I had a 'discussion' along these same lines with someone in January who had rather explicit opinions about the direction of the dollar over the following year. I told him he could be proven correct, but that I seriously doubted his projections and I expected things would almost certainly turn the other way in short order.He knew much better than I naturally. He promptly proceeded to lose $100,000 that he admitted to via speculations against the dollar in favor of the Euro and the Australian dollar.
Head down this path at your own risk. You might first want to notice that America continues to have the fastest growth of any of the industrialized nations, as we nearly always do.
Arthur brings up some very salient worries over what can happen if one is either not careful or unprepared to trade in certain markets. His friend chased a top. And chasing a top is a recipe for disaster. At the time this transaction took place even gold bulls were calling for a reversal of the dollar. It was painfully obvious, even to one as dramatic and worrisome as myself.
The technical lesson here is that when the dollar refused to break down below the 1995 low of 80 there was as good a chance at that moment in time for a reversal, at worst a 'dead-cat bounce' and at best a sincere 'bear market rally.' That reversal was more powerful and longer-lived than I would have expected at the time, but that's irrelevant. As of right now, it looks a lot more like a Bear Market Rally than a Dead Cat Bounce. In my opinion, the roll-over in the $USD is happening right now. At a minimum we will see a re-test of 80. Any breakdown from there will be nightmarish for Dollar bulls.
Why? Two very important things which Jim Sinclair has noted over the past couple of weeks.
1) There have be no less than 14 attempts to break the Euro below 1.20. All of them have failed. This now constitutes very solid support for the Euro's relationship with the Dollar.
2) The Dollar has tried, unsuccessfully, to breach 90 on the upside and has failed. As well, this is very bad for the dollar. A re-testing of 80 will happen soon.
My point in the previous article was to point out that the timing is good now for a move to take advantage of this. My suggestion is a fundamental hedge against both profligate money creation and zero change in policy towards solving either the trade or current account deficit. That is all. The lowest risk is to flat-out buy one of these currencies with your dollars. It makes perfect sense now to diviersify one's holdings into those foreign currencies which have the greatest chance for appreciation.
You'll notice I did not say go out and buy currency futures or any other such nonsense. It's a hedge, and a medium to long term one as well. This is not a call to day-trade the Loonie or the Aussie in an Everbank account (although, I presume that is possible), rather a sensible assessment, in my opinion, of the state of the market as it exists right now. Had the dollar breached 90 last month I would probably not be recommending this course of action.
As I write this the Dollar is at 87.75 and falling. Gold is steady and the DOW is still trading sideways. No amount of pro-American rah-rah'ing will keep the markets from going the direction they want to go. It can reverse things in the short-term (and there's always someone out there to take advantage of reinforcing the illusion for their own profit), but it can't change a fundamental trend.
Personally, I hope the dollar does not break below 80 this year. The carnage would be ugly. But, neither am I going to stick my head in the sand and ignore the possibility either.
Even in a re-testing of the 80 support level the Loonie is due to appreciate $0.02-$0.05, a 2.4 - 6.0% return. I'm okay with that. It's certainly better than a similar loss, which is what I'll get if I keep my money in dollars (losses due to inflation).
Ta,
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