The Falling Dollar ... A Patriot's View

American’s wear the Dollar like a badge of honor. Since World War II, U.S. Dollar has been the standard bearer … the flagship … the beacon in the night. Our greenback embodies the hopes and dreams of every American. Thus, as the dollar has declined, so has the pride of an entire nation.

But should we really care? Is it unpatriotic to do nothing as the dollar shrinks to a mere shadow of its former self? Are mom, apple pie and the American Way really at risk?

In my view … no!

I believe that we ought to be rooting for the dollar to further weaken. It is true, that a weaker dollar decreases our buying power at the gas pump or the supermarket. But a weaker dollar also makes exports more attractive, which may in the long-run lead to a sustainable upturn in domestic manufacturing and job creation.

It’s wrong to read too much in to the rapid decline of the dollar. The dollar, like any other asset fluctuates substantially from year-to-year. But overall, the dollar’s real value has changed very little. During the past 20-years, when the dollar is compared with a broad basket of the world’s major currencies, the greenback only has declined about seven percent on an inflation-adjusted basis. This is less than 0.5 percent per year.

All of us are feeling the pinch. As the subprime markets continue to unwind, it appears as if the “wheels” have come off the economy. In our rush to find a root cause, many of us, politicians especially, point to the ever-weakening dollar. But in truth, the market conditions we are witnessing today are part of a natural process. Historically, strong markets always are followed by stronger sell-offs.

The shrinking dollar not only stimulates U.S. exports, but will help to narrow our current trade deficit of nearly $700 billion --- a figure which amounts to nearly 5.1 percent of our entire gross domestic product. This staggering imbalance can only be addressed by curbing our appetite for cheaper imports and through a resurgence of our export sector combined with a devalued dollar. The Asian “tigers,” and in particular China, have prospered because of the dollar’s relative strength to their currencies. Maybe it’s time to put the “shoe on the other foot.”

At the upcoming April meeting of the G-7, exchange rate intervention by the world’s central banks to stem the dollar’s slide, will top the agenda. I believe that such intervention, however, will be counterproductive, and only will prolong the current recession. If world's central banks do intervene, causing the dollar to artificially rise, then U.S. economic recovery will stall because the benefits of a more competitive currency will be undermined.

Intervention by individual central banks may slow the dollar’s decline, but I do not think their actions ultimately will halt the slide. At this point, the negative fundamentals and overall downward inertia propelling the dollar simply are too powerful to overcome.

As an individual investor, I consider it as my patriotic duty to sell or “short” the dollar. Shorting the dollar not only presents significant speculative opportunities, but, in the end, I believe that I will be promoting an economy that is more competitive and resilient.



To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Bullets Over Broadway

Art frequently reflects reality. In the 1976 cinematic homage to television, the film “Network,” captured the pent up frustration and public outrage the nation was feeling toward an economy that had slipped in to a vortex of hyper-inflation and skyrocketing interest rates. Following the formation of OPEC, oil supplies were scarce and prices at the pump were stratospheric. It was not unusual to see desperate motorists camped at their local filling stations awaiting the arrival of the fuel truck, just so that they could fill their tanks.

Near the end of the film, in a scene etched into the memory of every moviegoer, disheveled newsman and national icon Howard Beale, launches into a tirade decrying the ills and corruption of a world gone mad. Rather than sit back, passively accepting their fate, Beale urges his viewers to go to their windows to yell the immortal line, “I’m mad as hell and I’m not going to take it anymore!”

On Monday, as the stock of Wall Street giant Bear Stearns fell 94%, J.P. Morgan Chase, with the backing of the Fed, stepped in to buy this former lion of the financial world for a pittance --- $2.00 per share. This was the deal of the century for J.P. Morgan! Not only did it acquire Bear Stearns enormous book of business for a song, it did so without risk. At $2.00 a share, with the Fed underwriting the deal, J.P. Morgan can simply flush away the bad debt Bear Stearns was carrying as a result of its ill-conceived subprime expansion, and hang on the gems still remaining in the failed bank’s portfolio.

In January, the five leading investment banking firms on Wall Street, including Bear Stearns, handed-out nearly $39 billion in bonuses to their top execs. These bonuses largely were tied to the record fees generated by the banks' subprime businesses. While these banking execs were toasting their good fortune, however, the Fed was quietly propping up the same Wall Street banks by absorbing nearly $400 billion in flawed subprime mortgage assets.

When the gavel finally came down on the J.P. Morgan “rescue,” and Bear Stearns slid into oblivion, no one asked whether the executives of the failed firm planned to return their billion dollar bonuses. No one asked what would become of the thousands upon thousands of shareholders, whose investment in the Wall Street giant had turned to dust. No one asked whether it was the role of the Fed to prevent Bear Stearns from collapsing into bankruptcy.

