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Outlook 2010: The Dollar Holds the Key, Todd Harrison Says

Posted Dec 11, 2009 10:18am EST by Aaron Task in Investing
Related: ^DJI, ^GSPC, GLD, UUP, SPY, DIA, QQQQ
It's hard these days to forecast what's going to happen in the next 12 minutes, much less the next 12 months. Still, as 2009 comes to a close, we can't help but ask our guests to predict the big themes of 2010.

Todd Harrison, CEO of Minyanville.com, is a short-term trader by nature but isn't averse to taking the long view, either. With the financial crisis not over by his reckoning, the potential for "societal acrimony" (read: populism and class warfare) and "socio-economic and geopolitical unrest" are high heading into 2010, as he writes here.

In terms of the markets, the dollar holds the key in 2010, Harrison says. Because this seems obvious to most now, Harrison says the currently tight correlation between the dollar and other asset classes is likely to break down in the coming year.

So which way will it break?

"As we saw last year, the dollar and asset classes can both decline [in tandem] but I don't foresee a scenario where both the dollar and asset classes can rise," he says.

Although Harrison does not believe the financial crisis is over, as discussed here, and says more sovereign debt defaults are "inevitable" in the coming years, he says the credit markets are relatively calm heading into 2010. That suggests there's a "window" for the 'reflation' trade to continue, the trader adds, citing S&P 1120 as a key near-term technical demarcation.

Longer-term, however, he fears we have, once again, kicked the proverbial can down the road and our children will have to pay the ultimate (and actual) price.

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