The U.S. dollar has been one of the world's strongest currencies in the first part of 2010, posting double-digit gains through the end of May.
And little wonder. The Greek debt crisis continues to threaten Europe's overall health, and could unleash an entirely new contagion on the rest of the global economy. Then there's China, - the engine of world growth during much of the financial crisis - which now appears to face the near-term triple threat of slowing growth, accelerating inflation and workplace unrest. Add in concerns about commodity prices and global debt levels and it's easy to see why currency investors have sought the safe haven of the U.S. dollar.
In short, it appears that "everybody" knows the greenback is the best choice for safety, quality and security.
But is that really the case? To me, the dollar is looking more and more like a colossal short that could wind up being one of the biggest moneymakers of the year for traders gutsy enough to take a stand.
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Given that the dollar soared 11% through the end of May (see accompanying graphic), I'm sure some experts will call me crazy for going against the dollar at this point in history. But here's my thinking:
It's worth noting here that this wager against the U.S. dollar should be viewed for just what it is - a highly speculative trade. This means it's only for aggressive traders.
Keep in mind, too, that the dollar won't shed its reputation as the currency of last resort without a struggle. Negative events abroad could send investors back into the currency for short stretches, making the dollar prone to short, rapid increases in value, despite its highly flawed underpinnings.
Position traders and everyday investors will probably want to wait for confirmation that the dollar's trend is, indeed, reversing. We've seen some of that in the past two days but more is probably on the way. You'll miss out on some returns but that's the way the game is played - you have to act on your convictions or else you're simply another wannabe in this business.
My suggestion is that any speculative trade be limited to 2% of investable capital. That way, if we're wrong and the dollar doesn't cooperate, the risk to your portfolio is minimized.
As for suitable ways to play this dour-dollar prediction, I can think of three:
[Editor's Note: Money Morning's Keith Fitz-Gerald is still perfect.
With his latest trade, Fitz-Gerald is a perfect 23 for 23 with his Geiger Index advisory service. A veteran trader, skilled analyst and noted market tactician, Fitz-Gerald is able to see through the confusing haze of today's quickly changing markets, which enables him to visualize and understand what the future holds. This ability to see into the future -predicting looming changes while also divining the profit opportunities those changes will create - is one of Fitz-Gerald's greatest strengths.
That's a big reason that Fitz-Gerald - Money Morning's chief investment strategist and the editor of the New China Trader advisory service - has maintained a perfect record with the Geiger Index.
If you would like more information about the Geiger Index, please click here.
And if you'd like to check out Fitz-Gerald's portfolio-strategy story, which appears elsewhere in today's issue of Money Morning , please click here.]
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