U.S. Dollar Crash Is Not Going To Happen

The dollar is not going to crash. In fact, many economists believe that the dollar will rally when the Fed ends its quantitative easing program (QE) sometime in early 2010. The Fed is on track to buy nearly $2 trillion dollars of mortgage-backed securities, US Treasuries and agency debt. In other words, the Fed is printing money and pumping it into the housing market to keep the market from collapsing. This keeps interest rates low, but it also weakens the dollar. When the program ends, long-term interest rates will rise and the dollar will strengthen.

There is also a correlation between stock prices and the dollar which should be considered. As equities have soared, the dollar has plunged. That's because investors have become less risk-adverse than they were after Lehman Bros. collapsed. Now they have resumed speculation. Still, the S&P 500 is up over 60 percent since March 9, (which prices in a full three year recovery) which is "too much too fast." According to John Hussman, "90% of stocks (are) suspended above their 50- and 200-day moving averages for as sustained a period as we have now observed." (Hussman Funds Weekly Market Comment) That suggests that stocks are wildly overbought and that the market will soon correct, perhaps, violently.

Also, there is no shortage of investors and central banks willing to buy US debt which supports the greenback. Consider this report in last week's Bloomberg:

"Investors can’t get enough Treasuries even as the U.S. budget deficit climbs beyond $1 trillion, the government sells a record amount of debt and the dollar declines to the weakest level since August 2008.

Thanks for your excellent reply.

“Case in point, NONE of them saw the meltdown coming until after it occurred.”
Exactly. The housing bust was foreseen by housing experts, but the consensus opinion seemed to be that it was going to be a “soft landing.” Gary Schilling thought that it would be bad enough to cause a recession, and Joe Battipaglia and others foresaw the relentless stock market decline early on. But I didn’t see anyone predict the banking collapse that savaged most of our 401K’s (although an acquaintance of mine said that the guy that runs Pimco did). I guess that most that good analysts can hope for is to foresee the relative likelihood of various outcomes. Investors have to develop a strategy by obtaining some understanding of the fiscal and monetary forces upon which possible outcomes are premised.

“If they couldn’t manage their own money, why would you trust them to manage yours?”
Well, in their defense, even under the most idealized conditions, market analysis depends on the predictability of human behavior, and that is way too complex to be quantified. Having said that, none of thee guys should even pretend to have a foolproof system.
Furthermore, when into our intricate market machinery a monkey wrench is thrown, in the form of crooked politicians, community organizers, banking queens and whatever other manner of megalomaniac, we have a cesspool that not even Larry Kudlow or Bob Brinker could fathom.

“I feel you first need to decide the process you will use (asset allocation, momentum trading, etc.) before you decide when to buy or sell, etc”
Mostly asset allocation. Have something in this sucker stock market but look for a way out. Hedge against hyperinflation, catastrophic deflation, and whatever else might happen. Don’t be overly pessimistic, but buy a gun and keep your passport current. So here I am swatting flies and ducking rocks to preserve what I saved from my honest job.

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