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Thursday Dollar Thump

I’ll keep calling the Thursday wrap-up "Thursday Thump" until everyone starts recognizing a pattern!

Two weeks ago it was the St. Valentine’s Day Massacre that caused the drop as we fell from 12,550 at the open to 12,350 at the close while people talked about how crappy the economy was.  Last Thursday we fell from 12,500 to 12,250 as the Philly Fed Index fell to -24, the lowest reading since 1991.  This week, it was Bernanke's surptising statement that some smaller banks may fail that shocked the markets even though the only real surprise was that Ben actually said it.   That coupled with news that Moody's was downgrading some banks was all it took to send the market down 112 points for the day.

Financials finished the day down 3% and oil finished at $102 after touching $103 and the energy sector gained 1.5% otherwise we could have gone down 300 easily.  The dollar plunged to a new all-time low as Bernanke spoke this morning, closing at a shocking 73.5.  I'm tempted at this point to go back to cash but cash has fallen almost 5% since Feb 10th so I'm not even sure that's a good idea!  While we are having fun with day trades our new virtual portfolios are still in the red.  With gold at $972 it's getting hard to paint a sunny picture here and I'm concerned we are in for another correction befroe we turn the markets around.

I didn't think the dollar would break 75 and a lot of the equations are going to change if we fall any lower as we have to start looking at US earnings from a foriegn perspective and realize that IBM's 14% gain in dollar revenues is a gain zero when benchmarked against foreign currencies.  The dollar is off 14% from Q1-07 so a US company has to make 14% more money just to stay even for an international investor to get his money's worth. 

My premise that our markets would hold the line here assumed some kind of Central Bank intervention to prop up the dollar at 75, followed by an end of Fed easing and a gradual revaluation of our currency.  I'm actually surprised that the reso of the World seems content to let us twist in the wind but, as I mentioned in Tuesday's wrap-up, it's possible that the massive international unpopularity of this administration and its policies have led the world to decide to "teach us a lesson."  If so, it's going to be a very painful one.

The rest of the world is not pleased that the Republican nominee is John McCain, perhaps the staunchest supporter of the war outside the White House.  A strong United States is not particualary in the interest of World peace from a foreign perspective and there are many who have the viewpoint that the only way to get the US to stop consuming at the ridiculous pace its been on and to get us to stop polluting the planet seems to be to let our economy die.

My theory was that the strong global economy would support us through a downturn but what if that strong global economy turns against us?  What if they stop funding our debt and our war by purchasing $500Bn worth of notes each year at Treasury Auctions?  The US currently has over $12Tn in foreign debt – Japan by contrast has $1.5Tn, Russia has $287Bn, China had $305Bn… 

People who collected 5% interest on the Yen also benefitted from a 5% gain in the currency last year.  Investors in Rubles also had a very good year as did anyone who kept thier money in Euros.  Foreign investors who had $12Tn in US debt and collected $600Bn in interest, still lost almost $1Tn on currency depreciation.  Not only that but their debt was dilluted 5% as the US took on additional debt and there has been no indication whatsoever that we intend to stop.

What do you think is going to happen?

$12Tn is a lot of money and of course foreign investors don't want to see us fail but, at a certain point, you have to cut your losses and move on.  That point may indeed be reached when Investors see that they are lending the Fed money at 3.5% and the Fed is intending to turn around and lend it out at 2.5% for an undetermined length of time.  "And your business plan is what?" would be the question asked by foreign investors.

This weekend we'll have to take a close look at this situation and think about ways to position ourselves.  I said earlier in the week it was going to be 12,750 or bust for the Dow – after today, bust is looking a little more likely!


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  1. Phil,
    EK in 25 KP:
    DD @ .1 still OK?

  2. HANS – Earnings looked great but apparently margins sucked so they are getting the usual post earnings treatment. They might be worth a look next week for a bounce, their figures look strong to me.

  3. Just to start some fun.
    The legendary Jim Rogers spoke at the CLSA Japan Forum in Tokyo today. According to Bloomberg:

    “If I told you how bullish I am about agriculture, you’d ask me to leave the room. Prices of agricultural commodities are going to explode. Inventories of food are the lowest they’ve been in over 40 years. The number of hectares devoted to wheat farming has been declining for over 30 years.’
    “All of you should get all the sugar you can. The price of sugar is going to explode.’

    “I’m bullish on cotton and have been for a while. A lot of people in the textile business are starting to convert from synthetics to natural fibers again because it’s so much cheaper’ given the rise in prices for oil used to make synthetic fibers.

    “I own the yen and it’s another thing I’m buying these days. I’m convinced the carry-trade is going to reverse and when it does the yen is going to go through the roof.

  4. Didn’t read until today, but once again a great article by Jeff Saut from Monday. Can’t wait to see this Monday what he thinks about this week’s market action:

  5. Screw it. I’m dumping all my money into INSP

  6. Gotta give it to the guy. He was long oil and the metals about 5 years ago, and shifted to the ags about 2 years ago. He may be a bit of a flake, I mean bow ties, but he’s been pretty right on for a while now.

  7. Anyone,

    Did anyone cover 1/2 their CROX position? I had an oder for 1.75 but never got executed. Let me know.


  8. bbd; are there etfs for stuff like sugar ?

  9. Remain positive on fertilizer stocks, targets raised@SBSH
    Citigroup raised their fertilizer price forecasts following the recent run-up in spot markets and remains universally positive in the near term. They raised the target on top pick CF to $164 from $146, on AGU to $88 from $82, on MOS to $142 from $121 and on POT to $195 from $178.

  10. BBD/rogers- i posted this on monday. its about 25mins of him talking his big picture investing themes

  11. CAP
    Some different commodity ETFs and ETNs to look at.

  12. XIAN- I watched it but thought it was easier to give the quick thoughts

  13. Thanks AAPL for not gapping up. Awfully considerate. Looking at yesterdays low of 125.75 as a gift if we get there, but starting to buy back in at 128.

  14. EOG Resources-EOG: Recommend trimming positions on yesterday’s rally@CRTC
    CRT Capital recommends swapping into CHK or XTO. DUH!!! Stock was up 20% yesterday.

  15. BBD, there must be a new post

  16. ERTS are we going to DD on this or rollover to next month