Sell the Dollar, Buy the Rouble

Rob Mackrill - Tue 04 Dec, 2007

Looking ahead a little... Where should we look to make some money in 2008? Therell be plenty of suggestions coming up soon enough, but heres a few from the likes of Goldman Sachs, Jim Rogers and Stephen Roach to get the juices flowing... Last week Goldman Sachs came up with the pick of its currency trading ideas for 2008. These included...

Looking ahead a little...

Where should we look to make some money in 2008?

There’ll be plenty of suggestions coming up soon enough, but here’s a few from the likes of Goldman Sachs, Jim Rogers and Stephen Roach to get the juices flowing...

Last week Goldman Sachs came up with the pick of its currency trading ideas for 2008. These included:

Sell the US dollar buy Malaysian ringgits and Singapore or Taiwan dollars.

Buy the Brazilian real, the Czech krona and the Russian rouble against the British pound and the US and Canadian dollars.

Sell the pound and buy yen... Sell gold too.

Goldman sees a 15-20% drop next year and thinks the dollar is steadying. Chief economist Jim O’Neill seeing it appreciating. Mmm, short term correction, Jim, or end of the bull? These are ‘trading’ ideas, so by implication short-term - we’ll assume ‘correction’. As Gold Investments points out, Goldman’s call comes just two months after suggesting investors buy and two days after a fellow Goldman analyst, Oscar Cabrera, proclaimed the average gold price would rise to $800 in 2008 against $687 in 2007.

Goldman also noted recently Japanese stocks were as cheap as they have been in 33 years. This is part of the reason Moneyweek editor Merryn Somerset-Webb is such a bull on Japan.

In the opposite corner on the dollar is long time friend of the Daily Reckoning, Jim Rogers. He is nothing if not consistent...and clear. His message is get out of the dollar, buy commodities, teach your children Chinese (er, Mandarin?) and look to China for investment opportunities. Something he explores in his new book A Bull on China. Businesses such as tourism and agriculture are going to be huge he believes, as are cars... China has a mere 24 cars per thousand, against the US’s 700 per thousand. And, lest we forget, China has about four times as many people...

We don’t doubt the opportunity but wonder at the timing. We know this to be a very expensive stock market; it was described by Warren Buffett as “too hot” and by Aberdeen Asset Management as “over-valued”. Still there will doubtless come a time when an entry point appears...

Over at Morgan Stanley, Stephen Roach is “very optimistic” on India. It’s been “off the radar” for many investors on account of being in the shadow of China, but “I don’t think there’s any turning back here,” says the MS Asia chairman.

He’s less bullish in the near term, though. In a Bloomberg interview he sees a US recession as “more likely than not” and a global downturn in 3-6 months.

“The key call on the subprime crisis is will it infect the American consumer? I think it absolutely will.

The US has been a housing dependent consumer for the last 5-6 years, consuming to an excess in a way no country has ever done. As consumption goes down in the US it will have a negative impact on the US economy and those who export to it. Thus far the slowdown has concentrated on homebuilding which not a global sector, but as it spreads to consumption the world will find out it is not as fashionably decoupled from the US economy as it thinks, says Roach.

To illustrate the point, he produces a telling metaphor for the “main engine” of the global economy...the US consumer...

“The American consumer is a big gorilla on the demand side of the global economy. Last year it was a $9.5trn consumer...China is a $1trn consumer, India a $650m consumer.”


*** The cost of banks lending to one another has spiked again…

One month sterling is at its highest level for nine years at 6.7%, euro LIBOR is at 4.8% and dollar LIBOR at 5.2%. Banks want to close their books, reports the FT by way of explanation.

What if it spills into 2008?

“We are now in the sixth month of the credit crisis. Funding costs have gone up for everyone," says Suki Mann Société Générale credit strategist.
"Although the year-end is playing a big part in the lack of liquidity, there is a worry it could go on into the New Year and that means trouble."

*** An inflationary warning from utility switch website Simplyswitch.com on energy costs...

This has been a good year for gas and electricity prices. They’ve fallen by a half and a third, respectively, though on average consumers have seen a good deal less than that in their bills.

Next year’s not looking so good for gas prices. They’re creeping up again. Increases of up to 20% are expected in the New Year. Something Merv ‘the Swerve’ and the MPC crew will be keeping a watchful eye on before firing their next monetary arrow at the CPI target.

*** President Putin’s party won a resounding victory in the Russian parliamentary elections, say reports. Was the result was engineered so the president could remain the ongoing power, albeit behind the throne? Says the Foreign Office:

“The government is concerned about allegations of electoral malpractice which, if proven correct, would suggest the Russian elections were neither free nor fair.”

The leader of an opposition party, Boris Nemtsov, said that people were being forced and threatened to vote on pain of losing salaries or pensions. Gordon Brown might be wishing he could get away with such coercive “democracy” when he finally braves an election.

*** Food inflation talk is “hype” according to Tesco. Food inflation fell in the third quarter compared to the previous year.

No doubt there’s truth in that, but the food retail giant does speak from a lofty perch. When one in seven retail pounds in the country are spent in your stores you command a hefty commercial bulldozer with which to flatten costs, even in a price squeezed supply chain… 

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