Positioning For Further Dollar Weakness
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The dollar has taken another step down of late. One position I have had for about ten months has been exposure to the Norwegian krone via what was two year paper when I bought it (I have disclosed this position quite a few times since I put it on).
When I first went in, USDNOK was around 5.95, I see it printing now around 4.98, which is a huge move (the smaller the number the stronger the Norwegian). Norway is a strong country economically, so that isn't so strange, but Hungary, for example, has a slew of problems - yet the greenback is down 8% YTD against the forint.
I have never been real sure about quantifying where the dollar could go. I think it is right to be positioned for more weakness, but I think the slope of the decline might be a little less going forward. I have thought that for a while, but that is the sort of thing most people don't need to right about (meaning magnitude).
I am warming up to the StateStreet International Inflation ETF (WIP). I bought it for a couple of new clients, I bought a few shares for my SEP and will probably integrate into more client accounts over the next few weeks.
If the dollar continues lower (regardless of how quickly), WIP should do well, but if the dollar goes up in a meaningful way it will be a big drag for WIP. My hope for this is that it would be a boring hold but that every few months I'll notice that its up a few percent or so.
If you look at the back test for it you will see a huge move up for this but I would not bet on that repeating itself.
Disclosure: Long WIP
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This article has 10 comments:
Tiedeman
It is good for the US as weak dollar will shift wealth from $asset holders(foreigners) to $debtors(the US).
It is also good for the US corp. as a weak dollar during this very last year "created" exchange profits in S&P500 companies about 5% of their total earnings. The Fed also need to rasie interets to turn the greenback around. So guest what, the US market will tank much further if the dollar strengthens.
With inflation zooming (not according to our government), we may be looking at a new era in the future.
What makes me worried, is that I'm usually an optomist.
horseman
I have posted some charts illustrating the extreme levels that some components of the PPi have reached.
Specifically, I took a look at the Finished Goods to Intermediate Materials ratio and also the Intermediate to Crude Materials ratio.
Both ratio are at historic extremes associated with reversals.
See
wrahal.blogspot.com/20...
Schweitzer
Disclosure: Writer holds, and has held since 1962, large position in AFL.
I partially agree with you.
I see the dollar having a dead cat bounce, but I suspect the commodities rally is finished. Stock traders lead the market by 6 months, but usually future traders lead by 9 months. I just get the feeling that future prices are headed for a major 3 month collapse in just a few more days.
Does anyone know what inflation indexes the underlying issues use for their TIP features? Are they all linked to inflation rates in the issuing country? Some other index? Thanks.