Time To Go Long The Dollar – 2
This post is a follow-up from a previous post about Going Long The Dollar. There were some valid arguments for being bullish on the dollar, however, based on yesterday’s economic news, they no longer sound very convincing.
The jobless claims came out and the national unemployment rate is now at 5.5% (and this is after the bogus birth-death model numbers that are used to under-represent the actual unemployment figures).
Oil prices shot up 8.4% to $139/barrrel, marking the highest ever one day gain for oil prices. This occurred after the U.S. dollar nosedived on speculation that the European Central Bank would raise its key lending rate and on worries that a bigger-than-expected spike in unemployment meant the U.S. economy was far weaker than feared.
I actually had taken a small position in RYBSX, but I closed it for a small loss after hearing Friday’s news.
It’s much easier to predict long term trends rather than short-term trends. In the long term, I still think the Dollar is going down, so there’s no point buying RYBSX – might as well just stick to my Australian Currency shares ETF that has done so well for me. I continue to believe that we’re going to see stagflation and have been investing accordingly. I think it commodities like gold and foreign currencies will continue to do well.
I also think it’s much easier to make money on sure things like Countrywide(CFC) and WCI Communities (WCI) going bankrupt. (Disclaimer: even though my direction for the CFC and WCI trades was correct, I was just a few weeks early and still lost money!). I’ve been harboring suspcions about Fannie Mae(FNM) and Freddie Mac(FRE) going bankrupt. Not wanting to get in to early, I’ve missed the major decline in both stocks, but there seems like theres still a bit of downward movement. Let’s see how that pans out.
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June 7th, 2008 at 10:34 am
Although foreign currency and gold (and possibly other commodities) are going to do well, you have to be careful to note that it is currently a global economy and that a lot of currencies are tied someone to one another.
The US is currently in the position of reaping what it has sowed over the past years of bloated consumerism and easy money, etc.
Again, although I’m 1/3 invested in AUD with handsome interest to boot, I’m still watching it against USD to make sure that it will not crash to my entry point.
To be safe, have you checked out Ginnie-Mae bond funds? VFIIX is a great fund to bet against US economy by investing in government backed mortgage securities (the dreaded **mortgage securities** words). I’ve also got 1/3 invested in that making a bit less than 5% interest per year while not worrying about its NAV.
I currently say that commodity prices are quite high and that bubbles are forming in that area since there’s going to be a global shortage of demands due to price increase. Micro-economic law of supply and demand must come in at one point or another, ya know? When the bubble bursts, I’ll be watching my AUD even closer and get out when the time is right.
Anyway, it’s too risky to be in the equity market right now, both US and international.
Good luck.
June 7th, 2008 at 11:02 am
I don’t understand enough about those GNMA certificates to invest in those bonds.
besides, I’m not sure if I trust government-backed mortgage securities.I don’t really believe there wil be a market for these things in case of a liquidity crunch.
I think its easier to shortly FNM & FRE. Apparently FNM & FRE have the implicit backing of the US government, but they have $1.5 Trillion worth of mortgages on cash reserves of only 70 Billion.
A 10% default in their loans is $150 Billion. Sure the government will step in and give them the 150 Billion to cover their losses, but I think the stocks themselves will become worthless. Also, the congress has recently decreased their reserve requirements so the likelihood of their going BK has just increased.
June 7th, 2008 at 10:01 pm
Guess what? There are **a lot of** folks that don’t understand GNMA as well. It’s not surprising that you don’t know it.
GNMA are mortgage securities that are actually backed in full faith by the US government (Treasurys is the other entity that they back). The securities are pooled together by combining mortgages from different entities such as vets, government officials, etc and sold off to the market. Even if the borrowers default on their mortgages, as a bond holder, you are still going to receive your due dividends from the US government. The ONLY way (similar to Treasurys) that your GNMA bond is worthless is if Uncle Sam folds.
For close to 5% div return with that default risk, shoot, I’d take it. Even corporations aren’t immune to defaults, including FNM and FRE. However, I’d be careful with buying shorts. Wealthy people don’t play options. They **receive** options
Good luck.
June 9th, 2008 at 10:49 am
If Freddie and Fannie go bankrupt, it would be Bear Stearns all over again. I’m curious to know why you think these two might be in trouble?
In any case, I’m invested in commodities, metals. I have no US-based investments except a global ETF that is held in ADR form (since I’m in Canada).
June 10th, 2008 at 11:19 am
Hi,
US$D up $0.80 cents today and gold down 26 today.
Jamy
June 10th, 2008 at 12:34 pm
a day late and a dollar (well 80 cents) short! the story of my life! LOL
June 25th, 2008 at 1:49 pm
I agree. Gold is going to continue to climb. Get your money out of the dollar while you still can.