Friday morning was delightful for me, because as I woke up, ingested coffee and digested the outlook for the coming day in the markets, I managed to catch two of my favourite market gurus giving their archly contrarian takes on the U.S. dollar.
Everyone’s bearish the U.S. dollar these days, for a truckload of reasons: too much government spending; too low interest rates in the U.S.; continuing economic weakness in the U.S.; continuing strength in commodity-based economies. So the Average Joe Market Outlooker is calling for the U.S. dollar to drop. Which would be bad for us, if it happens, because ag commodities are generally priced in U.S. dollar terms, which translates back into lower Canadian prices.
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This near-uniform bearishness about the USD is precisely why my two analysts are so bullish about the greenback.
“I’m still extremely bearish on the U.S. dollar (in the long term),” Jim Rogers, commodity expert without equal, told Bloomberg TV’s Betty Liu. “But I own more dollars than I did a couple of months ago because there are so many bears. Betty, everybody in the world is bearish on the U.S. dollar. Normally that leads to a rally.”
When everyone’s running one way, Jim runs the other, figuring crowds tend to panic and in panic there’s opportunity to pick up all the wallets and purses the panicked have left behind them. Crowds tend to reverse course with frightening speed. He’s been pretty darned right about commodities being the hottest investment class for the past decade, something no one else predicted. Maybe he’s right about the USD. Although he doubts his own ability to pick the time to jump into the greenback in a big way.
“I’m a horrible trader,” he told Liu, and it’s something he’s told me too on a number of occasions when I’ve interviewed him.
“I’m sure I’m going to lose money because I’m trying to be a short term market timer or trader, but I own more dollars than I did a few months ago.”
The next man on was my favourite markets newsletter writer: Robert Prechter of Elliott Wave International. He has a lot of major outlook differences with Rogers, with Rogers being a medium-growling-bear and Prechter being a ravenously-eating-campers bear, but they agree on the U.S. dollar.
“I’m looking for the dollar to go up pretty much all next year in 2010 and most of the financial markets to go down,” said Prechter to Liu. “I think those things fit together very well.”
While Rogers is mostly bullish the dollar because everyone else is bearish – a simple contrarian position – Prechter is profoundly bullish the U.S. dollar for both technical and fundamental reasons. He thinks a massive financial slump is about to unfold and – as in 2008 – everyone will flee every other asset and currency and leap into the presumed safety of the U.S. dollar.
“I think 2010 is going to be a big down year, just like 2008,” he said. “I think we have another leg down, not just a correction. I think the bear market is not over.”
Rogers said the mechanics of a sudden rise in the greenback would be powered by a rush of short-covering on the U.S. dollar, which is what happened in 2008. Everyone was so certain that the dollar would fall that they sold it short, then when it dramatically and unexpectedly reversed, wrongfooted investors had to rush to buy it back, driving up its value.
Rogers is still recommending investors pile money into commodities. Prechter isn’t. The latter says everything’s going to go down soon, so commodities will be no safe haven. Rogers thinks commodities will be a safer holder of value than pretty much everything else.
Rogers for the first time in his life isn’t short anything, something he told Liu that makes him uncomfortable. But he can’t find anything that he thinks is radically overpriced, and he only likes to sell bubbles short. Prechter was asked about Rogers view, and he said that he thinks the time of bubbles is past, so if investors are looking to make fast, big money on short-selling bubbles, they won’t have any luck.
On the other hand, the time for market crashes isn’t past, Prechter reckons, and that’s why he recently advised aggressive speculators in his market newsletter, the Elliott Wave Theorist, to return to a fully-leveraged short position on the stock market.
The two agreed on one more thing: the debtplosion in Dubai is just the start of defaults around the world.
Very few people in the market agree with these two delightful contrarians. Which is exactly how they like it, and why they think they’re right.
