Dollar Turning Point?

Dollar Turning Point?

A Financial Armageddon subscriber recently asked me (in a nice way) if I was too negative in my economic outlook, and if I "was capable of a semi-bullish statement of any sort."

I responded that there is always the risk I am wrong in my views. Indeed, I added, when I first began to contemplate the prospect of an economic meltdown (when most economists were expecting the "Goldilocks economy" to continue for the foreseeable future), I underestimated the degree to which authorities would pull out all fiscal and monetary stops to try and keep the leaking ship afloat.

But in the end, I said, nothing has changed. The factors and circumstances that led me to write Financial Armageddon in the first place (e.g., extraordinarily high debt levels) are still there, and in some cases things are much worse than they were four years ago.

But as to my correspondent's second point, I have been known to be bullish on occasion. Those who have been following my work since the crisis began will recall that I was predicting a stock market rebound in March 2009 (I am on the record in several places). Admittedly, I did not anticipate a two-year, 100% rise. Nevertheless, I've learned the hard way that when most investors are on the same side, even if it makes sense longer term, Mr. Market usually finds a way of proving them wrong, at least temporarily.

With that in mind, I wrote a post last week, "Now Is Not the Time," in which I argued that it was risky to be betting on further dollar weakness right now because sentiment towards the currency had become so lopsidedly bearish. As proof, I cited nine recent articles from a variety of business news outlets that made it clear the bulls were few and far between. Other reports since then have noted that speculators have been shorting the greenback with relative abandon.

Today, however, I came across what may well be the best evidence yet that a moment of contrarian reckoning -- that is, a dollar rally -- is at hand. I refer you to the cover story, "The Money Whirl," in this week's Barron's.

As was the (in)famous August 1979 BusinessWeek issue proclaiming "The Death of Equities," which preceded the greatest bull market in history, or the June 2005 Time magazine cover story, "Home $weet Home," which marked the peak of history's biggest housing bubble, when mainstream publications feature boldly assertive reports about popular and long-running investment themes that is often a bell-ringing moment, signaling that circumstances are set to change -- perhaps dramatically.

Is history about to repeat itself?