Andy Xie sees Dollar Index hitting 100 in coming rally

Andy Xie's latest Dollar improving says the greenback could stage a major rally due to the Federal Reserve lifting interest rates to 5% in order to combat inflation.
In addition to the interest rate, capital will flow from emerging economies to the US starting in 2011. The asset inflation in the emerging economies is sustained by momentum. As soon as the momentum stops, investors will realize that asset prices in the emerging economies are much higher than in the US even taking into account their higher growth potential. Capital flow will reverse then. It would be similar to what happened in 1996-97. A long period of weak dollar before drove capital into emerging economies and caused their asset markets to stay bubbly for a long time. Most speculators thought that the bubbly situation would last forever. The catastrophe came when the dollar went into a bull market. Virtually every emerging economy went into a crisis. I wouldn’t be surprised that another bout of emerging market crisis may occur in 2012.

The cyclical bull market for the dollar may last for two to three years. It could bounce up by 20%. The dollar index may reach 100 during the period. It would be similar to the dollar’s situation in the early 1980s. The Fed raised interest rate massively to tame inflation. Even though the US economy wasn’t that strong and the fiscal deficit was large and increasing, the dollar rose substantially until the 1985 Plaza Accord. The coming dollar bull market may even be shorter.
Andy Xie also believes that the problem with healthcare is overconsumption, not lack of insurance, and this could harm the U.S. economy:
The root cause of the US healthcare problem is its incentive system: patients demand expensive services as they don’t need to pay for it, hospitals, doctors and drug suppliers overcharge price-insensitive patients, and insurance companies keep raising premium to cover escalating costs. McKinsey Global Institute documented in its recent report (‘Accounting for the Cost of Healthcare in the United States’, January 2007) that one third of the US healthcare expenditure was due to high input costs -doctors, nurses, etc. are paid more than in other countries-and inefficiencies. In a system with cost socialized and benefit individualized, overpricing and inefficiencies are inevitable.

The demographic trend will make the healthcare cost more daunting in future. The healthcare cost rises exponentially with age. As the US’s baby boomers retire, the healthcare cost would rise even faster. The US fiscal balance is heading for a catastrophe. It is possible that the US could experience hyperinflation at some point.
He concludes that investors shouldn't jump from money to stocks and properties yet, but rather wait for the bubble to burst.

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