Will 2005 be a year of losses for all asset classes? (page 2 of 2)

The years 2002 to the very present witnessed an increasing appetite for risk and excessive speculation across all kinds of relatively illiquid asset classes including lower quality bonds, and emerging market equities. For example, look at the Ukraine Stock Exchange Index, which rose four-fold in 2004.

Now, I have no doubt that much has improved in Ukraine over the last few years and that like Bulgaria, Romania, the Czech Republic, Poland, etc the inclusion into the EU or closer ties to the EU will have lasting benefits for most Eastern European countries. Still, the Ukraine stock market may have risen ahead of itself, the same way numerous industrial commodity prices seem to have overshot on the up-side.

In fact, what I find interesting is that in the first two trading days of 2005, numerous asset classes - in particular stocks, commodities and foreign currencies - have given back most of the gains they achieved in the month of December 2004. Aluminum declined by almost 7% on January 4, and is no higher than in October!

Or take copper, which displayed unusual strength until just recently. On January 4, 2005, it also declined by almost 9% to below the October high (it is also lower than at it March 2004 peak), while Nickel collapsed by 7%. US equities also had a very bad start in the new year and since they closed the first five days of 2005 with a net loss, it is a bad omen for the rest of the year.

My point is this: In 2003 and 2004, all asset classes rose in value while the US dollar sold off. Would it be possible that in 2005, all asset classes perform poorly while the US dollar strengthens?

Only time will tell but for now, I would stay aside from equities, commodities (including gold and silver), and bonds and only hold the US dollar, which may have more of a rebound potential than is generally expected. As a trade, I would consider shorting the South African Rand or British Pound against the US dollar since the British price level is now so much higher than the one in the US.