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Mark Hulbert
April 23, 2010, 12:56 a.m. EDT · Recommend (1) · Post:
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By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- John Dessauer caught a lot of flak two years ago for predicting that "the dollar would rise again."
( Read Dessauer's June 2008 commentary.)
Subsequent events have proven him right, and the U.S. dollar index /quotes/comstock/11j!i:dxy0 (DXY 81.49, -0.08, -0.09%) 12% higher today than it was when he made that prediction. Furthermore, the reasons Dessauer gave have also proved prescient -- such as his forecast that the "euro is not a sustainable currency."
All this prompted me to check in with him this week to see what he is forecasting. He told me that, like before, he is bullish on the dollar for the shorter term. However, he now thinks that, longer term, risks associated with the dollar are much more serious.
Dessauer is editor of a new investment advisory service called John Dessauer's Outlook, which he describes as a "new, Web-enabled version of my monthly global investment newsletter -- previously called John Dessauer's Investor's World."
The Hulbert Financial Digest tracked Dessauer's earlier service from 1982 through April 2009, when it was discontinued -- calculating that its model portfolio produced a 7.8% annualized return over that period. Although that lags the return of the U.S. stock market, that may not be the appropriate benchmark, given Dessauer's international focus. And Dessauer's model portfolio did beat the 6.8% annualized return of MSCI's Europe Australia and Far-East Index .
Here are Dessauer's responses to the questions I posed:
Do you continue to believe the euro is doomed?
Yes, for the simple reason that you can't separate monetary policy from fiscal policy, as Greece's recent woes abundantly teach us. This all along has been the Achilles' heel of the European Monetary Union (EMU). The more interesting question to me is not whether the euro self destructs, but how it will do so.
Well?
The popular assumption these days seems to be that weaker countries/currencies, such as Greece and Italy, will just drop out of the EMU. I actually think that a more likely scenario will be that Germany opts out and resurrects the Deutschmark. Regardless, the outcome will almost certainly be the same: The euro will become a marginal currency, no longer a major player in the world currency markets.
What impact will that have on the dollar?
'Greece's current problems are a dress rehearsal for what could happen to the U.S. down the road.'
John Dessauer
Its short-term impact will be positive, which is why I think the dollar has been as strong as it has been lately. Another positive consequence for the dollar will be that the euro's demise would remove it from consideration as one of the world's reserve currencies. The only two remaining serious candidates would be the U.S. dollar and the Japanese yen, and Japan's economic troubles are just as big -- if not bigger -- than those plaguing the U.S.
At the same time, however, one shouldn't overestimate the positive impact on the dollar of the euro's demise. The euro's current level in large part reflects the implicit value of a German currency, which would remain quite strong even after the euro's demise.
What impact will the euro's demise have on world trade?
Fairly modest, actually. That's because world trade has already suffered because of the problems in Greece, Italy, Spain and the other weaker economies that are in the EMU. Had they not been part of the EMU and their currencies been able to float freely, then their problems would have been resolved much sooner.
Right now, with the interest rate on 10-year Greek government bonds rising above 9%, their economy is suffering the worst of both worlds of free-floating exchanges rates and fixed exchange rates. The bond market is punishing Greece as if it still had its own currency. However Greece is not getting the benefits of a devalued currency. Greek exports remain as costly as Germany's and imports are still cheap. I can't think of a better illustration of why the euro concept doesn't work.
Why, then, aren't you more bullish on the dollar for the longer term?
Deficits in the U.S. have become staggeringly large, and if this country doesn't correctly deal with them then the dollar will itself suffer. China, for example, might be prompted to give up on the dollar as a reserve currency, turning to gold instead. Greece's current problems are a dress rehearsal for what could happen to the U.S. down the road.
The U.S. economy and currency are not automatically doomed, however. But the only way it will survive its debt mess will be through economic growth. This is possible, especially if the U.S. figures out how to exploit the major opportunity that exists to participate in the economic growth of emerging markets around the world.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of investment advisory newsletters. The HFD became a service of MarketWatch in April 2002. In addition to his regular columns for MarketWatch, Hulbert writes a column on investment strategies for the Sunday New York Times, a monthly column for Barron's.com and a column on newsletters for the Journal of the American Association of Individual Investors. Dow Jones and MarketWatch are launching a weekly newsletter, Hulbert on Markets: What's Working This Week.
Sears Holdings Corp. is buying another chunk of its majority-owned Sears Canada business, but the real stunner is that people actually seem to be shopping at its U.S. stores.
29 min ago12:15 p.m. April 23, 2010 | Comments: 2
- FreemarketsFantasy | 11:10 p.m. April 22, 2010
"Mark Hulbert: Forecaster who called euro troubles weighs dollar http://on.mktw.net/cmxZ76" 11:36 p.m. EDT, April 22, 2010 from MktwHulbert
"Mark Hulbert: A rare buy signal with a good record http://on.mktw.net/ahj6nN" 11:28 p.m. EDT, April 20, 2010 from MktwHulbert
"Mark Hulbert: Sentiment, not Goldman, at root of gold weakness http://on.mktw.net/cULdQh" 11:42 p.m. EDT, April 19, 2010 from MktwHulbert
"Mark Hulbert: Sentiment picture improves this week http://on.mktw.net/bGBIjw" 11:21 p.m. EDT, April 15, 2010 from MktwHulbert
"Mark Hulbert: The insiders pick up their selling http://on.mktw.net/c9ZbjX" 11:17 p.m. EDT, April 13, 2010 from MktwHulbert
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