New menace emerges: The strong dollar

The rising currency has returned as a headwind, courtesy of the knuckleheads in Europe.

By Jim Cramer Mar 20, 2013 9:07AM

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US currency liquidlibrary Jupiterimages JupiterimagesWe know we have to be troubled. It's in us to be troubled, because before the April-to-October period of 2011, the last serious correction -- 17% from top to bottom -- only the troubled survived. You needed to be able to see the punch coming, the counterpunch, and then get back into the corner from which you came.

But other than the fiscal cliff fiasco -- the one that dawned on the market a week after the election and was resolved at the New Year -- it's been a real bad call to be too troubled.

Until now. Now, all of a sudden, you do at least have to be a little paranoid -- not about everything, but about a bunch of things -- be it Wednesday's potential Federal Reserve bolt from hell, or the moment when the Cypriots open the gates of their banks of hell, or a whole new one that's beginning to really play havoc in peoples' minds: the incredibly strong dollar.

We've all stared Cyprus down with the flight to safety into U.S. bonds, the re-embrace of consumer packaged-goods stocks (this I didn't see coming, but their yields look better when bond prices go higher) and, rightly or wrongly, the selling of the financial names. But the real vicious action is in the metals and materials. These have collapsed, viciously collapsed, in the last 48 hours. They're the victims of a renewed Chinese slowdown, perhaps stemmed by Tuesday night's advance, coupled with what could be a lasting menace to earnings -- a strong and getting-stronger dollar.

Look, I understand the thesis. Take the iron ore trade, which is one way and one way only: down. We own Vale (VALE) for Action Alerts PLUS, feel the pain every day, and the general consensus is that if you mine or fabricate iron, you are a goner. It reminds me of the first go-around with Cliffs Natural (CLF), when it was Cleveland Cliffs, a bankruptcy flameout galore. I don't think the consensus is going to be right six months from now. A stock like Vale has already been cut in half. But you try telling that to the sellers who have banged down every bid from $18 to $16 and change.

Copper's been underwater for so long, it's turning green.

But it's the seeming pulverizing in the oils that I am watching most closely. I think this is one that could really snowball if the dollar stays strong, because the supply-demand picture should have tipped to the bears' hands already. Many countries are beginning to produce more oil than ever, particularly the U.S. and Iraq. All the while, the U.S. is using less -- and China, if iron and copper are any judge at all, might be reaching peak usage for now. A stronger dollar could be the clincher here to take the elusive Brent crude down to where it should be -- which, to me, is much lower than where it is now: maybe $10 lower per barrel.  

I know I was -- and am -- spooked about the strong dollar and what it can do to the earnings of the consumer-products companies, including the drugmakers, which have heavy overseas-translations issues. I said goodbye to Kimberly Clark (KMB) the other day on "Mad Money," a goodbye that has almost instantly seemed premature, given the move up in bond prices. But eventually valuations can crimp the upside of almost any security, even one as great as Kimberly Clark. The international-turmoil-flight-into-safety trade can only elevate these for so long.  

Of course, a strong dollar isn't bad for everyone. If the dollar's robust the insurers are going to continue to blast higher, the home plays live on, the utilities are fine, the retailers should be good and the domestic banks will keep on rocking.

But a strong dollar cuts a lot of numbers, including tech earnings, which are heavily weighted toward Europe. As we head into the second quarter we will now, once again, have to consider the strong dollar as a headwind, courtesy the knuckleheads in Europe.

So add a climbing dollar to the list of newfound woes that must trouble a large part of this market, joining the incompetent European regulators and a Fed afraid of the strengths in the economy. Come to accept the hammering that commodities will get every time Europe puts a bid under the dollar.



Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long VALE.



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Mar 20, 2013 9:59AM
It is a sad state of affairs when people think a strong dollar a bad thing and that what the FED has done a smart thing. The low interest rate environment and the falsely propped up market is not good. I am tired of seeing all savers being punished and the retired cannot live on savings/dividend or interest income. We are going to have to pay for the sins of this country at some point why not take the pain and move beyond it and let free markets work as they should.
Mar 20, 2013 10:44AM
The FED is in between a rock and a hard place. All these economic stimulus's and artificially low interest rates have encouraged the U.S. governments politicians to barrow, barrow, and barrow. The U.S. debt is now so large if interest rates begin to rise to more normal levels the debt payments would bankrupt the government. The FED can't let that happen it has to keep interest rates near zero to keep the government afloat, but the near zero rates are artificially driving up the stock markets which leads to a stronger dollar overseas. This is a vicious circle with no pleasant way to get off this merry go round. We will get hurt.    
Mar 20, 2013 10:12AM
This action is reminding me of the end of the dot com era where we would sit and wait for the fed to lower interest rates.  The clue then was the buy on the rumor sell on the news.  So if after Bernanke does his mouth speak and we see some strong selling then it will more resemble a top in my opinion.  We can then conclude the days of the power of the FED are limited and the arbitrage will result in major selling regardless of  FED actions. Remember nearly every international economist says Working Americans may have only 1/3 the buying power as the One World Economy strengthens.  What we really see on these indexes is a DOW of about 7,000, a Nasdaq at 1,000, and the S&P at about 500.  The rest is all fluff and manipulation. I don't care how many street employed analysts you want to parade out, that is the reality.  Stock prices are the result of estimated future profits and dividends, not today's.  And the choice of the New World Order is bring on the misery.   JMHO
Mar 20, 2013 10:34AM
I see the Kool Aid crowd has the markets artificially up on news that Ben Bernanke will continue to keep rapist rates low and keep any actual cash flow off Main Street. A reminder that the Fed pumped Wall Street for 10 straight days recently, but didn't do one damn good thing for the economy or Main Street America. He is concerned-- about unemployment. Yes. Concerned that the truth leaks out that its been manipulated and blockaded since he took over the Fed. Raising rates just to at least react to the raping and pillaging by wealth would be nice. Hey Ben... Cypress said: PISSOFF to  EU Central Banks. A second nation in full default will certainly lead others to follow. Actual JOBS with family sustaining wages is your only defense. Hauling down crap management and forcing it to prove value is the only way to avoid Chaos. Does it begin to make sense now? You cannot print your way out and its the same lesson Andrew Dickson White wrote about in his book: Fiat Money Inflation in France. Where do you go once you've screwed the whole world? We will know shortly, won't we?
Mar 20, 2013 11:47AM
This fiscal cliff is like in Fl. your house is on what you think is solid ground....then you wake up the next day and its in a big sink hole. 
Mar 20, 2013 11:09AM
Nostredumb@zzes articles are starting to sound like they were written by a dyslexic, coked out chimp.

