Massive Opportunity to Short the Dollar 28 comments
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One way or another, the dollar is going down. Hold on to your shorts because this will be the short of the decade.
Recent interventions in commodity markets, which has been a combination of short selling in the Gold market, and large institutions taking profit in a multi-year bull market in hard commodities such as Oil, has caused a short uptick in the dollar. The fed didn't raise interest rates, and US economic data did not get any better. Nor was there any watershed event or even a clear indication that the US economy is improving.
There is no other reason the dollar is up, other than the previously mentioned factors.
34% of the world's wealth (calculated in dollars) is still USD based, so any sell off in stocks, commodities, and bonds (meaning a return to cash) means a boon for the USD.
This trade will be a long term play and should not be taken with large leverage unless you are a day-trader who will be in and out of the markets. There is an overwhelming amount of negative data supporting the argument for USD down, so let's examine what could potentially cause the USD to rise, which we shall consider as USD down trade exit strategies.
What can change this trade (stop loss / exit points) can be the following unlikely scenarios:
- Fed raises interest rates
- ECB cuts rates (unlikely because unlike the Fed, the ECB only mandate is to contain inflation)
- US Economy not only bottoms but shows signs of rapid growth (a bottom would not cause the dollar to rise without an increase in rates)
Anyone who previously thought it somehow negative to promote the shorting of the dollar should be silenced with Treasury's recent move, a message to the world saying that the US Government will back up free market capitalism with state sponsored socialism for the rich. None of these actions can possibly be good for the dollar in the long term.
In the short term, as we see the Euro-bubble collapse, it is possible for the USD to rise slightly, but this should not be a prolonged trend. Euro weakness does not necessarily make a strong dollar, world markets are desynchronized and interest rate parity theory has stopped working years ago.
How could you short the dollar?
- Long term close your eyes trade; sell now with no stop loss and take profit at USD Index 65.
- Short term automated trading systems with Sell USD bias. Tweak your systems to find USD short trends and take profits (systematic day trading)
- Non-USD portfolio (European/Asian bonds / equities)
- Long Swiss Francs or CHF based bonds
There may be a time when investment in the USD will be the trade, when once again foreign investors will flock to the USA as a beacon of capitalism (meaning the ability to make money, which is restricted in many countries by strict government controls and the threat of potential nationalizations). Now is not that time.
Disclosure: Short US Dollar.
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This article has 28 comments:
It appears though that given a surging dollar and lower rates (say what?!) that there is probably foreign bank intervention in the dollar or in the treasury market some sort of a prop up until they can work through this mess....
The only question is: when the commodities will reach a bottom ?
In a successful country, you can lose your shirt and still do all right. In the US of the future, I suspect that even those lucky enough to have played the declining markets just right will look back with sadness at the good ole days.
FOUR MORE YEARS !!!
Anyone know the toll free number for Air Canada?
But short term, isnt the reason why its rallying the "unwinding" of the carry trade that existed for 5 years?
So, sell the dollar and buy the commodities that worked for so many years needs to be unwound and hence this might have some ways to go. I think for the next 1 year - till the fundamentals stabilize - the dollar remains strong (more due to Euro weakening). I am staying long UYG.
I have no crystal ball or any other means of predicting a new summit meeting where the dollar will be given a higher value against the Euro, however:
Remember the famous European currency snake of yesteryear?
We might have another snake in our own economic future.
What is certain is: Using economic fundamentals to predict the financial future is uncertain at best and sells the United States government short, at least.
Have a nice ride.
This person is a fool... not because of his commentary - which may or may not make sense. But because anyone who has spent time trading the G10 currencies knows that what they don't know. - G10 currency movements are random
Apparently, people think that they can analyze a situation like this, in a similary manner which ALL the major bank Economists / Currency Strategist do and somehow come up with a positive expected value trade.
Guess what.. short the dollar, long the dollar against EUR and your expected value is ZERO (i might agree with an assessment the the forward points equate to true expected value - but most people don't even know what those are).
Anyway... save your poor little fingers by not posting such gibberish.. save your eyes by not reading it... and save your money (more accurately, save your risk budget) by not trading it....
Only when credit begins to grow anew will the US dollar begin it's final approach to zero. When will that be? Perhaps after the coming bail out of Lehman Bros. These bailouts are extremely inflationary in the long run. In the short run, they shore up the Republican base for the vote November 5th, 2008, to no avail, Sarah (Pitbull) Palin notwithstanding.
bob jones, negative euro zone growth has it's roots in the US downturn, what has been significant was the Russian conflict which started the Euro sell off. But a bad Euro does not a good dollar make, there is real money demand for the dollar which is not EUR weakness alone. It is likely also a problem with the credit markets but a drying up of credit maybe isn't enough to push the greenback higher it would need to be driven by foreign exchange markets??? The fact is there is no definitive evidence why the dollar is up, therefore this is a good 'insanity trade' because the move just doesn't have any sense, therefore markets should adjust.
