How the Dollar Could Rally
There's a Wall Street maxim that the national news magazines often make great contrarian indicators. With a cover story titled "The Incredible Shrinking Dollar," the latest issue of Newsweek, therefore, provides an opportunity to ask a question that very few observers seem willing to contemplate: What could cause the dollar to rally?
Dispensing with the preliminaries, I'm aware of the dollar's long-term structural deficiencies, namely the current account and federal budget deficits. With the so-called twins seemingly getting bigger by the day, and more foreign central banks using the dreaded D-word ("diversification"), it is very hard -- if not impossible -- to make a long-term bullish case for the greenback. Indeed, we may be witnessing the early stages of the dollar losing its standing as the world's reserve currency.
But bear markets are often interrupted by ferocious rallies -- nine of the Nasdaq Composite's 10 biggest percentage gains occurred during its 2000-02 swoon -- so it's wise to consider some potential catalysts for a significant intermediate-term advance in the beleaguered buck.
"If there's going to be real strengthening of the dollar, it has to come from money leaving Europe" and the euro, says Dennis Gartman, publisher of The Gartman Letter.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV