Skip to main content

USD Strength Is Temporary

Don't make the mistake of thinking USD strength is responsible for the collapse in commodity prices. The dollar DID NOT cause the collapse. To think like that would bring about the wrong investing strategy going forward.

There is very little to support a bullish dollar going forward.
The connection is reversed, its not a dollar led sell down. Its the deleveraging by index funds and cut-loss by speculators in almost all commodity asset class which has brought about the cashing up. The dollar has been inversely correlated to commodity prices for the past 3 years. Its only natural for the inverse correlation to hold as well.

To many index speculators, to go long on commodities is one trade. If you wanted to enhance returns, you can also short the USD, its a double whammy. Plenty of hedge funds have taken on this strategy, and what we are seeing is the reversal of that. Hence the strength in USD is pretty fake.

Amidst a slowing US economy, the biggest determinant for USD strength would have to be the outlook for higher rates. Fed funds is at 2%. Even though July inflation was at a 7 year high, or was it 13 year high, either way that is expected to come down significantly owing to the sharp drop in oil and other commodity prices since then.

The biggest factor the Fed and the Treasury will be considering when thinking whether to raise rates is the amount of recapitalisation, the amount of mortgage resetting, and the various restructuring that is ongoing to help the smaller and regional banks to survive. Any rate hike would affect the above issues negatively. The Fed and Treasury cannot allow that to happen.

Hence, to me the fed funds rate has almost minimal chance of being hiked for the rest of the year. I see a 60% for it to stay at 2% for the year, and a 40% that it may go lower to 1.75% before the year is over.
That being the case, there is very little chance for USD to maintain its rally.

Once the commodity prices flattens out, the USD should continue its slow downside weakness again. We are getting close to those levels, oil should stabilised just below USD110 and CPO's bottom range is around RM2,450-2,500.
The proper investing strategy taking that in mind is a refocus on strong emerging markets with strong trade surpluses and foreign exchange reserves.

p/s photo: Onjira Lamwilai


Popular posts from this blog

My Master, A National Treasure

REPOST:  Its been more than two years since I posted on my sifu. This is probably the most significant posting I had done thus far that does not involve business or politics. My circle of close friends and business colleagues have benefited significantly from his treatment.

My Master, Dr. Law Chin Han (from my iPhone)

Where shall I start? OK, just based on real life experiences of those who are close to me. The entire Tong family (Bukit Kiara Properties) absolutely swear that he is the master of masters when it comes to acupuncture (and dentistry as well). To me, you can probably find many great dentists, but to find a real Master in acupuncture, thats a whole different ballgame.

I am not big aficionado of Chinese medicine or acupuncture initially. I guess you have to go through the whole shebang to appreciate the real life changing effects from a master.

My business partner and very close friend went to him after 15 years of persistent gout problem, he will get his heavy attacks at least…

PUC - An Assessment

PUC has tried to reinvent itself following the untimely passing of its founder last year. His younger brother, who was highly successful in his own right, was running Pictureworks in a number of countries in Asia.

The Shares Price Rise & Possible Catalysts

Share price has broken its all time high comfortably. The rise has been steady and not at all volatile, accompanied by steady volume, which would indicate longer term investors and some funds already accumulating nd not selling back to the market.

Potential Catalyst #1

The just launched Presto app. Tried it and went to the briefing. Its a game changer for PUC for sure. They have already indicated that the e-wallet will be launched only in 1Q2018. Now what is Presto, why Presto. Its very much like Lazada or eBay or Alibaba. Lazada is a platform for retailers to sell, full stop. eBay is more for the personal one man operations. Alibaba is more for wholesalers and distributors.

Presto links retailers/f&b/services originators with en…

How Long Will The Bull Lasts For Malaysia

Are we in a bull run? Of course we are. Not to labour the point but I highlighted the start of the bull run back in January this year... and got a lot of naysayers but never mind:

p/s: needless to say, this is Jing Tian ... beautiful face and a certain kind of freshness in her looks and acting career thus far

I would like to extend my prediction that the bull run for Bursa stocks should continue to run well till the end of the year. What we are seeing for the past 3 weeks was a general lull where volume suddenly shrunk but the general trend is still intact. My reasons for saying so:

a) the overall equity markets globally will be supported by a benign recovery complemented by a timid approach to raising rates by most central banks

b) thanks to a drastic bear run for most commodities, and to a lesser extent some oil & gas players, the undertone for "cost of materials" have been weak and has pr…