USD 06 (Nov 15 - Dec 25)

[winston]

The Strong Dollar: It’s Only Going to Get Worse!

By John Del Vecchio

Clocks, scales, and meat slicers. IBM sold all kinds of different items when the company started out a century ago. Back then, it looked nothing like the information and consulting company it is today. It didn’t get into the business of personal computers until decades later. Today, IBM does everything but.

And yet, for all their commitment to changing with the times, their underlying business is imploding.

For years, IBM has resorted to aggressive accounting practices to hide the weakness in their business. They’ve taken on debt to buy back their stock, throwing cash to the wind that should’ve gone to developing their business.

And now that we’re in the middle of earnings season, there’s no other way to say it: results for big technology firms have been pretty awful.

Market leaders such as IBM and Apple have disappointed investors’ expectations out of the gate this year. The strong U.S. dollar is a major factor. With nearly 60% of sales for technology companies coming from overseas, the dollar has become a leading culprit in poor earnings.

Of course, this doesn’t surprise me. I’ve been harping on the strong dollar theme for quite some time, and it’s why our “old school tech” trade is our biggest short position yet in Forensic Investor.

And while it’s worked out nicely so far, I think it has much farther to go.

Why is that?

For one, I think the U.S. dollar can get much stronger.

In fact, I think the dollar could rise by another 40% or more.

While the U.S. economy may be experiencing one of the slowest recoveries yet, it has very little to do with the value of a dollar. Like anything else, its value is based on supply and demand.

And being the world reserve currency, whenever there is a crisis in the market or even a minor scare, the demand for dollars goes up. People feel comfortable holding dollars in turbulent times. It’s a flight to safety. Or like sucking on a pacifier.

That’s one reason why the dollar remains in demand.

But, there is another more powerful reason.

When Everyone Runs for the Exit…

You see, throughout the financial systems there’s loads of leverage. Said another way: debt. And while investing using leverage tends to magnify returns, it also dramatically increases risk. Leverage works until it doesn’t.

And unfortunately, when it stops working, it often happens so fast that there’s little time to react.

This is a big problem because everyone runs for the exits at the same time during a panic. Large investment funds all have to start selling assets at the same time. And because they’re on leverage, it only increases the size of the losses and amps up volatility in the market.

That’s why, every time there’s a crisis, you’ll often read about large funds going out of business.

In recent years, funds have shorted the U.S. dollar to increase their leverage. Because interest rates have been essentially zero for a long time, investment funds could short U.S. dollars very cheaply. They could then reinvest that cash into higher yielding assets such as, say, emerging market debt.

The thing is, short sales need to be bought back and “covered.” This creates huge buying power for any asset in a short squeeze, especially if lots of leverage has been used.

In the case of the U.S. dollar, trillions in leverage has been used. So those dollars will have to be bought back in a crisis – and just like that, it will cause the value of the dollar to soar.

The Strong Dollar’s Here to Stay

It sounds strange that the economy could collapse and the demand for the currency could rise. But, that’s the benefit of being the reserve currency.

The knockoff effect is that this will only further hurt companies with a significant portion of international sales. Worse, they’ll get pinched on multiple fronts.

In the middle of a crisis, customers will start to pull back and slow down their purchases. So, revenue will start to slow – and in some cases, slow dramatically.

Adding to the pain, as the dollar rises, it will hurt earnings even more. And because companies have cut costs to the bone already, there won’t be many more places to generate earnings growth.

It’s a bit ironic. These companies have already manipulated their quarterly earnings results when the economy was rising. So when it falls, there won’t be any more tricks in the bag when they need them most. They’ll have run out of bullets.

All of this leads to a much tougher road to hoe for technology companies in particular, since they often generate more than half of their revenue overseas.

Growth was already slowing before the dollar started to eat into a big chunk of earnings. Early last year I often heard this this was just temporary. But not only is it here to stay, it will get much worse.

Tread very lightly when investing in technology this year.

Source: Forensic Investor

[winston]

The Problem With Being the Greatest Nation on Earth

By Karim Rahemtulla

We revel in the fact that as Americans, we have the greatest economy on Earth. The greatest that has ever existed. Three hundred and thirty million people living in relative luxury compared to the rest of the world.

Sure, Singapore has a higher per-capita income, but you're talking about 5 million people - less than the population of New York City and its surrounding boroughs.

Part of being the world's dominant economic power is having the world's reserve currency. But sometimes there is a price to pay for having a currency that the world views as a safe haven. That price is economic growth.

In a perverse phenomenon, having the strength that keeps the world afloat is actually draining profits from the U.S. economy and putting downward pressure on interest rates at the same time. It's a fairly unique scenario.

Usually when there is a threat of a rising interest rate cycle, interest rates actually do move higher. That's not happening.

