Prague Twin

Monday, May 08, 2006

Big Week

With the markets hitting half-decade highs on Friday, the dollar continuing its precipitous slide, gold sitting on a spike, and oil hovering around $70, all eyes are on this week to see where we go from here.

Word on the street is that the dollar could be looking at $1.40 to the Euro. Short term, however, there is some thinking that it will correct back down to $1.24 (it is almost $1.28 right now), but that is now the bottom for the dollar. As fast as it has lost 7 cents on the dollar, the same event (G7 meeting) resulted in a quick 11 cent slide. This thing could still have legs.

Warren Buffet has a big bet against the dollar right now, although it isn't as big as it was. Here is a guy who has a $45 billion fund. Add to that the fact that people make their living by doing what he does. Here is a guy who can move markets by himself, and he is betting agains the dollar and said this morning that he had made several billion betting against the dollar on foreign currencies, but that his plan now involves owning more foreign assets in a broader plan to profit from the weak dollar. Ouch.

We get the deficit number on Wednesday and the trade deficit on Friday. Both are going to be crucial for the dollar, but the deficit number is especially important becuase it is the April report that includes individual tax receipts. It is a big test for those who expect more income from lower taxes. We will see on Wednesday.

I'm going to predict better than expected numbers out of the states this week resulting in a correction for the dollar. However, I suspect we will see 1.2850 before there is any relief for the dollar bulls.

I have to suspect that we will see a slight correction for the stock market, but after that I won't be surprised if it keeps going up. A correction in the dollar, however, could trigger some profit taking from foreign investors who have seen their stocks swell but their profits get eaten up by dollar weakness.

Oil looks to have hit a double top, and inventories are up so we may see a correction back down around $66, but it will be a higher low than the last one, setting up a higher high the next time around. That is what to expect this summer when driving season kicks in.

Gold is correcting slightly. Gold is telling me inflation is right around the corner. The gold chart is the steepest right now.

It is going to be a fun week.


  • Isn't gold a 'fear for the future' indicator? If I thought inflation was coming, I'd buy real estate (if I had any money).

    By Blogger Roger Fraley, at 1:22 AM  

  • Yes, it is. That is what is bugging me. It is also widely considered a hedge against inflation (which is also bugging me). I think the rise in real estate is a precurser to inflation, but that is just my opinion. High housing prices today indicate that money will not be worth as much in the future. I'm probably wrong on this point, but it makes sense in my world.

    The point is that if you have money, buy something: gold, real estate, whatever. Money is not a good way to hang on to equity. It can evaporate.

    By Blogger Praguetwin, at 5:11 PM  

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