Be Careful Dogging the Dollar

By Eric Jackson
RealMoney Contributor
10/8/2010 7:45 AM EDT
Click here for more stories by Eric Jackson

The negative chatter about the U.S. dollar's decline is overdone. As we've learned twice already in the past year, just because a crowd of people says something is inevitable does not make it so.

At the end of 2009, the level of pessimism around the U.S. dollar was very similar to that of today. There was no shortage of people saying we were on our way to debasing the currency. The Fed had rolled out its quantitative easing (QE) program, taxes were going to rise, there was no plan to rein in entitlements and the president's health care plans took up much of the headline space available in newspapers.

Back then, I suggested in these pages that the dollar's weakness would probably reverse course and that the currency would rally for most of 2010. I also argued that the dollar would always be a "safe haven" for investors to store value in. That turned out to be the case for the first four months of this year -- and that was when the stock market was also going up. Imagine that: it is possible for the U.S. dollar and equities (not to mention commodities) to rise at the same time. Who knew?

Of course, when the European sovereign debt crisis stole the headlines in late April and into May, we saw a knee-jerk response as investors fled out of equities and into the dollar. The U.S. Dollar Index Future (DXY) bounced from near $74 in early December last year to over $88 in early June.

However, the dollar has since slumped back down. The DXY is back to $77 at the moment and the Cassandras are echoing the same arguments we heard last year. This time, however, there's a slightly new spin. Instead of simply making the case that the U.S. dollar is doomed, we are hearing (with increasing regularity), that all world currencies are in a race to the bottom.

...

[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

Sphere: Related Content

Sounding the Alarm About Japan

By Eric Jackson, Senior Contributor

05/26/10 - 11:35 AM EDT

Europe has captivated the headlines the past six weeks with concerns about whether Greece will be able to pay back its debts given the required austerity measures it has been forced to take and its already slow-growing economy. Investors also have worried about the ramifications this thorny situation could have on richer countries in the European Union like Germany and France if they decide they no longer want to be on the hook to bail out Greece or another weak sister country such as Portugal, Spain, or Italy.

We know this situation has been brewing in Europe for some time. We've known about the fiscal situations in these southern European countries, yet the problems have always been off in the future so that we could ignore them. It wasn't really until there were riots in the streets of Athens that the markets really got awakened to the gravity of the situation.

The drop in the euro has been so severe that the other members of the EU have been forced to look into the abyss which those of us in America did in September 2008. Nothing focuses a man's mind like knowing he's going to be hung in the morning, said Samuel Johnson. That's exactly right. The situation in 2008 forced America to act and Europe is now forced to do the same.

I suspect the rescue package, which still has to be formally ratified by all the countries, will take hold. Frayed nerves will calm over Europe with time, just as they did following the Troubled Assets Relief Program in the U.S. and the Federal Reserve's quantitative easing campaign. The can of Europe's problems has been effectively kicked down the road so that we'll be able to go back to collectively forgetting about Greece for a while.

However, there is potentially a bigger and more dangerous sleeping giant out there for world markets: Japan. Despite a few hedge fund managers sounding the alarm about Japan last year, little attention has been paid to it of late because -- just as with Greece -- nothing bad or newsworthy (like violent street riots) have occurred there yet.

........

[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

Sphere: Related Content

Groupthink and Contrarian Sentiment

By Eric Jackson
RealMoney Contributor
5/24/2010 5:30 PM EDT
Click here for more stories by Eric Jackson

It's always striking to me how consistently wrong conventional wisdom is when it comes to estimating future moves in the stock market. At the moment -- at least until we string together two "up" days for the Dow -- the mood is extremely pessimistic. The dominant view is that Europe is still in trouble post-rescue plan and that it's going to take down the rest of the world with it.

Yet, five weeks ago, investor sentiment was running at inordinately high levels. The bull run was continuing apace. You had to be in the game to be keeping up with the market's moves. We heard endless talking heads on television, spouting about the "cash on the sidelines" that needed to come into the market and be "put to work".

At the beginning of the year, you could hardly find a single commentator who liked the US dollar. The consensus was that the US was in dire shape and printing money to solve its problems. How could the dollar not continue to slide against every other currency? Well, it turns out that the US dollar is up over 8% YTD and the euro is down over 12%. People apparently forgot that the rest of the world had its share of problems too, and the US economy, by comparison, did not look so bad. I read a report today by UBS (UBS -commentary - Trade Now), saying that the US dollar is going to be a super-currency in the next 10 years, attracting investors in the way it did in the late years under Clinton and Rubin.

My point is that everything makes sense in the rearview mirror. Yet, people always seem to forget how hard it is to predict the future before it happens. They also forget how bad other people -- especially those holding the conventional viewpoint -- are at predicting the future.

....

[This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required.]

Sphere: Related Content

Get Used to Volatility

"Part of the new normal for investors is getting used to more volatility," Eric Jackson from Ironfire Capital told CNBC Monday. Piers Curran from Amplify Trading joined the discussion.

Sphere: Related Content