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Here is one man's opinion on the dollar and oil prices. An interesting read.

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Max Whitmore has more than 40 years of experience in the financial services industry, starting his career as a broker with Paine Webber (now UBS) and later establishing a venture capital firm.

Whitmore has been recognized as a top trader of S&P futures, often ranking as the No. 1 trader out of a very select group of approximately 35 S&P traders nationwide.

His proprietary Super Chart system, which has called every major turn in the market since 1965, played a big part in landing him those honors.

He currently edits Max Whitmore’s High-Yield Income Investing.




The Dollar and Oil — The Truth



Friday, May 30, 2008 8:21 AM



By: Max Whitmore



About a month or so ago, I wrote a column that was a tongue-in-cheek, fictional story that addressed the oil speculation that was going on at the time. Of course, that speculation is still going on. Well, this column is one where I am going to tell it like I see it, warts and all.



I have been in this business for over 40 years, as you all know by now, and I have seen a lot. Some of it has been very good and some of it has been very bad. I don’t count myself as having seen it all, but what I have seen helps me get to the bottom of problems in this business.



I want to address two much talked about topics, the dollar and oil. Both of these are the most misunderstood of all the current investing subjects out there that occupy financial print and talk space. Now, don’t get me wrong here. I don’t claim to be able to see every nook and cranny of these subjects. But, what I do see are the elements that repeat the oldest scams around.



The Dollar



The most overused phrase today is the one that says “the dollar is declining fast and is in deep trouble.” The first implication is that the dollar needs to go much higher and fast. The second implication is that the dollar is out of control and about to fall off a cliff to oblivion. The third implication is that the Fed is helpless to do anything to help the dollar. (Do all sorts of special offers to make money from the dollar situation ring a bell?)



Well, as I see it, these implications are wrong an all counts. First, the dollar is nowhere near deep trouble. It is finally on a near-level economic playing field in the world of commerce, and we are making fast and deep inroads into marketplaces all around the globe.



After all, one of the very important ingredients of life is about successful commerce. And we are finally becoming a success. We are more and more being seen as the gorilla in the china shop, a truly tough competitor. If you doubt that, ask the Europeans and others who are fast losing business to us these days.



Yesterday, in fact, due partly to our strength in exports, we had a 2.5 percent jump in durable goods production in April, after taking out the transportation component, and non-defense production was up 4.2 percent ex-transportation. Doesn’t sound like the end of the world to me.



Second, a higher dollar will kill this fast growing export business that not only generates wealth for our country, but adds good paying jobs, jobs we always need. And as a seasoned trader, believe me, if the dollar was about to drop off the cliff, everyone would know it and be buying other currencies in huge droves. That is just not happening. Why? Because the dollar is still the issued currency of the most powerful economic engine the world has ever seen. Others may not like us because of that power, but our dollar, in spite of all the badmouthing it gets from abroad, and sadly even from some home grown economists, is what they want.



Now, lest you misinterpret me, we do have problems in our financial system. We need to bring the political use of economic power under control. Yes, our debt can eventually hurt us, but we are not there yet. For now, we do need to get our spending habits on the federal level in order. And we need to continue to be aggressive as exporters. Any backing off there will clearly hurt. It is a fine balance, but I believe we are up to the task of controlling our excesses and keeping the dollar as a very much wanted currency.



Look, political and economic conditions will change over time for every country and different currencies, not unlike different stocks, will be favored — witness the 12 year China episode, which now is slowly fading (despite what Jim Rogers would have you believe).



It is this endless process of currency adjustments that will go on forever that balances one economy against another in commerce. And as long as the value base of a country is not a fixed asset (gold, etc.) but a perceived value, this constant adjustment will continue.



Lastly, the Fed is hardly impotent when it comes to defending the dollar if the dollar sellers get too aggressive. The Fed chairman said recently that the dollar would be defended, and he quickly added the words “if necessary.”



The “if necessary” part tells currency speculators that the Fed sees the dollar well placed at the moment. So do I. And if the Fed needs to, believe me, they have the power to knock other currencies down and lift ours up. This gorilla has many years before its power is even approximately matched anywhere in the world. That is an undisputed fact in every financial circle.



If you need further evidence, I call your attention to the Bear Stearns event. It is acknowledged by astute financial centers around the world that our Fed saved the world’s financial system from possible implosion. That, folks, is power!