And while interest rates are moving lower, the U.S. dollar is actually maintaining its strength against all comers. It could spell a much longer period of malaise for interest rates regardless of what the Federal Reserve does or doesn't do.

I recently wrote that I did not believe we would have four rate hikes this year. This past week, the Fed signaled that it may be thinking the same thing.

It acknowledged that while the U.S. economy was strong, it could be knocked back by a weak global economy. Rates on the 10-year Treasury declined under 2% before staging a weak rally.

When the world is weak, the U.S. appears even stronger. Those with wealth seek safety in strength, and the exodus out of weak currencies into the U.S. dollar continues. This is not a currency war - it's a wholesale massacre and the dollar is winning.

But the U.S. economy would prefer to see the dollar lose - at least a few battles.

A strong dollar is bad news for U.S. companies, and both revenue and earnings growth. Apple (Nasdaq: AAPL) just reported its numbers and while it knocked it out of the park, it suffered from a $5 billion hit to revenues because of - you guessed it - the strong U.S. dollar.

That sentiment is being echoed across the entire S&P 500. The strong dollar means lower profits and that will result in slower economic growth, which in turn will lead to interest rates going nowhere.

The world owns trillions of U.S. dollars and keeps buying more, putting upward pressure on the dollar and downward pressure on U.S. corporate profits.

The foreign exchange reserves of most countries are held in a variety of currencies and gold. U.S. dollars make up the greatest portion of the currency component of reserves. The Chinese have the biggest foreign currency reserves, followed by the Japanese. In third place is Saudi Arabia, with more than $500 billion in reserves.

A Dollar-Hungry World

The U.S. dollar will continue to maintain its posture of strength until the global economy recovers. And that's where opportunity lies if you're willing to look further out. It could be the easiest bet you have ever made.

The "long U.S. dollar" is a crowded trade. This means that the vast majority of investors think it's headed higher.

That's fine by me. I want the dollar to stay strong - and even strengthen in the short term. It means that I can pick up bargains all over the place with my dollars, and then when the tide turns - and it will turn - I will offload those same assets for a profit.

Three things will happen to cause the dollar to decline over the longer term. And I think that longer term is within the next 12 to 24 months.

First, the U.S. will not see the higher interest rates that the Fed has been promising. The economy is just not strong enough to produce the inflationary pressures the Fed must see before it fulfills its promise. Commodity prices are keeping overall inflation in check. Underemployment is keeping wage growth in check despite better jobs numbers.

Second, U.S. corporations will continue to show decelerating growth due in most part to dollar headwinds resulting in less reinvestment in the U.S. economy.

Third, the massive amount of stimulus that is being fed into global economies as a result of low interest rates, weak currencies and government intervention in the financial markets, much like what the U.S. experienced between 2007 and 2011, will result in better growth. U.S. dollars, which are being bought today, will be sold tomorrow to chase the prospects of appreciating markets and asset prices abroad.

Having the strongest currency in the world has its benefits in the form of the ability to buy foreign assets for less. But it means little if you're not taking advantage of that opportunity. Don't be one of the "last Americans" to figure this out.

Source: The Non-Dollar Report

[winston]

DXY Peaking? A Catalyst For Asia Rally

By Shuli Ren

Source: Barron's Asia

http://blogs.barrons.com/asiastocks/201 ... sia-rally/

[winston]

Gundlach Says Dollar Will Drop in 2016

By John Gittelsohn, Rachel Evans

The euro is likely to strengthen against the dollar as the probability the Federal Reserve will increase borrowing costs at its March meeting is virtually zero, and only 50 percent for the rest of the year, he said.

Source: Bloomberg

http://finance.yahoo.com/news/gundlach- ... 11680.html

[winston]

Is this the beginning of the end for the petrodollar?

by Justin Dove

This morning (Monday), Reuters reported that Iran wants euros for its oil rather than U.S. dollars …

Source: The Crux

http://thecrux.com/petrodollar-dying-ir ... r-its-oil/

[winston]

How to Profit from the Rising Dollar Right Now

Source: Sure Money

http://suremoneyinvestor.com/opportunit ... right-now/

[winston]

World’s No. 2 currency trader sees dollar surge coming…

Source: Bloomberg

http://thecrux.com/worlds-2-currency-tr ... ery-wanes/

[winston]

The Stronger Dollar Is Actually Destroying the Markets

by MICHAEL LEWITT

Source: Sure Money

http://suremoneyinvestor.com/2016/03/th ... e-markets/

[winston]

“Trumpxit” Risk? Credit Suisse Cuts Dollar Forecast

By Shuli Ren

Source: Barron's Asia

http://blogs.barrons.com/asiastocks/201 ... -forecast/

[winston]

5 Stocks With Global Brands That Will Benefit When the Dollar Weakens

By Eric Clark

Source: The Street

http://www.thestreet.com/story/13500747 ... _ven=YAHOO