Big Rally In The U.S. Dollar Has Run its course

European Stocks

Europe continues with QE, and this will have a very positive impact on European stocks in the longer term.

As we have stated in several past letters, in the U.S., QE had an immensely positive effect on U.S. stocks, and we believe that European QE will have the same kind of effect on European stocks.

Over the last few years, U.S. stocks were also aided substantially by buybacks and rising dividends. Europe will enjoy similar effects.

We recommend companies with dividends and positive cash flows -- which will allow them to raise dividends and buy back stock. At this point, Europe is suffering from great fear that Greece will have a banking crisis.

This week, the European Central Bank (ECB) has lent Greece money to finance outflows from Greek banks. It is noteworthy that the ECB has not allowed Greece to sell T-Bills to finance Greek government operations. Some seasoned observers believe that this means that some Greek banks will close as soon as this weekend and foreign exchange controls would be instituted in Greece. If this scenario comes to pass, it would create a selloff in the Euro and lower European stocks. We will view a panic or bank closure as an excellent buying opportunity for European stocks.

We suggest that investors use a crisis of this type to buy hedged big cap ETFs in Europe. Big caps, other than banks, tend to be exporters, and will benefit mightily from the declining Euro. (We are not enthusiastic about European banks.) Such ETFs -- some of which GIM does or will own for clients -- include db X-trackers MSCI Europe Hdgd (NYSE:DBEU), DXGE, and WisdomTree Intl Hedged Equity Fund (NYSE:HEDJ).

U.S. Stocks

We are entering the period beginning in April during which U.S. markets often mark time for a few months. We would not be surprised to see a volatile and sideways market in the U.S. for a few months. Without higher interest rates, we do not see big U.S. or foreign market declines and we anticipate that the markets we favor will continue to move higher throughout 2015.

Over the longer run we see higher stock prices in the U.S., Europe, China, and India.

Commodities and Emerging Markets

In our opinion, with the exception of oil, commodities are not going to do much, and emerging markets for the most part will be quiet.

The US Dollar

Finally, the big rally in the U.S. Dollar has run its course and has moved down for a couple of weeks. If a Greek crisis erupts, the U.S. Dollar will rally soon. If no crisis erupts, the Euro will rally for a few weeks longer. In our opinion, the Dollar will move higher versus the Euro and most other world currencies over the next year.