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Posts Tagged ‘Dollar’

Chart View of the Germany and Greece Debt Bailout Rumor

February 9, 2010 Leave a comment

Pretty funny chart courtesy of ZeroHedge showing today’s price action on the ‘news’ of a rumor that Germany was going to bail Greece out of their sovereign debt problems.

The interesting thing to note here is that it would appear the market is still pricing in a decent probability of some form of assistance coming in, possibly from another country.

-MJB

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Dubai World Debt Crises: How Far Will the Damage Go Around the World? (EEM, UUP, UDN, SPY, IVV, USO, OIL)

November 27, 2009 1 comment

If recent history has taught us anything (Argentina, Brazil, Mexico, Thailand, Malaysia etc.), it is that events like the recent technical default of Dubai World (owned by Nakheel) are not things that go away quickly and without widespread pain. Aside from the high-level macroeconomic effects involving the foreign exchange markets and capital outflows, there is a huge technical implication here (not to mention the damage this could do to other middle eastern and emerging markets economies and the associated moral hazard implications).

An extremely disproportionate amount of the market is short the dollar and an event like this could be exactly the kind of thing that would break down the trade and have huge implications on the equity markets, especially in the US. The S&P 500 has been extremely correlated to the movement of the US Dollar of late and a rise in the Dollar would very likely cause a drop in the market. There is also a possibility that the increased strain on budgets in the United Arab Emirates could put pressure on the price of oil as they consider increasing output for additional revenue.

A very big thing to watch will be the market’s reaction and perception to this news over the next couple of weeks as volume comes back in following the Thanksgiving holiday. It will also be very interesting to see how money managers will be reallocating to reposition themselves for 2010. Will the chase for performance continue or turn into a race for the exits?

– Michael J. Burns

Disclosure: Long EEM, ILF, IVV, GXC, COP, CVX, several foreign stocks and foreign oriented mutual funds

Coal Exports Surge (KOL, ACI, BTU, MEE, AEP, NSC, BNI)

October 20, 2009 Leave a comment

The Business Insider has posted an article here that reflects what I think is the first signs of the positive effect the weakening dollar is having on the economy.

Dollar Futures (/DX) have fallen by over 20% since it reached a local maximum at the end of last year, and a lot has been said about the negative ripple effects that that is having.  Certainly, import prices are increasing, countries that have their currency pegged to the dollar are having to weaken their monetary policy to follow the fed, and the Republicans in Washington are harping on the White House for failing to live up to its strong dollar policy.

However, behind closed doors, these same politicians are actually supportive of a weak dollar, at least in the short term.  One reason for this, as shown by this report, is that it will increase exports since America’s products become favorably priced on the open market as the dollar declines.  Certainly coal (ETF: KOL) is a beneficiary of this, but other American exports such as steel, chemicals, and medical supplies will be helped. There isn’t much good to be said about domestic demand, and the hope is that foreign consumers will step up first and because of the weak dollar, American products will look relatively cheap.

To be specific, this development should benefit coal miners such as Peabody Energy Corporation (BTU), Arch Coat (ACI) and Massey Energy Company (MEE), but will hurt coal-centric utilities such as American Electric Power (AEP) as they compete for supplies with hungry overseas users such as China.

Shipping companies should also benefit, as water remains the only way to ship bulk goods between the US and other continents.  Additionally, domestic transporters like Norfolk Southern (NSC) and Burlington Northern Santa Fe (BNI) will benefit as coal is transported from the mines in the Mid West to the ports at the coast.

-AH

Disclosure: Long BNI