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Special Report: The Case for Commodities, Credit and Canucks - September 25, 2009
https://ems.gluskinsheff.net/index.ncl.html (Gluskin Sheff’s Economic Reports Featuring David Rosenberg) register for free at that link in order to download the report
Did the Zero Hedge community go ballistic over this today? I don't check that site, someone else will have to.
https://ems.gluskinsheff.net/index.ncl.html (Gluskin Sheff’s Economic Reports Featuring David Rosenberg) register for free at that link in order to download the report
Did the Zero Hedge community go ballistic over this today? I don't check that site, someone else will have to.
WILL THE GOVERNMENT USE THE USD AS PART OF ITS POLICY ARSENAL
As we said above, the U.S. government has practically exhausted all of its policy options … except for one; the U.S. dollar. It is the only policy tool that has not budged one iota since the crisis erupted two years ago. As we mull this over, we recall all too well this great book that a client referred us to a few years back and it was Robert Rubin’s autobiography – “In An Uncertain World”. What we learned (as did the client and whoever else has read it) was obvious — the United States will always do what is in its best interest. Full stop.
In addition to knowing it is a mid-term election year in 2010, we also know that we have a President who has, step by step, been taking feathers out of FDR’s cap in dealing with this modern day depression. The one item that has yet to be utilized is U.S. dollar depreciation, and if memory serves us correctly, FDR snuffed out the worst part of the Great Depression when he unilaterally devalued the dollar relative to the gold price in 1933 by 60% (ultimately fixing the price of gold at $35/oz in 1935).
We’re not sure that President Obama is going to re-price the dollar price of gold, but the catalyst for a weak-dollar policy may lie in further expansion of the Fed’s balance sheet and de facto printing of excess greenbacks, which may well have been the quid pro quo for Mr. Bernanke’s reappointment. (Just a few months ago, the White House had reportedly published a short list of possible replacements for the Fed Chairman, but we will only find out in the memoirs how much horse trading went on behind closed doors. But suffice it to say that a President that is becoming actively involved in the New York governorship race is quite capable of doing all it takes to ensure a desirable political outcome.)
As we said above, the U.S. government has practically exhausted all of its policy options … except for one; the U.S. dollar. It is the only policy tool that has not budged one iota since the crisis erupted two years ago. As we mull this over, we recall all too well this great book that a client referred us to a few years back and it was Robert Rubin’s autobiography – “In An Uncertain World”. What we learned (as did the client and whoever else has read it) was obvious — the United States will always do what is in its best interest. Full stop.
In addition to knowing it is a mid-term election year in 2010, we also know that we have a President who has, step by step, been taking feathers out of FDR’s cap in dealing with this modern day depression. The one item that has yet to be utilized is U.S. dollar depreciation, and if memory serves us correctly, FDR snuffed out the worst part of the Great Depression when he unilaterally devalued the dollar relative to the gold price in 1933 by 60% (ultimately fixing the price of gold at $35/oz in 1935).
We’re not sure that President Obama is going to re-price the dollar price of gold, but the catalyst for a weak-dollar policy may lie in further expansion of the Fed’s balance sheet and de facto printing of excess greenbacks, which may well have been the quid pro quo for Mr. Bernanke’s reappointment. (Just a few months ago, the White House had reportedly published a short list of possible replacements for the Fed Chairman, but we will only find out in the memoirs how much horse trading went on behind closed doors. But suffice it to say that a President that is becoming actively involved in the New York governorship race is quite capable of doing all it takes to ensure a desirable political outcome.)
HOW TO PROTECT THE PORTFOLIO IN A FALLING USD ENVIRONMENT
Remember, this is a premise. We are just conjecturizing. But it is interesting that the dollar is the only financial metric that is at the same level today as it was two years ago, and we are of the view that the risks are high that the greenback will be on a significant downward path in the coming year. In addition, it does look as though Asia’s secular growth dynamics are intact, and that is also critical to the constructive view on commodities and the Canadian dollar. With that in mind, investors should be thinking of how to hedge or protect the portfolio against this not-so-remote possibility, namely:
1. Commodities
2. Gold
3. Canadian dollar
4. Resource sectors of the stock market
5. U.S. sectors that have high foreign exposure (materials, tech, staples, health care)
6. Canadian sectors that benefit from lower import costs (consumer stocks) but lose export competitiveness (manufacturers)
7. Canadian bonds (a higher Canadian dollar will keep inflation low, hence reinforcing positive fixed-income returns)
Remember, this is a premise. We are just conjecturizing. But it is interesting that the dollar is the only financial metric that is at the same level today as it was two years ago, and we are of the view that the risks are high that the greenback will be on a significant downward path in the coming year. In addition, it does look as though Asia’s secular growth dynamics are intact, and that is also critical to the constructive view on commodities and the Canadian dollar. With that in mind, investors should be thinking of how to hedge or protect the portfolio against this not-so-remote possibility, namely:
1. Commodities
2. Gold
3. Canadian dollar
4. Resource sectors of the stock market
5. U.S. sectors that have high foreign exposure (materials, tech, staples, health care)
6. Canadian sectors that benefit from lower import costs (consumer stocks) but lose export competitiveness (manufacturers)
7. Canadian bonds (a higher Canadian dollar will keep inflation low, hence reinforcing positive fixed-income returns)
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