Many countries hate us because of Iraq and our human rights abuses around the world. What if foreign countries decide to suddenly dump their dollars - goodbye dollar, goodbye USA! OUR WORLD STATUS / DOMINATION WILL BE GONE OVERNIGHT. It's too bad that foreign governments can use OUR DOLLAR AS A LETHAL WEAPON AGAINST US.
That's a good point. With short-term currency trading, these blogs are about as useful as a blog advocating betting on red tonight at the casino roulette wheel because of the past performance of that bet. It would be nice to not even play that game.
The thing with currencies is, we don't have a choice. If we make no bets, we are still going long on the dollar. My entire future income is based in dollars, as is the value of my house and 90% of my assets. There are probably millions of harder-working, smarter, and more educated people than me in places like Latin America, Asia, and Africa, but they can't accumulate as much purchasing power as me because their currencies are nearly worthless. If the U.S. begins to go the route of currency devaluation, which it appears to be doing, some kind of long term (not short term) hedge against my 99% dollar concentration might be prudent, despite the daily/monthly noise in FX markets.
Generally, economists believe that a weak currency helps a nation improve its trade deficit. However, earlier this year as the dollar weakened against the euro oil prices shot up and, according to trade data from July, the US trade deficit increased. We were exporting more but the rise in oil prices more than offset the gains in exports!
One way to push down oil imports would be for the US government to tax oil the way the Europeans do now. Look for this to happen regardless of who gets elected, but don't expect either party to admit that higher oil taxes are in the works. Most voters fail to understand why higher oil prices due to new taxes on oil would actually help the US reduce its trade deficit and would, in the long run, help the US economy.
Of course, the government could give the oil tax revenues back by cutting taxes for low income earners and establishing a negative income tax for non-income earners.
In any event, for those of you who aren't interested in tax and trade policy because you just want to make a buck in the stock market, my advice is to hold an internationally diversified stock portfolio with some gold/silver and commodity exposure as well.
Gold and silver have been clobbered recently, so you could invest maybe five or ten percent of your portfolio by buying ETFs such as GLD and/or SLV. You could also invest maybe five or ten percent of your portfolio in commodities and oil by buying ETFs such as DBC and OIL.
You can gain international stock exposure by buying ETFs such has EEM (or VWO) for emerging markets and EFA for non-US developed countries. Note that EEM and EFA are both down around twenty five percent over the last year. Canada isn't in the EFA so you can get exposure to Canada from the EWC ETF.
You can also buy exposure to the US market by buying ETFs such as SPY for the S&P 500 and IWM for the Russel 2000. US stock values will be hurt initially by a drop in the value of the dollar, but a drop in the US dollar also helps US exporters in the long run.
One final note on ETFs, you can buy/sell options on all of equity ETFs listed above. So, on fairly conservative way to make a little extra money each month is to sell out of the money covered call options on the ETFs you do own. Short term out of the money options usually expire worthless, so you generally pocket the change you make from selling these options (make sure they are out of the money and that they expire in around a month or less). If the market goes up to the strike price, you make a gain and keep the money from selling the option. If the market goes up past the strike price, you still keep the money from selling the option, but you don't get the gain past the strike price. So, unless you expect an explosive move upwards, selling short term, out of the money, covered call options is a pretty safe bet.
Chinese government is buying it...
jimrogers-investments....
Disclosure: long UUP.
In the case of the insolvency of the Depository or JPMorgan Chase Bank, N.A. the U.S. bank of which the Depository is a branch, a liquidator may seek to freeze access to the Canadian Dollars held in all accounts by the Depository, including the Deposit Accounts. The Trust and the Authorized Participants could incur expenses and delays in connection with asserting their claims. These problems would be exacerbated by the reality that the Deposit Accounts will not be held in the U.S. but instead will be held at the London branch of a U.S. national bank, where it will be subject to English insolvency law. Further, under U.S. law, in the case of the insolvency of JPMorgan Chase Bank, N.A., the claims of creditors in respect of accounts (such as the Trust’s Deposit Accounts) that are maintained with an overseas branch of JPMorgan Chase Bank, N.A. will be subordinate to claims of creditors in respect of accounts maintained with JPMorgan Chase Bank, N.A. in the U.S., greatly increasing the risk that the Trust and the Trust’s beneficiaries would suffer a loss.
From the prospectus.
Does this concern anyone?