I love it when a plan comes together.
A few weeks back,
I wrote about Brazil and how I expected the Brazilian real to strengthen against the U.S. dollar. Since then, we have seen about a 3 percent increase in the value of the real against the dollar. Many of the factors I had listed in the article have begun to materialize and I see this as a beginning of the appreciation phase of the real.
China has been increasing the value of the yuan against the dollar. While the pace has been slow (I have seen paint dry faster than the appreciation rate of the yuan), the direction has been that of appreciation. Recently the yuan hit a 19-year high against the dollar.
Over in India, we seem to have broken the vicious cycle of higher deficits and low growth rates, which had hit the rupee hard. After a dramatic 20 percent decline last year, we are now witnessing a resurgence of the rupee and we have seen a 7 to percent appreciation to its bottom a few months ago.
Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth
The Russian ruble has not appreciated yet, but the underpinnings of a strong ruble are all in place now. The capital inflows into Russia are increasing. The ruble has a very high correlation to oil prices and we have seen oil prices rise to several month highs. With economic growth engines starting up in Asia and other under-developed regions, I anticipate oil prices to stay at elevated levels for 2013.
That covers the BRIC (Brazil, Russia, India and China) countries. While the BRICs are expected to lead the charge again, it is not the entire story. We are watching the rise of other Asian minnows like Thailand, South Korea and Vietnam, which have bustling economies and are contributing to the global growth engines. Their currencies are on the rise in relation to the dollar, as well.
Even the once abandoned by some euro is on a tear. We have seen the euro at several months’ highs in the past week or two. Several banks are now reforecasting the euro to be at or about 1.40 to the dollar this year. I do not base my investments on the forecasts of banks, but when the shoe fits ….
The only currency that has not appreciated against the dollar recently has been the Japanese yen.
Last week,
I went out on a huge limb and suggested that we go long on the yen, as I expect the depreciation of the yen is overdone. This week, Japanese finance ministry officials seemed to agree with me and mentioned that the selling was overdone, which can have a negative consequence on Japan. Within an hour, the yen rallied 1 percent against the dollar. I still believe we will see a significant unwind after the Jan. 22 Bank of Japan meeting, where the huge expectation of a massive quantitative easing program will be met with disappointment.
Gold and silver are the two most manipulated of any free-asset market in the world today. We have seen huge declines in gold and silver prices in the past few weeks due to the market manipulations and the squaring up of positions held by the banks at year-end. You see, a select few banks have a huge position of short silver and gold contracts (they are betting gold and silver prices will fall) and move the markets when they need to control their positions.
And yet even gold and silver have seen decent rallies in the past few days against the dollar.
Back at home, we are beginning to see the rhetoric ratchet up between the Republicans and Democrats about the debt ceiling. I believe the high-stakes brinksmanship games are about to begin. Sigh. I do not understand how the two cannot understand that the U.S. economy and reputation around the globe is not a toy you play with to appease your voter base or taking petty revenge on each other.
Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth
So in a nutshell, we will not be seeing any positive, dollar-supportive news coming out of the United States any time soon. If somehow this new cliff is actually resolved (I will not hold my breath for that one), we will see a relief rally and the dollar sold like funnel cakes at the state fair anyway.
I cannot see but another big decline in the dollar in the near term.
Load up on currency exchange-traded funds if you have not already done so.
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