Five days ago I wrote a blog entry about ‘The Doomed Dying Dollar.’ Yet the dollar remains strong. Why?
Markets have always taken an extremely short-term view, and never more so than now. What we saw yesterday, for example, was a substantial fall in the Mexican peso and the Brazilian real. The peso, which has been stable against the dollar since 1995, fell 25%, until the Mexican Central Bank intervened with $2.5 billion and it went up again. The Brqazilian government similarly intervened.
The dollar, in my view, is still due to take a big hit… but it might take days, weeks or even months until this happens. The longer it takes, the worse it will be when it happens. I’ve been reading recently about people moving into US treasuries as a safe haven. This is absolutely nuts. How can the obligations of a country that was already bankrupt and just printed another $700 billion be a ‘safe haven.’ It is quite the opposite.
Mexican and Brazilian fundamentals are much better. We haven’t seen any bank failures in Mexico or Brazil, and we are unlikely to, because they haven’t engaged in anything like the risky lending practices we have seen in the ‘developed’ world. But the fall in commodities prices and the global recession have hit these economies short term, and a lot of people out there (the majority) truly believe this BS about US treasuries being a safe haven. That is why money is flowing out of Brazil and Mexico.
The fact is markets are unpredictable right now. I’m not going to suggest buying in to Mexico or Brazil because they might well fall further, even though logically they don’t deserve to. Markets do not behave logically or rationally.
What I will stick to is my prediction that the dollar is doomed and dying, even if it is having a little rally right now. I wouldn’t keep your money in US dollars, or pounds or Euros for that matter either. I continue to recommend gold and well priced real estate, or just diversification into a basket of diverse currencies like the Chinese Yuan or the Norwegian Kroner on the assumption that you will win some, lose some. Because nobody can realistically predict what will happen next. This is not a time for playing the markets!
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Peter Macfarlane for The Q Wealth Report