2012: Year of the Dollar or Default? Both Says Chandler


Americans have a love-hate relationship with the dollar. We all want more money in our pockets, but when our currency gets too strong, it has a way of biting back and costing us even more than the benefits we reap from cheap imported goods.

While Morgan Stanley and other shops, have gone on the record labeling 2012 as "The Year of the Dollar," Brown Brother Harriman's chief global currency strategist, Marc Chandler is more nuanced.

"I don't know what that really means," Chandler says in the attached video. "But I do think that many international fund managers are underweight U.S. assets and equities because stocks have underperformed so much."

This despite Chandler's belief that foreigners will move more money into the U.S., while Americans keep more of their money here at home. Even so, his 12-month target for the Euro vs. Dollar is $1.30, which is where we are now.

Why so seemingly incongruous?

Because a lot of the move has already happened, with the Euro down about 13% against the Dollar from it's high in May, while the Dollar Index is nearing a 52-week high and up 10% in the 2nd half of 2011 alone.

One story that is also still developing and demanding Chandler's attention is the economy, especially since Eurozone countries are attempting to implement fiscal austerity in order to balance their budgets. It's a move Chandler says will push the region into a deep and protracted period of slow growth and recession, not to mention default.

"I think technically Greece has already defaulted," he says, adding that a Eurozone defection and devaluation wouldn't be the panacea that many say it would.

"Whatever competitiveness they (Greece) gain in the short run, they loose in hyper inflation, plus all their foreign debt is still denominated in Euros," he says. Further, Chandler thinks it would lead to a 100% default, rather than a "50% haircut" fight, as well as a ''horrible banking and political crisis."

The good news, globally, is that Chandler is in the soft landing camp on China, arguing that they have the ''enough money and enough political will to prevent a sharp downturn." And the U.S. won't double dip into recession. The result should be enough to dampen the slack being fed into the system from the EU.

"To me, Greece is like Lehman," Chandler says. "It's not like a cancer you just cut out."

"The Greek story has not been put to bed," he says.

View Comments (23)