Inside the Dollar/Oil Trend Reversal, A Bottom for Financials?, The Next Megatrend, China’s New Record, and More!

by Addison Wiggin & Ian Mathias

  • Bizarre trend reversals slam markets… what’s really behind the new dollar and oil trade
  • Dan Amoss on the potential financial bottom set last month
  • Two massive real estate moves… Russian buys $750 million house, SWF eyes billions in U.S. foreclosures
  • Chris Mayer and Frank Holmes on the next great investment “megatrend”
  • China overtakes U.S. in another “world’s biggest” title
  • Plus, free tickets to I.O.U.S.A.… do you qualify?

  “The market can stay irrational longer than you can stay solvent,” John Maynard Keynes famously uttered a long time ago. If the father of macroeconomics were alive today, we bet he’d be singing the same old song. Today, the market is looking exceptionally irrational… will you remain solvent?

  For starters, the greenback. The dollar index is currently resting at a six-month high, due mostly to a massive rally at the end of last week. It’s up to nearly 76. As such, the euro suffered its worst day versus the dollar since 2001 on Friday. Europeans watched their currency lose a full 3 cents that day, to a low of $1.49 on Sunday.

What should have caused such a violent euro pullback? Maybe the sudden outbreak of war in Western Europe. Or perhaps a very large unexpected interest rate cut from the European Central Bank. Did President Bush unveil a massive proposal to balance the budget and repay our debts?

Nope… too busy keeping his pimp hand strong

So why did the dollar rise and the euro plummet? Jean-Claude Trichet, head of the ECB, said economic growth was slowing in the eurozone faster than he anticipated. He’s the same man who has kept euro interest rates steady while the U.S. has embarked on an eight-month cutting binge. That’s the same bunch of countries, mind you, that have avoided the temptation of taking on massive, unpayable debts. They haven’t been at war for the last six years. They aren’t at the epicenter of the biggest financial and housing crisis of this generation, either.

But that’s no matter this week. The dollar is back en vogue.

  “The Great Oil Bubble Has Burst,” reads a headline in the latest U.K. Telegraph, proof that the sentimental tide has turned on crude oil. Only a few months ago, traders of the world were looking for any excuse to buy oil. After all, emerging nations were growing rapidly, showing no signs of reduced crude consumption over the next century or so. Demand was outpacing supply as OPEC nations struggled to keep up. And the dollar — the great reserve currency of the planet — was being exposed for what it is… paper backed by a government that is quickly losing its position as the world’s indisputable superpower.

But that was SO last quarter. Oil’s at $116 today, 20% from its high and in an official bear market. We’re seeing every reason to sell oil being executed and every reason to buy the stuff being ignored. For example, Kurdish rebels in Turkey blew up the Baku-Tbilisi-Ceyhan (BTC) pipeline last week, temporarily cutting off supply from Asia to the Turkish coast.
Then, Russian President Putin… ahh, sorry, Medvedev started a war in Georgia. Not only did one of the world’s biggest oil and gas players go to war, but it did so on top of a vital energy corridor — including the BTC.

“The only non-Russian oil and gas pipelines from the Caucasus to the West go through Georgia,” Dan Denning reminds us. “There is clearly an energy angle to this latest conflict, whether or not it is what lit the fuse to the whole thing.”

Have oil traders responded? Hell yes… light sweet crude rallied nearly a dollar this morning before falling to $113.

Gasoline is getting cheaper and cheaper, as well. The national average is $3.81 today.

The U.S. stock market, as a result, is booming. The Dow enjoyed two 300-plus-point rallies last week, a rarity even in a bull market. It opened 3.6% higher this morning than it did last Monday, a six-week high.

“In the eyes of most mainstream investors,” Dan Amoss tells us, “July 15 was the bottom in financial stocks. I strongly disagree. I expect another ugly leg down in financial stocks before the end of 2008.

“Recent bank earnings reports have all hinted that we’re still in the early stages of the credit loss cycle. What we’ve seen thus far has been the insolvency of those who levered up their personal or corporate balance sheets to buy houses and mortgage securities at the top of the bubble.

“Home equity, credit card and auto loan delinquencies have just started getting bad. The fallout from rising unemployment and shrinking discretionary income is just starting to impact corporate default rates. It makes sense to hold onto, or add to, long-dated puts on financial stocks.”

Dan has Strategic Short Report readers adding to short financial positions, many of which are still near the “buy” price. Gain access to the SSR portfolio, here.

  Another reason to be wary of the financials rally: The SEC’s ban on naked short selling expires tomorrow. Naked shorting — the practice of selling a stock short without owning or borrowing shares — was labeled “abusive” by the SEC during the height of July’s sell-off and promptly banned for one month. That ban will run out Tuesday, and we hear further SEC regulation might be more than a month down the pipeline. In other words, unless we see another emergency intervention, naked shorters will get at least one last go-round before the music stops.

  The global real estate market attained a whole new level of absurdity today, as well. An unnamed Russian billionaire just bought one home — just one — for about $750 million.

This “house” is located on the French Mediterranean Cote d’Azur. The purchase price more than doubles the previous record. We hasten to add, Russian billionares now own the most expensive homes in the U.S. and in the world.

  Another massive store of foreign wealth is looking to scoop up disount real estate in the I.O.U.S.A.

The New York Post says this morning that an unnamed SWF has assigned $29 billion to buy foreclosed U.S. properties. According to the paper, this unidentified fund has been hiring mortgage brokers all over the West Coast and commanding them to start bargin hunting for single- and mutlifamily dwellings. That much money could buy 150,000 average U.S. homes.

Heh, we can see it now… please make your monthly checks payable to خليفة بن زايد بن سلطان النهيان‎.

  OK… so there’s no shortage of irrational behavior in the market this week. Where’s the “smart money” headed? In short, the next “megatrend.”

“Investors are always on the lookout for a big-picture idea,” Chris Mayer notes, “that’s so powerful and long lasting that you can confidently ride your investments through the ups and downs that market life presents. Frank Holmes, one of my favorite speakers at this year’s Investment Symposium in Vancouver, calls these ‘global megatrends’ — ‘sustainable and substantial growth in capital expenditures in any country or sector."

At the Symposium, Holmes offered a couple of past examples: Massive postwar infrastructure growth in the ’50s and ’60s. The equally massive tech and data trends in the 1990s. And there is the present megatrend, which Holmes calls "unprecedented change in global growth driven by globalization, urbanization and wealth creation, [which] leads to a global infrastructure boom on a massive, intractable scale.

“That’s quite a mouthful, but I believe Holmes is right,” says Chris, no stranger to this trend himself. “Holmes also cites numerous studies — the d Booz Allen Hamilton study, as well as ones by World Energy Outlook, the U.S. Dept. of Transportation, the OECD and a host of other official-sounding groups. But the total bill, give or take a few tril, is about $41 trillion out to 2030 — for water, power, roads and bridges, as well as marine and seaports.

“This is your next megatrend. Don’t miss it.”

For Frank’s specific advice on capitalizing on his “global megatrend,” we offer two outlets: Pick up MP3 and CD copies of this year’s Symposium.  They have Frank’s favorite ideas and stocks, along with those of all our other speakers. Or check out MEGAX, Frank’s megatrends fund.%3


Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More