One Hundred Dollars For A Hamburger
By Tom Dyson
May 11, 2007
"Man, London's expensive." It was the first thing Steve said as he came in the door to our office.
Steve just returned from my hometown, London. He had meetings with two companies. The first company runs a fund of Macau real estate investments.The second was Stanley Gibbons, the world's oldest stamp, autograph, and collectibles company.
"I had a dinner with the big Macau investor night before last. It was in the hotel lobby. Nothing special. We both ordered burgers and Diet Cokes. I don't remember if we had an appetizer as well, but I don't think so."
"Somehow, the bill came to 58 pounds… that's $116!"
Then, the hotel mixed up Steve's reservation. They gave him a free upgrade to a suite with a view of the River Thames. The suite's rate: $1,000 per night. Steve rode in two taxicabs. He asked both cabbies how much their properties cost. The first cabbie lived in a house worth $800,000. The second paid $500,000 for his flat.
Here's the thing: I don't think London is expensive. Let me explain...
According to the Mercer Survey, London is the fifth-most expensive city in the world (after Moscow, Seoul, Tokyo, and Hong Kong.) But it's not much more expensive than Paris. Or Geneva. The Scandinavian cities are expensive, too. Prices in the eastern European cities are catching up now. My friends even tell me some of the North African cities are even quite expensive these days.
My point is, when you look at the big picture, London is not so expensive. It only feels expensive to Americans because the dollar has declined for the last five years against virtually every other currency on the planet.
Now the dollar is a great value.
For the price of a night out in London, you can buy a complete set of patio furniture... or a round of golf at one of the nicest country clubs in Florida... or a new computer, perhaps.
The dollar has one of the highest interest rates among the world's major currencies. It's absurd that the dollar could be this cheap. High interest rates usually attract investors.
Everyone thinks the dollar will keep falling, too. The latest Daily Sentiment Index (DSI), from MBH Commodity Advisors hit 90% dollar bearish. Sentiment tracker Market Vane is at 83% dollar bearish. And the latest Commitments of Traders (CoT) data show a record amount of bullish bets for euro versus the dollar.
"There are no dollar bulls left," says John Percival in his latest Currency Bulletin. When everybody's on the same side of the trade, it's best to bet the other way.
Long-term trends support the dollar, too. Europe's population is stagnating. Taxes are rising. And Eurozone supply of money is increasing much faster then U.S. money supply, right now.
One final point. Look at the chart in Market Notes, below. The dollar has started a bounce.
In sum, London is not expensive. The United States is cheap... because the dollar is so low. Everyone thinks the dollar is going lower... the perfect situation for a short squeeze. The interest rates are in your favor and so are the fundamentals. It's an easy trade, too. You buy the dollar. If you're wrong, you close the trade when the dollar hits a new low. You'll lose about 1%. If you're right, you'll make 10%... or even more if you use leverage.
Good investing,
Tom
P.S. For folks without a firm grounding in currency futures, just about the easiest way to trade the dollar is through special mutual funds, such as those offered by Rydex and Profunds. You can visit Rydex here. You can
visit Profunds here.
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