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Does the President want the Dollar to Fall?
Hotep G&G Readers,
Now is a good time to coin a new phrase…“OBAMAGLISH.”
But do understand it, you need to be able to decode our leader’s bizarre promises including the most recent in his State of the Union address.Now we all know that a President’s speech can be fairly pointless. And President Obama’s recent State of the Union was no exception.
Personally, I was disappointed at the “PR and Marketing Campaign” that was launched. But amidst all the showboating, there was one small overlooked
promise our President made that forced me to sit up and pay attention.
I want to mention it because this promise will have major repercussions on the U.S. economy and U.S. dollar going forward. Also, when I first heard it, I was about 90% sure that what he was promising could NOT happen (let alone in five years as our President promised).
And after extensive research, I can now say with certainty that our President is living in a fantasyland if he believes he can deliver on this promise. More importantly, the dollar would have to fall at least 30% if (and that’s a BIG If) Obama could deliver on this promise. Let me explain:
In his State of the Union speech President Obama announced he would double U.S. exports during the next five years. In a nutshell – Sorry, Not Gonna Happen!
Since our leader was short on details of what “exports” he was talking about, I’m going to assume that he was talking about nominal exports. If we’re talking about nominal exports, you should know…
During the last quarter century, nominal exports never grew this quickly in five years. In fact, it took an average of 11 years for U.S. exports to double.
The fastest doubling took seven years in the late 1980s. But that was back when the real dollar (exchange rate) collapsed and the world economy boomed. (Not exactly a good model for today.)
In short, I don’t think it’s going to happen based on history alone. But let’s assume for a moment that history has no bearing here whatsoever and instead talk about what would need to happen for Obama to deliver on this promise.
The Only Disastrous Way Obama’s Dream Will Come True
So what would inspire exports to grow like that? Well, first the entire world economy would have to be booming, so we would have plenty of new customers to buy our goods.
Also, I can think of one HUGE catalyst that would make our exports look mighty tempting to foreigners. That’s a very weak U.S. dollar!!!
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In fact, if global real GDP grew by 4.5% during the next five years,
the dollar would need to depreciate by about 30% for President Obama’s dream to come true.
Yes folks you heard right - The U.S. dollar will have to depreciate by 30%
Now I can go on and on about how the President’s latest tall tale claim is almost impossible to achieve. I could also tell you more about the “real secret” behind this claim (i.e., let the dollar fall further!).
But all you really need to know is the world would have to grow at 5% each year AND the U.S. dollar would have to drop by 30-40% over that period for his claim to come true.
All in all, it’s a very lofty promise and a lot of hidden meaning. Also, Obama is basing this promise on major assumptions that are highly unlikely.
How to Cash In on Obamaglish…
Given the increase in this rhetoric and PR styled promises that seem to be growing out of the White House, I am compelled to coin OBAMAGLISH. And I am confident that more of this hyped up promises are to follow.
Let us give the man the benefit of doubt – Let’s say that he does really push to get his promises achieved or at least get there for the most part …
In such a case, the U.S. dollar is doomed long-term. This year’s short term dollar rally will be a blurred memory. Instead, we’ll be watching as the dollar sinks 30 – 40 %. In fact, it’s almost mandatory for his promises to have a remote chance of success.
And I am confident this will happen, whether President Obama’s promises are met or not!
So as a currency trader and investor, what’s the play on this? Well frankly you can’t trade in the Forex market based on what’s going to happen in the next few years, but you can take a couple of long positions against the dollar. Here are my favorites…
Put 20-30% of your portfolio in physical gold and silver. I’ve been saying this for almost 2 ½ years now.
Buy a currency CD or whole portfolio of foreign currencies. You can roll those over at XXXXXXXXX indefinitely to play long-term trends. (Become a GGIS member and I’ll tell you the name of a great company where you can purchase one of these CD’s).
Buy a couple long-term currency ETFs. But please be advised – you will have to deal with tax at the end of the year on these.
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However you decide to play it, understand that what the President is
proposing could be disastrous for the dollar long-term.
If you missed a past G&G article, click on the link below to visit G&G Associates archive:
http://ezinedirector.com/admin/publisher/archive/public/?fuseaction=a&e=7944575E0843077440
Until the next time!
Asante Sana (Thanks)
Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
757-251-0174 office
866-361-3872 toll free fax
www.gngassociates.net
"Your mind is like a parachute, it only works when it is open."
C. Brown
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