Dollar And Commodity Inverse Correlation Back

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“You guys have it all wrong… The Dow is going to 50,000.”

US$ has continued its dive towards the long-term trend in the 65-70 range using this Trade Weighted Index.

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I do not predict when the trend-level will be reached, but am surprised with the recent acceleration towards normalization.

The inverse correlation to WTI$ appears to have been reestablished. The inverse relationship is a combination of global trade economics and market psychology which is too complex to predict with any precision. My guess is it will continue to strengthen considering the nature of Momentum Investors. Net/net you should see benefits begin to build for those companies with sensitivity to US$, i.e. most US manufacturers and commodity related.

We should expect $WTI to rise along with other commodities which are US$ priced. As this occurs, many will believe inflation is returning and market psychology will pile many into commodity related companies. We should expect higher markets, perhaps sharply higher as a major theme builds which converts many who are sitting in Fixed Income back into Equities to avoid the perceived ravages of inflation.

Portfolios need to be exposed to the effects on markets associated with a weakening US$ in my opinion.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.