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Will the Dollar Slump or Soar



Jack Crooks discusses reasons why the dollar could be getting ready to slump lower and reasons why the dollar could be in store for an upward turnaround. Mr. Crooks takes a look at both ends of the future outcomes for the dollar.



The supply of dollars is falling as the U.S. current account deficit improves. Because major currencies are free-floating, prices are determined in the market based on the global supply and demand for a particular currency against another. One of the major sources of supply of U.S. dollars is through the U.S. current account deficit. The U.S. current account deficit is currently improving, meaning less dollars in global markets, which could help the dollar's value. However, the last two times the U.S. current account deficit improved and dollar liquidity drained from the global economy, there were major stock market crashes and recessions.



The market is a discounting mechanism, meaning that all known information is already factored into the price. In addition, currencies are always priced relative to other currencies. So if one currency is already priced for disaster and another currency is priced for perfection, it only takes a slight shift in news to send prices heading in opposite directions. And currency markets are very driven by sentiment; if investors believe something, it could start piling into a trend. This is why currencies almost always overshoot their fundamental values by a large margin during major trends.



There are, however, reasons supporting that the dollar could rise. First, interest rates are still awry. The yield differential for the dollar against the euro has turned negative. Even though the U.S. Fed may be done cutting, it doesn't mean the interest rate differentials that currently favor other major currencies will change anytime soon.



Second, the credit crunch may not be over. Things have improved since the Fed's bailout of Bear Stearns, but the U.S. could be entering a second stage of the crisis. The major financial institutions may be past the crisis stage, but they still need to clean up their balance sheets, get rid of bad loans, and unwind derivative contracts that are still out there.



"In short, we could see subpar economic growth for years to come. And the U.S. dollar is the currency that gets hit the hardest when risk increases in the global economy. If credit concerns linger, it will most likely weigh on the greenback. Plus, overall positioning doesn't support a major trend change," Crooks states.



To read this issue online, please visit: http://www.moneyandmarkets.com/Issues.aspxNewsletterEntryId=1842



About JACK CROOKS & MONEY AND MARKETS     


John (Jack) Crooks is the founder and president of Black Swan Capital, an independent advisory firm specializing in foreign exchange and currency markets investing for retail and institutional clients. A seasoned financial advisory with nearly 20 years of investment experience, Mr. Crooks uses both quantitative and qualitative approaches to determine the fundamental driving force(s) behind the movement of the currency, capital, and commodities markets. He is the editor of Weiss Research's latest investment offerings, World Currency Alert and World Currency Options, which were launched in August 2007.



Mr. Crooks also founded Ross International Asset Management, a discretionary money management firm specializing in global stock, bond, and currency asset management for retail clients. Previously, he was general manager of Plexus Trading, where he specialized in currency futures and commodities trading. During his successful career, Mr. Crooks served as chief currency and futures strategist of M2 Futures Inc., an investment boutique headquartered in Chicago, as well as vice president of Global Strategic Research for an international investment boutique, where he was responsible for providing daily advice and global strategy analysis.



Prior to entering the investment arena, Mr. Crooks held various corporate finance positions. He has written extensively on the subject of global currencies and international economics and has been published in Asian Times, Futures Magazine, Barron's, Bloomberg, Dow Jones Newswire, and across many financial websites. He has also appeared on Bloomberg TV and CNBC.



Mr. Crooks holds a bachelor's degree in finance from Florida State University and a master's in business administration from the University of North Texas.



Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.






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