This chart comes from Bill McLaren and ties in to his Monday morning commentary on CNBC Europe.He said that the dollar only took back 25% of the last move down, which is very weak. It is this weakness that leads him to believe that after a few months of sideways movement the downtrend will resume.
He thinks that by next June the dollar index will be down to 73 and that 67 is a possibility. Bill's chart goes back twenty years and in that time the dollar index has never been close to the number he is looking for.
I am hard pressed to think the fundamentals for the dollar (and keep in mind I do expect a weaker dollar) could lead to such a large drop in such a short time period. Bill's work is obviously technical and not fundamental. He could be right but I think such a big drop works against everyone's interest and so would not be allowed to happen so quickly.
If it does though, how are you positioned? Even if his number turns out to be wrong there is visibility for the call to be correct directionally. I think too many people ignore this entirely and at some point that will be a problem.
I imagine someone will leave a comment calling for a massive dollar decline in one month. That is just not how markets work. Anything is possible, I suppose, but there is probably not much need to manage against some very remote, never happened before outcome. Some exposure to commodities, foreign stocks and foreign bonds is probably enough to weather an outcome that is in the range of normal. As some readers may know I have also added foreign currency exposure too.
On a side note it appears Rick Derrninger has been let go.
3 comments:
I've never felt that markets moved for technical reasons. Instead, markets move for fundamental reasons and technically, the picture shows some kind of map. You don't see anyone talking about a chart saying that company X broke out of a chart formation... oh, and their earnings improved. It's likely to be the other way around.
That being said... it's all about interest rates. And, you're right. It's not in the best interest for anyone if the dollar drops down to those levels.
Concerning foreign stocks, I think the dollar will drop and the US economy will weaken to at least a mild recession. Given both conditions, how do you think international equities would do. Yes the dollar drop would make them look good, but the weakness in the US (if it comes to pass) would probably trump that and those stocks would suffer. Do you agree?
Do you have any suggestions on funds that benefit from a weakening dollar?
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