Legendary futures trader, Dennis Gartman, says the euro has had it, and has a long way to go before it finds a bottom. He is urging investors to short the European currency and go long Canadian and Australian dollars against it. They may resolve Greece, but not Portugal, Spain, or Italy.
The strong dollar is also causing a lot of damage to the commodities charts and their derivative equities, with those for Freeport McMoRan (FCX) and US Steel (X) broken. The government January crop report that forecasts the corn harvest will leap from 12.8 to 13.1 billion bushels is a total game changer, as genetically modified seeds are delivering incredibly tough, weather resistant strains and surprisingly large yields. Gartman is now repositioning his portfolio to go long industries that benefit from falling food and commodities prices, and go short producing industries.
Gold is also taking a hit, so he prefers to go long against weaker sterling and the euro. He hates to buy gold, as he is not a foaming at the mouth gold bug, but for now the fundamentals are with the barbaric relic. Fiat currencies are not going to bring on the demise of Western civilization.
Watch the euro/yen cross for short term market direction, as it is a great barometer of global risk taking. Seeing where the big hedge funds spent their borrowed yen is a great “tell” for financial markets.
Although he believes the economy is out of recession, it is not returning to the heady 3%, 4%, and 5% the economy sees in its rear view mirror. Instead, it is heading for the “square root” scenario I have been arguing for, which he refers to as “a tea cup with a handle.” With bankers reverting to their traditional 9:00-3:00 work day, the credit won’t be available to do any better. Why should they bother lending to customers of dubious credit quality when the steepness of the yield curve offers such a great free lunch?
Although there is much to worry about with Treasury bonds, it could be a long wait before we see a big move, and the early players could get bled dry by the cost of carry. Look no further than the JGB market, which some hedge funds started shorting 15 years ago, to their constant chagrin.
US stocks are going nowhere, and could end up the year unchanged from where we are now, after suffering a big dip in the interim. China (FXI) is another story, which is leaping from the 14th century to the 22nd. Dennis also likes stocks in Brazil (EWZ), Australia (EWA), Canada (EWC), and Indonesia (IDX).