by
Alexander Green, Chief Investment Strategist
Monday, March 8, 2010: Issue #1211
I've often said that it's not possible to predict stock markets, commodity markets, bond markets or currency markets consistently and accurately.
But there is an exception: when both valuations and sentiment reach severe extremes simultaneously.
That's what happened with the dollar a few months ago. And, seeing the planets in alignment (as I'll explain), I immediately wrote a column, predicting that the greenback would soar in the months ahead.
As is the case with most contrarian calls, my message was met with immediate catcalls and derision from respondents. Readers e-mailed me that a weaker dollar was a "no-brainer." With the size of our budget and trade deficits and nearly $60 trillion in unfunded liabilities, they insisted, the U.S. currency had nowhere to go but down.
But, oh, how times have changed…
Less than three months later, the euro has plunged 10% against the dollar. And it will almost certainly fall further.
Fortunately, there is plenty you can do to protect yourself – and profit. Here's how…
Spanish Decisions… Made in Germany
Anyone taking even a sidelong glance at the news knows that huge budget problems in Greece are undermining the euro. In response, Athens is proposing serious austerity measures to shore up the country's finances.
But this is just a finger in the dike. There are other leaks in the euro that are ready to spring in Portugal, Italy, Ireland and, especially, Spain.
Imagine for a moment that you're a Spaniard:
- Your country has a 19% unemployment rate,
- A deflating housing bubble,
- Enormous debts
- And a gaping budget deficit.
Your economy contracted 3.6% last year and is likely to shrink again this year, leaving Spain in its deepest and longest recession in more than 50 years.
But there's a bigger problem…
Because Spain is a member of the 16-nation eurozone, it can't devalue its currency to make its exports more attractive, or its sunny beach resorts cheaper.
