Taking Stock / Anti-dollar at Davos

DAVOS - If everyone expects a currency or a market to move in a certain direction, that may be the time to bet the other way. That's one theory. The logic is that if everybody agrees, then these assessments may have already been incorporated in asset prices, which means it's time for a turnaround.

If you like that theory, then you may want to bet on the dollar. That is because if there is one consensus at the World Economic Forum in Davos, it's that the U.S. dollar will continue to weaken.

But before you place your bets, check some of the people gambling against it.

In every interview he gave, the legendary hedge fund manager George Soros has stressed that he is not actively managing investments any more. He's left that to his kids while devoting his time to philanthropy. But he remains adamant that the U.S. government's fiscal and monetary policies are appalling. He believes that Federal Reserve chairman Alan Greenspan has lost his credibility in the last year, by using low interest rates to boost the American economy.

Based on America's terrifying balance of payments deficit that Bush and Greenspan created with their giant budget deficit and negative real interest rates, Soros is convinced the dollar will continue to shrink in value.

While on credibility, Soros gained the name of being a world expert on currency investments, though his last $35 million investment to stop Bush's reelection failed.

Meanwhile, Harvard president Lawrence Summers, who served as finance czar under Clinton, warns that America's economy cannot continue along the same track. The problem is not the mushrooming trade deficit, he opines: it's the moment that deficit starts to shrink. It's always the contraction that kills.

Summers doesn't think the dollar's fall will help the American economy cure its structural disease, of a gargantuan balance of payments deficit. No country can solve its problems through depreciation, he counsels.

The only sensible solution is to boost savings nationwide by reducing the budget deficit and encouraging households to save. The problem is that given the dimensions of the current deficit, the process of contraction may trigger a meltdown.

Then there is Kenneth Rogoff, a Harvard professor of economics and the most vocal spokesman against the dollar. At Davos he repeated his theory that the American government is highly unlikely to tackle its deficit this year. He mocks proponents of another theory, that the size of America's deficit just proves how mighty its economy is, how willing foreigners are to invest in it.

Foreign investors have lost a lot of money in the United States, he says, first because stock markets crashed, then because of the low interest rates and finally, because of the dollar's contraction. At some point they will lose patience, he predicts, and then two things could happen. Either they flee, at which point the dollar will collapse, or they'll demand higher returns, which will flatten the American economy.

A sharp slide in the dollar could trigger a worldwide crisis, Rogoff warns. The fact that such a crisis was evaded before does not mean it can be dodged in the future. He was hinting at the 1980s, when Ronald Reagan managed to trim the giant trade and budget deficits without triggering crisis.

The world's richest man, Bill Gates, says the "good ol' dollar is going to go down." Speaking in an interview with Charlie Rose, he confessed he's short on the dollar.

Warren Buffett does not customarily attend the Davos conference. But he spoke with Forbes last week, confirming that he's increasing his bet against the greenback. Nor does he mean to close his massive $20 billion anti-dollar position for years.

Wall Street analysts say Buffett's bet against the dollar is basically insurance for his massive investments in American stocks and bonds. But Buffett is far from being the only player with massive investments in America.

Most of the players aren't buying insurance the way Buffett is. They can only hope that the American miracle, which has sprung a new surprise every year for the last 20 years, will surprise again and humiliate all those nay-sayers at Davos for the next 20 years too.