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Dollar & GDP To Surprise To The Upside, Says Strategist

On Tuesday's Fast Money, widely followed strategist Richard Bernstein suggested making bullish bets on the dollar as well as GDP into 2010.

In case you’re not familiar with Bernstein, he was renowned for being bearish, but turned bullish over the past few months.

And he's become very bullish. Following are three of his predictions about the dollar.

- The US dollar is likely to meaningfully appreciate once market-driven short-term rates begin to rise.

- US dollar “carry trades” could get killed as 2010 progresses and the US dollar appreciates. Once accounting for leverage, hedge fund performance will likely trail long-only equity performance.

- The Fed will spend the second half of the year trying to catch up to, and flatten, the yield curve. Short-term rates could increase more than investors currently think.

Interesting predictions no doubt, but what's the thesis?

On Tuesday Bernstein explained all. He told the desk, "If the economy is going to improve monetary policy is going to tighten. And if that's going to happen, it's typically supportive of the dollar."

In other words, the stronger you think the economy is going to be next year, the stronger the dollar is probably going to be next year.

"If you think GDP surprises on the upside then the dollar probably surprises on the upside too."

What's the trade?

"If you think that interest rates are going up and the dollar is going up, it's death for the dollar carry trades," says Bernstein. "The currency gets more expensive. My guess in 2010 people bail out of those trades."

Looking for a stock trade. Bernstein has that too.

"If you agree with me that the dollar is going to appreciate, play domestic companies, that are smaller cyclical companies,” says Bernstein.




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Trader disclosure: On Jan 5th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Najarian Owns (BG) Call Spread; Najarian Owns (BP); Najarian Owns (CLF); Najarian Owns (MRVL); Najarian Owns (MS); Terranova Owns British Pound Futures; Terranova Is Short Crude Oil Futures; Terranova Owns (BAC); Terranova Is Short (CMA); Finerman's Firm Owns (CBY); Finerman's Firm Is Short (KFT); Najarian Owns (FCX); Seymour Owns (AAPL), (BAC), (BG), (F), (INTC), (MSFT), (MT), (TSL), (TTM), (VALE)

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