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I can’t help but lead with this Bloomberg.com headline … even though it has little to do with me or currencies:
Buffett’s Berkshire Has AAA Debt Rating Cut by Fitch
You mean to tell me the “Oracle of Omaha,” the “Investor Extraordinaire,” didn’t have the market savvy to change tack and drive his precious Berkshire to tighten up their exposure and shore-up their risky investments?
It seems the financial world can’t go a day without finding this chosen one’s name saturating the media. And his company now loses its triple-A rating? I believe the phrase is: Man, oh man.
I mean, I’m not surprised that Berkshire is undergoing challenges during such tough times. But based on the superhero status the investment crowd has bestowed upon Warren Buffet, you’d think he’d be able to at least pull his own company from the jaws of misery.
Nope.
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| Even investment icon Warren Buffett is having a tough time coping with the turbulent stock market. |
It’s A Whole New Ball Game
To be partially fair, this investing environment is eluding some of the most tuned-in stock market participants. It’s almost become a full-time job trying to predict the buying opportunity of a lifetime in the stock market. It’s not a game of here’s what company looks good; it’s a game of here’s what company is going to look good, we hope.
Forget the fact that headlines are highlighting the potential that GM and Citigroup become delisted from the Dow because of dismal share performance. Sure, shares of many companies are trading at fractions of the prices they fetched a year ago. But you want to know what? Five dollars per share can be halved just as easily as fifty dollars per share. In other words, be careful.
Or shake things up and get your money in currencies.
If you’ve got time and the funds, then buying stocks at current levels may be fine, assuming you don’t get stuck in shares that cease to exist in three months. But if you need to be proactive with your money, then struggling to time the bottom in stocks probably isn’t the approach you should be taking.
Not when currency instruments are offering all kinds of opportunities in the meantime. Just as the shifting sands of the global economy have shaken up equity markets, they’re influencing currencies, too.
If you read my stuff, you know where my longer-term outlook lies.
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Based on a view that risk-aversion will stick around for a while and the global economy must undergo a major rebalancing before things can start to look up, the U.S. dollar will carve out an extended bull market that will last through this year … and potentially much longer.
But these major long-term trends aren’t the only ones that can deliver profits. Depending on how nimble you’re willing to be, it’s just as easy to play counter-trend moves.
And what a coincidence, there’s one shaping up right now. Price action is forming what looks to be the start of a corrective, consolidation move in currencies.
The U.S. dollar recently set new highs by touching a level not reached since early 2006. But the move that sent the dollar above overhead resistance hasn’t held. All the efforts to push back to those highs have been met with overpowering selling pressure. Both the bears and bulls have been participating, no doubt about it. But the bears have been in the driver’s seat lately.
Basically, my expectations for a U.S. dollar correction revolve around this technical picture and ongoing price action. Looking at this from a fundamental analysis perspective, nothing’s changed:
- The most important consumer force is keeping a tight grip on their wallets.
- Global credit is still not flowing as bank-aid efforts intended.
- Global trade has taken a serious hit, wiping out export-centered economies’ potential.
- GDP around the globe continues to be revised downward predicting deeper contractions.
- China talks about a quick recovery, but we’ve seen no evidence supporting such claims.
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| Frugal consumers have thrown the global trading network for a loop. |
I continue to believe that the future rests on the first point. Without consumers fueling the very-much one-sided global trading network, everyone is at risk. The solution is not an all-inclusive one-size fits all approach.
A Question of Balance
The solution is for economies to make healthy adjustments that rebalance their overexposure.
The global buyers have jumped off the teeter-totter of trade. And the global sellers have landed hard. A trend towards higher savings in the West means lower demand for imports and the specter of positive current account surpluses. The lower exports from the East raise the specter of current account deficits ruling the day.
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Japan posted its first current-account deficit in 13 years in January after exports collapsed. And the hoard of foreign exchange reserves that were indicative of the Eastern dominance is shrinking. The game is changing.
Not a painless process, this rebalancing thing. Overall, however, it’s probably quite good for sustainable long-term balanced global growth once we get through it.
Best wishes,
Jack
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