% in the last two days. And our entire portfolio is up 10% for the year vs. the S&P 500’s loss of 1%.
To learn more about Private Wealth Advisory, click here.
Bottomline: I think stocks are headed for a truly horrific performance in the second half of this year. We’re certainly due for a 2-3 week correction now. I’ll detail why in tomorrow’s essay. Until then…
Good Investing!
Graham Summers
Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets.
Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.
Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.
© 2009 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Graham Summers Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
