Dollar's Rise Could Lead to 5-10% Correction: Gartman

Reuters | 21 Jan 2010 | 06:48 AM ET

Given the fact that the dollar has become so strong — which not enough people are paying attention to — and the tendency for stock prices to fall as a result of the dollar's strength, investors must be very careful, Dennis Gartman, founder of The Gartman Letter, warned Thursday.

Gartman said he expects a market correction because all of the good new is already priced into stocks.


"You should be aware of the fact that a correction is probably setting in (and) that this could be a bit more than a two or three percent correction, that perhaps something along the lines of five to ten percent is upon us, and I think you need to be very, very careful," Gartman told CNBC.

"All of the good news, all of the anticipation of good news, probably is incumbent in prices already, and the ability to be surprised to the upside as far as earnings are concerned, I think, is relatively limited," he added.

Everyone is aware of the fact that earnings are doing better than we might have though three months ago, Gartman pointed out. He added that his suspicion is that the tendency of earnings to beat expectations is "highly unlikely" to continue in the future.

"I think there will be some disappointment rather than some surprises to the upside," he said.

Ahead of U.S. economic data like weekly jobless claims out Thursday, Gartman told "Squawk Box Europe" that the market is unlikely to be data driven. He called the markets' recent lack of reaction to economic data "a quiet and subtle change in psychology more than anything else."

"Everybody is aware of the fact that the recession ended long ago. Everybody is well aware of the fact that productivity numbers have been much better than expected," he said.

On whether the Federal Reserve will tighten monetary policy anytime soon, Gartman said he doubts it, predicting that the Fed may hike rates "at best" in the third quarter, but possibly not even then.

"The Fed understands one thing and that is the best way to repair the damage done to the banking system is to absolutely insure that the yield curve remains positively sloped and becomes even more positively sloped over time," he said. "If that means giving rise to inflationary concerns, that drive rates at the long end up a bit, the Fed will love that notion. They'll keep short rates as low as they can, as long as they can, and probably longer than anybody anticipates."