Wells Capital Management Chief Investment Strategist Jim Paulsen warns that the big “wild card” for investors next year will be if the dollar can continue to rally.
"I think the dollar's going to go down, not up," he told CNBC. "There [have] been five major increases in the funds rates since the 1970s, and every one of them, when the Fed raised rates, the dollar came down," he said.
Rising inflation expectations are pushing rates higher, which could weaken the U.S. currency. "As inflation expectations go north, that's a deterrent and a negative for the U.S. dollar," he said.
Some good news for savvy investors out of all this: There will be some international bargains to be had as global stocks become more attractive.
"I think those markets are under-owned, they've underperformed for several years. … They're better relative values," Paulsen said. "They have younger earnings cycles than the more mature cycle in the United States. They're going to have longer policy support than the United States will."
Newsmax Finance Insider Hans Parisis is another respected guru who agrees with Paulsen. He warns that the dollar's bull run could end sooner than you'd think.
"The Bank for International Settlements (BIS), which is considered as the central bank of the major central banks, just released a working paper in which it states that 1 percentage point (aggregate) appreciation of the U.S. dollar causes a 49 basis points (bps) decline in the growth rate dollar-denominated cross-border bank lending," Parisis wrote.
"Yes, this is food for thought and in simple words this could mean that the current dollar bull run could come to an end much earlier than many think is possible/probable," he predicted.
But other respected financial voices think the dollar rally has room to run.
Goldman Sachs Group Inc. noted the strong dollar among its top trade recommendations for 2017 in a note to clients, Bloomberg reported.
"In the U.S., events have moved in a U.S. dollar-positive direction, between the rising likelihood of fiscal stimulus, more protectionism and immigration controls, all of which add up to a more inflationary mix and tighter-than-otherwise monetary policy setting," according to a team led by Co-Head of Global Macro and Markets Francesco Garzarelli.
The strategists are targeting 10 percent upside in the U.S. dollar relative to an equal-weighted basket of the euro and pound, and would exit the position if the trade went against them by 5 percent. This would entail the euro falling to parity against the greenback, and the pound sinking to 1.14 on a 12-month horizon, Bloomberg reported.
(Newsmax wire services contributed to this report).
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