The Richebacher Letter
l2l7 St. Paul St., Baltimore, Md. 2l202
FEBRUARY -- The impending U.S. recession should basically be seen as a
repeat of the 1990-91 "post-bubble" recession. But the underlying and financial
imbalances strangling the economy are far worse today. Therefore the
impending recession will run much deeper and last far longer than the
consensus expects. Excess of confidence is the last and final excess. Once
people begin to realize the extraordinary severity of the unfolding recession, the
false confidence will, after all, collapse -- with dramatic effects, particularly on
the market and the dollar. American policy-makers, like most economists,
expect no more than a gentle depreciation of the dollar, reflecting a mild
recession. Seeing the worst postwar recession unfolding, we expect the dollar
to fall to a new postwar low against the European currencies. A serious dollar
crisis, cutting off capital inflows, would badly hit U.S. stocks and bonds alike,
putting long-term dollar bonds at risk. The dollar-based investor who switches
into eurobonds can look forward to a very big currency gain.
-- Kurt Richebacher |
