Dollar Signs

02/18/2005 12:00 am EST


I am indebted to Gordon Pape for this article, as he spent much of his time at The World Money Show collecting opinions on the prospects for the US dollar. Here’s some "currency commentary" from a wide variety of speakers featured at the conference. (For more on the advisors below, click on their photos.)

"While at the World Money Show, I took the opportunity to listen to what some of America’s best-known financial minds had to say about economic conditions. One thing I quickly discovered is that the fall in the value of the US dollar is just as big an issue in the States as the rise of the loonie has been in Canada--at least among those who understand what’s going on. The second thing that became apparent is the disparity of opinions, even among this wise group of people. Opinions ranged all the way from a ‘don’t-worry-be-happy’ mentality to ‘head-for-the-hills-the-sky-is-falling’ predictions of looming catastrophe.

Cappiello, Frank"Frank Cappiello, chairman and managing director of Montgomery Brothers, Cappiello, LLC, said his outlook for the greenback is ‘neutral to positive.’ He sees concerns about the US deficit and national debt, the main factors cited by dollar pessimists, as being overblown. While acknowledging that President Bush has already added about $1 trillion to the national debt, he points out that the debt only represents about 3% of the nation’s GDP. Since there are very few nations that have a debt ratio under 5%, ‘the US is not in bad shape by comparison.’

Hochberg, Steven"For Steven Hochberg, chief market analyst of Elliott Wave International, everything is driven by charts, and his charts tell him the US dollar is about to stage a huge rally. In this case, it’s important to understand that the Elliott Wave is a contrarian predictor. The more negative opinion there is about a security, the greater the chance it will turn around and vice-versa. ‘The sentiment toward the dollar is as bearish as we have ever seen it,’ he told his audience. ‘We’re very bullish toward the dollar because everyone else is so bearish.’ He predicts a dollar rally will push up its value against the euro by 20% to 30%.

Dessauer, John"John Dessauer, newsletter editor and high-profile television panelist, strongly believes the US dollar will not fall much further, if at all, and that it ‘will be higher against the euro and the yen one year from today.’ He not only dismissed the US trade deficit as a major concern but almost seemed to depict it as an act of benevolence by America to the rest of the world by supporting foreign economic expansion.

Fisher, Kenneth"Ken Fisher, portfolio strategy columnist for Forbes magazine and CEO of Fisher Investments, is one of the most highly respected financial commentators in America. He told a huge audience in a plenary session that the triple-deficit problem in the US, which provides the main fuel for dollar-bashers, has been blown way out of proportion. ‘As a percentage of GDP, the debt level is exactly where it was in 1942,’ he said. In short, it's no big deal.

Schiff, Peter"Peter Schiff, president of Euro Pacific Capital , noted, ‘The ultimate collapse of the US dollar will be one of the most significant events in our lifetime.’ With those words, Schiff began a workshop presentation that must have struck terror into the hearts of anyone who took him seriously. Comparing the greenback to the Titanic, he direly warned that ‘any asset you have that is denominated in US dollars is going to lose value.’ His reasoning: the huge trade deficit, the fiscal deficit, and a burgeoning national debt that will only be made worse because interest rates will have to rise sharply to deal with the inflation created by a collapsing currency. He warned that the US is heading into a long and deep recession that will result in a ‘huge decrease in the living standards of Americans.’

Donoghue, William"William Donoghue, well-known money manager, author, and newsletter editor, noted that as the US dollar falls, interest rates are going to rise at an ever-faster pace in an effort to provide support by attracting foreign money. That will create a vicious circle that will drive down the value of the securities that are the core of most American portfolios: government bonds, utilities bonds, and S&P 500 stocks. It happened during the 1966-83 period, he said, and it is about to happen again.

Weiss, Martin"Martin Weiss, editor of Safe Money Report, laid out the most frightening scenario, noting that US politicians are ‘playing with fire.’ He added, ‘The budget deficit is out of control, and our trade deficit is the largest in history. We have the same kind of complacency in this country that Brazil had about these problems. If we let this go on, our entire way of life will be threatened.’ His bottom line was to urge the hundreds of people who had come to listen to put some of their money into foreign currencies. His recommendations: the euro, the yen, the Brazilian real, and commodity-driven currencies such as the Australian and Canadian dollars.

Pape, Gordon"So what are we to make out of these wildly-conflicting views?" asks Gordon Pape, in his Internet Wealth Builder newsletter. "My visceral reaction is to discount the extreme opinions if only because I find it difficult to believe that the politicians in Washington are so incredibly stupid as to allow events to spin so terribly out of control. (Having said that, I must admit that I have seen politicians do some amazingly dumb things.) Whether the greenback rally continues beyond spring will depend in large part, I believe, on how serious President Bush is seen to be in his stated objective to reduce the deficit and begin moving back to a balanced budget. If he is able to stay the course on this and obtain Congressional support, then the worst days of the US dollar may be behind us."

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