As for all this finger pointing at european regulators this is just another piece of the slow dribble of propaganda cramer and his masters want us to swallow. 

Bankers in the US started these problems and exported them to their greedy, money grubbing brethren overseas.

After stealing our current wealth they had to find a method to steal our future productivity/wealth. Their method of course was to create debt and sell hard assets to the gullible public around the world.

We were all f*cked the minute the governments  handed over the right to create currency to bankers many years ago. Jeffersone knew it, Jackson knew it and Kennedy new it.

It's a shame as there is no solution.
Mar 20, 2013 11:14AM
Globalization was conceived in the boardrooms of America specifically to move production overseas....ask yourself if you have benefited from this.

Btw cramer - I for one am perfectly happy with a strong dollar and I don't give a sh*t that kimberly clark or the tech world relying on europe (which is bull**it anyway) make less money as none of it ever filters to the guy on the street in any case.

Btw any news on which company received your charitable donation last year?  My guess is none - prove me wrong!
Mar 20, 2013 1:40PM
Cramer calling anyone a knucklehead is a stretch.
Mar 20, 2013 12:54PM

The strong dollar coupled with us oil and gas production should be a no brainer to reduce oil prices, shipping costs, and gas pump prices. This should result in more money in the consumers pockets which should spend its way to strengthen the ecomony. As stated metals and other dollar related commodities may decline till the dollar levels out against other currencies.


One downside is imports should rise and exports could suffer a tad.

Mar 20, 2013 10:27AM
First... our global exportation is hinged directly to the exchange rate of our currency. With the exception of a couple of blip days, exports are robust. The issue isn't the exchange value as much as it is JOBS here and abroad. When people work they earn. When they earn, they can buy stuff. Getting RID of the business platforms and inheritors hoarding the currencies of the world and we restore economies. As usual Jim, your Harvard perception of things is delusional. Purging Ivy League thinking from the globe gives us our best chance for survival. Complex isn't better, it's complex.
Mar 20, 2013 10:48AM
We cannot perceive what a quarter point change is on the ACTUAL amount outstanding. We don't "owe" just the $16 Trillion advertised. It's a multi-dimensional game that is way out there. IF more than $1 quadrillion all-told is outstanding, the quarter percent is in the trillions. A reminder that there are three currencies- money, derivatives and debt contracts or notes. Cumulatively-- no currency has value until it funds employment and when it does, the sheer dynamic outstanding kills that employment. We are screwed in ways few can perceive.
Mar 20, 2013 9:54AM
for me at least the stronger dollar and weak european currency has us working our butts off!  we're shutting down 2 facilities over there and bringing all their work here.  i only need a few more years to reach retirement!  this may just fit the schedule! 
Mar 20, 2013 12:47PM
It´s a tough situation to play the markets because of the difference between nominal and real prices, including stock prices. I think sensible people hope that when inflation starts to skyrocket, the Fed will be forced to bail out, but Bernanke seems to be willing to ignore inflation and go for Zimbabwe levels. Then, nominal prices may stay very high. And we all will be paying $20 for a cup of coffee.
Mar 20, 2013 11:53AM

Kind of like seeing Russia having to bail out it's version of the Cayman Islands, consider it a service charge for all that dirty money laundering.  At the same time I like the idea of an EU country being able to tell the Germans so suck it. 

Are we starting to learn that countries that have a banking sector worth many times the rest of their economies is a very unstable thing?  Ahem Ireland.

Mar 20, 2013 12:24PM
Yea and where there is smoke there are mirrors which lead to more smoke and even more mirrors. That guy just needed to feel important.  I don't think he was a very good con at all.  We all knew he was jazzed.
Mar 20, 2013 1:14PM

Well ABS & 4LOM

I'll give you guys one thing, with you 2 posting the post count has gone up 4 times what it was in your absence.


Mar 20, 2013 11:40AM
A strong dollar will push down the price of Gold/Silver.
Mar 20, 2013 12:34PM

Curious, but won't we own Ireland if we agreed to Fund them with $16 Trillion...Guess maybe they are a Filtering Bank to the EuroZone....??


No wonder we had so many St. Patrick's Day Celebrations....WE OWN THEM...


Our Bankers are the Snakes, that St. Paddy didn't get rid of...??


OMG, I sound like Fatty Cakes.....My Bad....yuk,yuk,yuk....omg, i sound like uh,uh...?

Mar 20, 2013 9:37AM
We advise Caution Today......It may be a Great Day...!!!
Mar 20, 2013 4:14PM
Plenty of knuckleheads running our country including the big one in charge. 
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