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10 Reasons the Dollar Is Turning Around

Posted March 31, 2008

“With the greenback getting clubbed, China shocked the world recently by suggesting it would diversify away from the dollar. To which I simply ask, Into what?” — Louis Basenese

by Louis Basenese

Baltimore – (TFN): The world is short the dollar right now. But that could be a big mistake. The end of the weak dollar is nigh…

To be sure, the outlook for the ailing greenback - finally - is getting healthier, which makes it the perfect time to go long.

I know this is a wildly unpopular and completely contrarian stance, so let’s get right to it. Here are the top 10 reasons I think the dollar’s headed for an inevitable reversal…

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1. If Not the Dollar… Then What?

With the greenback getting clubbed, China shocked the world recently by suggesting it would diversify away from the dollar. To which I simply ask, Into what?

The likely suspect is the euro, but there’s not enough liquidity to handle the demand. Plus, it’s still a pre-pubescent, experimental currency, not one governments can invest in with 100% faith. Moreover, with two-thirds of foreign reserves in dollars, it would take more than eight years to replace the dollar as the currency of choice. Bottom line, while many complain about the decline of the dollar, there’s not much they can do about it now… except complain.

2. The Fed: From Enemy to Ally

Currently, the Fed’s trading off higher inflation and a weak dollar for the promise of economic growth. In the short-term, this obviously weakens the greenback. But once the credit markets return to normal (or almost normal) and a recession is averted or exited, expect the Fed to act swiftly, raising rates as its main priority swings back to fighting inflation. This will instantaneously strengthen the dollar. Read on to learn eight more reasons.

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