The significance of the silence was not lost on many Bear Stearns executives who readily agreed to the fire sale. They understood very well, that in the event of a bankruptcy, the courts would force them to return their billion dollar bonuses. The choice was simple --- return your Masarati or screw the shareholders with the taxpayers footing the bill? Face a potential stock manipulation inquiry by the Securities and Exchange Commission or retire quietly to your home in the Hamptons? It was a no brainer!

Is it the Fed's role prevent the failure of an investment bank that should have understood the risks it was injecting into its portfolio? No where in the the Fed’s mandate is there a license to prop up failing Wall Street firms. Rather, the Fed's prime fiat is to keep our currency sound. With the dollar falling to all time lows against the Euro and multi-year lows versus the Yen, it’s evident that the Fed has been asleep at the switch.

Can we, or more aptly, should we permit the government to keeping printing money as the dollar falls? Do we continue to allow the Fed to step in before other Wall Street Banks tumble? Aren’t we simply putting off the inevitable? If there is a natural order to things, shouldn’t the weak be permitted to perish? Otherwise, as history has shown us time and again, the drop will be deeper and more prolonged.

Japan is exhibit one. When the bubble burst, the Japanese central bank stepped in to prevent major financial firms from failing. It continued to print money. The result was a deflationary cycle that lasted for nearly twelve years. Japanese historians now refer to this dark economic period as the “lost decade.”

Wall Street can’t have it both ways. Either it’s the law of the jungle where only the fit survive or it’s not. If my business fails, because I’ve made imprudent choices, the government won’t bail me out. Just because their businesses are arbitrarily deemed “vital,” Wall Street should not be entitled to special treatment. I say, let the law of the jungle prevail!



To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.

Inflation, The Crumbling Dollar and the Saga of "Client Nine"

The only thing more pathetic than Elliot Spitzer’s ethical moral compass was Wall Street’s predictable response to the Fed’s promise to add $200 billion in available credit to banks to encourage lending. After staging the biggest rally in five years, the market has settled back into a state of self-doubt.

Market players are little the like the now deposed New York Governor. They want it both ways. Spitzer (better known as "Client Nine") wanted to be a "player" while maintaining his stern family-guy crusader image. Wall Street wants a bail-out for financial institutions while still expecting the Fed to cut rates by three-quarters of a point. Spitzer was forced out of office. Will Wall Street fare any better?

If business is war, then the only true casualty of this conflict has been the dollar. After gaining nearly 1.6 percent on the Yen following the Fed announcement --- the biggest move in six months --- almost half the gains were erased before the bell rang on Wall Street. At the same time, the Dollar fell to a record low of $1.55 against the Euro. Apparently, despite the Fed’s best efforts, there still remain significant misgivings about the ability of the banks to break the lending gridlock or to weather the churning seas of their own growing credit losses.

The Dollar simply can’t get a break. Because the market is so fixated on interest rate differentials, its getting sand kicked in its face by every bully at the beach. It’s gotten so bad, that even the Persian Gulf oil emirates are considering uncoupling their currency valuations from the Dollar. Bankers in Qatar, for example, are complaining that the crumbling Dollar is stoking inflation.

So what does this all mean?

The Dollar, like the "Empire State" governor, is in deep do do --- and the news is going to get worse before it gets better. As the U.S. economic slowdown deepens, it appears likely that the Dollar will extend its losses against most of the world’s major currencies for the next six months. The moral of the story … stay away from high-priced prostitutes and stay short the dollar!

Although the Euro may find a ceiling at around $1.57 and the Yen may stall at $1.00, there will continue to be trade opportunities with other currencies paired with the Dollar. Since mid-summer, the Canadian has had a bit of pull back. But as energy prices rise in conjunction with the weakening Dollar, the Canadian, along with other resource driven currencies like the Aussie and Kiwi will be likely beneficiaries. Additionally, if interest rates remain below in 5% in Switzerland, the Franc will continue to get attention from carry-traders and seekers of a safe haven.

Just to show you how short-sighted Wall Street players have become; the biggest question on everyone’s lips is not how we boost the U.S. economy or shore-up the sinking Dollar, but rather, "what did Elliot Spitzer really get for $5500 an hour?" I'm surprised that some bright Wall Street analyst has yet to opine that the inflated cost of these high-priced hookers is a direct result of the shrinking dollar. The next thing you know, we're going to have the "Spitzer Index" as a future measure of national economic health. Like meals out or the purchase of flat screen TV's, discretionary spending on hookers may be just as valid an indicator of consumer activity.

All of us have our own "private hell." But it seems that Elliot's along with the U.S. Dollar, is going to hotter than most.



To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.