Hedging a Weakening Dollar With Currency ETFs

by: Roger Nusbaum

roger nusbaumRoger Nusbaum submits: A reader asked my opinion about the consequence of Iran selling oil in euros.

I have touched on this before, and while there are many angles to this, I have had the same opinion for several years now.

I view the dollar being on a long, slow road to being less important, globally, than it is now or has been in the past. The dollar is the world reserve currency. I think it will soon have to share that designation with another currency or two; the euro and the yuan seem the most logical candidates.

Because every commodity trades in U.S. dollars, there is a certain level of constant demand to transact certain kinds of commerce. Foreign countries need dollars to buy some of the things they consume. If those things become available in other currencies there will be less demand for dollars leaving the dollar weaker.

The consequence would be higher interest rates and generally less demand for U.S. assets. As I mentioned the other day I generally expect lower equity market returns and higher interest rates and this is why.

I do not view this as death blow or a tipping point for Financial Armageddon, but more of a hindrance for accelerating growth.

This is also why I was (and still am) a big fan of the currency ETFs early on. The easy thing, and you can read easy all over the MSM, would be to ignore currency products because they are so 'risky.' Or you can realize that markets and investing do evolve over time, and while currency exposure may not be for everyone, there is no reason not to explore the subject and make an informed decision about whether to own currencies or not.