Dennis Gartman, a noted commodities expert, suggests that the run is over.
He says to get out of gold, oil, grain, etc. He says that the dollar is strengthening, and today's move (the biggest one-day move in the 7 years for the dollar in over 8 years) is just the beginning. He says that the dollar is poised to run and run and run here, and all commodity prices are going to go down.
He thinks that this a real reversal and I think that he is right. His biggest reason isn't so much fundamental strength of the US dollar, but that he just thinks that this has been a bubble that ran from commodities over the US dollar and now needs to be reversed as those who got involved reverse their positions. He said that, as a result, we will see also tremendous volatility in the currency markets, in addition to the commodities and the volatility that we have already experienced in the stock market.
Gartman said that there are many ways to play this, but that the individual investor should not bother to get involved with individual currencies versus the US dollar. Rather, he suggests that individuals would just be better off buying the US dollar. (I disagree with this incidentally as I own Euro puts).
Gartman also suggested that he believed that this is the time to sell bonds and buy stocks. He clearly believes that US interest rates will head higher and bonds will lose their value. He also believes that stocks are reasonably priced.
One thing that concerns me is that a strengthening US dollar would lead to a dramatic decline in the earnings on multinational US industries. Gartman, as well as Jeff Macke, suggested that this was not a serious concern, but I think that many of these companies have gotten so used to benefitting from a falling dollar for the last several years that they will fail to hedge properly against a sharp reversal.
(Full disclosure: I have been long of long dated Euro puts. I sold some on the move today, but would be looking to purchase more if I see the dollar retrace half of its surge today).
Related Articles:
The US dollar Collapse Has Helped this Market by JRodgers - Jul 18, 2007
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Dollar Falls to Another Low Against Euro by Thomas Bivens - Sep 26, 2007
CNBC Trillion Dollar Survey Results - Forget the Experts, Here Are My Predictions by Sam Cass - Jul 19, 2007
Assessing the Dollar Undershoot by EmilyZ - Jul 27, 2007
Gold Prices Hit 16 Month High on Speculation Rate Cut Will Weaken Dollar by Goldie - Sep 19, 2007.
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