Are We Near the End of the Dollar's Dive?

A survey taken among lenders in the eurozone shows that credit standards are being tightened and that loan demand in the 15 nations that make up the alliance is slowing sharply. This suggests that an economic slowdown is broadening throughout the region. For now, the battle to control inflation is still paramount in the mind of the European Central Bank, so dollar strength will have to come from no more rate cuts by the Fed and comparatively better growth in the U.S. vs. the European nations.

Traders on the Forex are betting that the dollar will do better. For the week ended April 29, the Commodities Futures Trading Corp. reports that there a net long 21,315 contracts on the dollar. For the prior 123 weeks (yes, 123) there was a net short position. A one-week blip among traders whose idea of long term is sundown should be taken as just that. But it does reverse a more-than-two-year collective bet against the dollar.

I mentioned Gazprom, the largest natural gas company in the world, for the first time yesterday, and a little color might be helpful. Gazprom had revenues in 2007 of $91 billion, employs more than 400,000 people, and the taxes it pays equal 20% of Russia's budget. If you combined production of oil and gas, Gazprom produces more hydrocarbons than Saudi Arabia. And all this run by the three wise men -- Putin, Medvedev and Zubkov.

But forget Russian gas for a moment. We have more pressing concerns at home. The New York Post, a "unique" newspaper, reports that 120 homes in the tony beach resorts of East Hampton and Southampton are in some stage of foreclosure. 20% of them are worth more than $1 million. Those Russian guys could get some bargains.

JPMorgan strategist Hans Olsen wonders why we don't get it regarding ethanol. He notes that some scientists believe corn ethanol does not reduce greenhouse gases, has a negative input/output energy ratio, or at best a 1:1 ratio, and exacerbates water shortages. On top of that, as I mentioned yesterday, we use one-third of the U.S. corn output for ethanol, and drive up food prices by so doing. This is a truly dumb idea.

I think the price of oil is topping out (at least temporarily), and I expect oil to retreat in price, which will allow the dollar to rally. But what do I know?

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Vincent Farrell Jr. is a principal of Scotsman Capital Management. Prior to joining Scotsman in April 2005, Farrell was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships. He is a regular guest on CNBC as well as other national print and broadcast media.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.