Dollar Will Fall and Crude Will Rise

12/18/2007 12:00 am EST

Focus: MARKETS

Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, says that after a short pause the dollar will weaken again while crude oil prices will firm.

The US dollar will rally some over the next couple of months, but it is still going to fall at least another 20% from [recent] levels. That may end up being a c o n s e r v a t i v e estimate because central banks are going to shun the dollar as best they can.

More important, they will be skirting US Treasury instruments as well. This is going to force long-term interest rates to go higher next year, regardless of what the Fed does with short-term rates. The US dollar is going to become less valuable, and that needs to be a consideration in the core of your investment strategy as we move through 2008.

How should you play a weak dollar? First, you should separate the short term from the long term. I expect to see a recovery near term. There will be solid overhead resistance at the 77.50 level (as you can see on the chart), but more important is that this reaction may span the next month or two.

The dollar rally over the next several weeks will temporarily push commodity prices lower. That will, in turn, give us a chance to make some nice long-term investments. The oil and precious metal bears will come out of the woodwork. They will tell you that the dollar has bottomed and that the stock market is in a new bull phase.

To play the weak dollar, you must resolve now not to be seduced by these Greek sirens. Nothing will change until the [ratio between the Dow Jones Industrial Average and the price of gold] falls under 5x. Until then, tangibles will trump financial assets. [Ultimately] commodities will rise in price in dollar terms as the value of the dollar falls.

The greatest socioeconomic threat the US faces after the dollar’s plight is inadequate supplies of crude oil. That day is coming—and sooner than most expect. It is not so much $5.00 or $7.00 gasoline as the problem of no fuel available at any price that poses the greatest problem for our economy and way of life. The Federal Reserve can work its way out of the subprime problem, but it can do nothing about supply and demand imbalances in crude oil.

Worldwide demand will continue to outstrip supply, and you can invest for this reality. Crude oil is now correcting, as we expected. I still see $80 to $84 as a likely downside in this correction: $80 oil will be a temporary bargain.

Nevertheless, once we work through whatever seasonal weakness crude has in store this time, we will be well on the way to new highs again. I am looking for $160, likely during 2008.

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