Have you ever noticed that whenever the dollar hits a new low, the price of oil erupts?
It’s no coincidence.
By the Fed substantially cutting interest rates last week to shore up the housing market and correct this credit mess, they weakened the U.S. dollar.
While I’m a big fan of the Fed, I do think this is something they have to be very careful about. Yes, cutting rates obviously spurs our economy. More builders can build houses, more folks can finance them and more retailers can then furnish them.
However, the faster the Fed cuts interest rates, the harder the dollar falls. (To learn more, read Why the Falling Dollar Equals Big Profits in 2008.) And consequentially, causes oil prices to skyrocket. See, because crude oil is traded in U.S. dollars. So, when the dollar is low, other global currencies like the yen and the mark are stronger, which in turn means that people in other countries can buy more oil for less money. That’s exactly what we’re experiencing today.
So Much for Supply and Demand
This relationship between the U.S. dollar and oil prices is nothing new. We’ve seen this direct correlation since late 2002. However, in late 2007, I noticed that the second the U.S. dollar slips during the day, crude oil prices spike that night. Clearly, the folks at OPEC don’t care if the dollar shrinks, since the more it falls, the more they make! (To get a crystal-clear picture of the relationship between oil prices and the U.S. dollar going all the way back to Dec. ’02, check out this chart. The results are truly amazing!)
My concern is that if the Fed cuts interest rates too much, they’ll deflate the dollar, and we’ll see oil prices soaring past $120 a barrel in the next few months–right smack in the middle of the summer driving season when most Americans take time off to drive across the country or head to the beach.
Goldman Sachs even issued an ominous report recently stating that $200 per barrel oil could be a reality in the not-too-distant future in the case of a “major disruption.” Of course, this is a worst-case scenario, but when was the last time you would have ever thought you would pay more than $3.25 for a gallon of regular?
So is there any good news for American investors? You bet!
>
Home-Grown Profits
Almost all commodities are traded in U.S. dollars, so as the U.S. dollar weakens, commodity prices have soared. According to the Bank for International Settlements, the dollar is involved in 86% of the $3.2 trillion in daily currency transactions around the world, often as a middle step in exchanges between two other currencies. While this is down from 90% in 2001, no other currency comes close to impacting currency and commodity transactions.
The good news is, thanks to the simple fact that the United States dominates the commodity market, commodity-related stocks are booming!
While we’re not mining for gold out West, my Blue Chip Growth subscribers are finding themselves profiting smack dab in the middle of the American heartland!
See, the U.S. remains the breadbasket of the world, and our homegrown seed and fertilizer companies are raking in the profits. Not only are corn prices near their 12-month high, wheat prices have hit an all-time high, and coal prices have risen a combustible 42% this year alone! Now, while I don’t have any coal stocks on my Blue Chip Buy List, this major railroad stock is helping transport much of this coal where it needs to go!
Profiting From the Dollar’s Demise
Thanks to a weak U.S. dollar, exports are booming, and the vast majority of the stocks in my Blue Chip Portfolio are in fact prospering. Stocks like Apple (AAPL), America Movil (AMX), and Monsanto (MON) continue to pile on the profits for my Blue Chip Growth subscribers! In fact, our entire portfolio finished 2007 up 29.8%–that’s six times better than the S&P 500 up only 5%–earning us a Top-10 performance rating by Dow Jones MarketWatch.
If you are ready to start profiting from the dollar’s demise, sign up now for your 6-month risk-free trial subscription to Blue Chip Growth! That’s right–take 6 full months to decide if Louis Navellier’s Blue Chip Growth is right for you! If you are not fully satisfied, simply cancel your trial subscription at any time!
