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MV Weather Report: Clouds Swirling Around the Dollar


Rain or shine, we review the day's biggest stock stories.


These days everyone wants to talk about the declining dollar.

Today there were two separate stories in the Wall Street Journal about the buck. The first was an op-ed by David Malpass which talked about the impact of a falling dollar. The second was a piece about how Asian Central Banks have been intervening to stop the dollar from falling.

The dollar has been moving lower for quite some time but news coverage really started earlier this week when the Aussies raised rates. Since then Asian currencies have been rising compared to the dollar because investors believe Asia will lead the world out of the recession. Already this week, the Banks of Korea, Thailand, Indonesia, Taiwan and Hong Kong have confirmed intervention or have been suspected of intervening.

On today's Buzz and Banter, Ryan Krueger gave his thoughts on the dollar situation.

"Is it possible that the move in the DXY (dollar index) is actually understating the problems for some and potential for others?

"Consider what is not discussed enough when 'the dollar's move' is analyzed. The index is 57% versus the EURO, 14% versus the Yen, 12% versus the Pound. There are more entitlement, regulatory, demographic, and taxation problems in that basket than standing behind the US Dollar (for now), and yet the DXY is still down about 25% against them since 2003.

"Making a call for "the dollar" either way against that dysfunctional team is like me thinking I can judge the Texans off their victory over the Raiders.

"The US Dollar's move has been far more significant against natural resource rich currencies. The Brazilian Real is up 100%, the Australian Dollar is up 57%, the Canadian Dollar is up 46% over that same time period.

"Has the US Dollar moved down too far too fast? Is it too oversold? If you do nothing else next time at least ask a better follow up question – against what?

"I don't know about the next few weeks or months, but over the next several years I actually think just the opposite – I think the construction of the DXY has under-estimated the secular shift from paper assets to hard assets. For many good reasons, these cycles back and forth can last for 15 years or more. From my perch, it looks like we are right in the middle of that move."

(Prof. Krueger has positions in AUD, CAD.)

Lance Lewis also gave his thoughts on why a lower dollar will continue to move Gold higher.

"I've tried (but clearly failed) to break through the nonstop dollar-based deflation drumbeat and US dollar worship that seems to dominate the landscape. Instead I present an alternative view that sees the fiat dollar as the ultimate "bubble," which has in fact made all prior asset bubbles possible and who's ultimate and inevitable implosion will result in a far higher rate of inflation going forward.

"And yes, that's also why I believe gold will continue to confound the doubters and move on to higher and higher prices both because of the dollar's depreciation as well as because of gold's appreciation in other foreign currencies as the ultimate refuge for investors seeking a truly "hard currency" in an environment of currency chaos. This, by the way, has always followed the breakdown of a monetary system historically. In this case, that breakdown was the end of the fiat dollar-based monetary system that has dominated the world since 1980 but then completely blew apart in 2007 and 2008."

(Prof. Lewis has positions in gold, gold stocks.)

To summarize both, the dollar is going lower and commodities are going to move higher. Ways to play this could be with the Bearish Dollar Fund (UDN), Gold ETF (GLD), Goldminers ETF (GDX) or even companies that benefit from a weak dollar like Gardner Denver (GDI), Peabody Energy (BTU) and Caterpillar (CAT).

Also check out Professor Fleckstein's and Mr. Practical's view on the dollar.

Have a great night!

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