Saturday, August 08, 2009

Why the Dollar Probably Bottomed Last Week

It's pretty tough to find investors who are bullish on the US dollar these days. Judging from our dollar sentiment survey results last week, it seems like most dollar bulls probably read this blog!

When I consider:
  • Not a day goes by without an investment newsletter popping into my email Inbox that highlights the dollar's pending demise.
  • There are YouTube videos circling the internet, with guys breaking stuff in their garages while lamenting the dollar's loss of purchasing value since the gold standard was removed.
The dollar may very well be broken, but I can't see this decline lasting much longer with sentiment as negative as it is. Bearishness on the buck probably hasn't been this low since the last time it bottomed - which was even below current levels, by the way.

How is this possible? How could a currency as sick as the dollar rally?

It's not without historical precedent - take Japan's Central Bank, where the old joke is that they are so incompetent they couldn't even destroy their own currency.

Is it possible our Fed is just as incompetent? I wouldn't bet against it.

We're in a period of debt deflation that could be around for some time. It's unlikely that the Fed will be able to "print" enough money to create inflation this period is over.

Because with a credit based economy that peaked around $52 trillion in 2007, printing a few hundred billion here and there doesn't really "move the needle" when credit is getting wiped out at a much faster rate.

Finally, it's interest to note that on Friday, the dollar was up sharply while all major indices were also up big. That strikes me as a pretty bullish move, because the dollar had previously been getting killed everytime stocks were up.

Bottom line: Just because many pundits and experts believe the dollar SHOULD fall, doesn't mean it will. And my bet is that, at least for the next few months, the exact opposite will happen - because markets usually move in directions that frustrate the highest number of investors.

What You Can Learn From Tracking Hedge Funds

Last week we started a fun back and forth interview with Jay from MarketFolly. For those of you not familiar with MarketFolly - please go there now! It's an excellent site for tracking the latest holdings and insights of the greatest investors in the world.

Here's part 2 of our interview with Jay about his investing strategy, and the complimentary piece where he grilled me a little bit.

CBM: What do you learn from the investor holdings you cover?

MF: I think the main thing to take away from hedge fund tracking is ideas. Often times you will see them invest in companies you've never heard of or are less familiar with so it gives you something to look into. It's also good to see what sectors they are leaning towards and what themes they might be playing (at least for some of the macro thesis oriented funds). And, it gets really intriguing when you start to see multiple funds adding the same position. We've noticed this a lot when we track the 'Tiger Cub' hedge funds.

Quick Market Hits for the Week Ahead

Daily Updates

For our weekly subscribers - we now have a daily subscription option as well (check out the upper left corner of the page).

It's powered by Google - they send you one email each afternoon, with a wrap up of posts from the day. They do a nice job with it - so if you'd like to add a daily subscription, you can enter your email address in the box there.

Positions Update

No new trades this week - cotton had a great week, along with just about every other asset class in the world.

Cotton continues to "range trade".

And, as mentioned earlier, I'm planning to "go long" the dollar index very soon.

Current Account Value: $26,388.91

Cashed out: $20,000.00
Total value: $46,388.91
Weekly return: 5.2%
2009 YTD return: -48.1% (Ouch, that's gonna leave a mark)

Prior year's results: --> Don't try this at home...this is what is known as wreckless trading
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

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