Q: Chip–
In the February review you wrote that you were willing to bet that in five years the dollar will be significantly weaker than it is now. Can you break it down further and speculate as to the appropriate comparisons? For example, based on your precious metals forecast, you would probably say that it will be weaker relative to gold in that gold is likely to appreciate significantly in dollar terms. But how about the euro? The problems with some European financial institutions may be greater than our own (but the European Union has some built in safeguards against deficit spending). The British pound sterling? They are nationalizing financial institutions, printing money as well, correct? Maybe the Canadian dollar. Canada is a resource-rich country that is likely to do very well if you are correct in your thinking that oil may outperform precious metals over the next five years. Should I buy long dated puts at 600 for the S&P 500? Are copper futures beginning to forecast a recovery?
Can’t wait for the next issue.
A: I think the U.S. dollar will decline against most currencies, even against other countries that print as much as us, because we have one thing to lose that they don’t have–reserve currency status. The more resistance (or natural barriers) a country has to printing money to resolve its problems, the better it might be. Many Euro countries are much more sensitive to monetary inflation (even though they also have other problems, like the fact that the Euro is so new and could collapse). I think resource rich countries could do well and also maybe Swiss Francs.
I think Dr. Copper might be premature on the recovery. It could instead be an inflation harbinger. I think there’s also a good chance that we could see the S&P below 600 during the next down leg. Of course, the timing is uncertain. I famously bought a bunch of S&P puts at a strike price of 1450 and they expired in March 2000 – OUT OF THE MONEY!!! My thought process was right, but the timing was off.
