Comments on: Max caution alert: exit or hedge all market risk

By: Max

Max — Sun, 01 May 2011 14:22:23 +0000

The dollar and Yen are “safe havens” because they are the lowest yielding currencies. At the other extreme are the Australian dollar, Brazilian Real, etc.

Treasuries are safe as long as the U.S. economy remains weak (= no Fed hike).

By: John

John — Fri, 29 Apr 2011 16:37:57 +0000

The last 2 Signficant US bond market rallies have been lead by dollar strength.

3/17/2008 UUP 22.79 and TLT 97.18
10/27/2008 UUP 26.50 and TLT 92.83
but then by 12/15/2008 UUP 24.74 and TLT 122.26

11/23/2009 UUP 22.26 and TLT 96.40 (in Spring ‘10 TLT was around 87)
6/1/2010 UUP 25.77 and TLT 97.79
but then by 8/16/2010 UUP 24.13 and TLT 106.04

It’s like the carry unwinds out of anti dollar currencies and risk and later rotates into treasuries.

The TLT performance in 2008 was especially chart and techie defying . While TLT showed strength in mid-2008, it then showed a period of lower highs and lows in fall 2008 to shake many investors out (during the dollar strength) before it zoomed in November and December.

By: Mike

Mike — Fri, 29 Apr 2011 15:43:47 +0000

Well, the relationship of the dollar with the risk trade is also new. These things come and go.

Bonds did drop in the 1987 crash, but the bond crash in late 1999 happened before stocks started to fall in Q2 2000.

By: John

John — Fri, 29 Apr 2011 14:20:16 +0000

http://www.barchart.com/chart.php?sym=ZBM11&style=technical&p=MN&d=X&sd=&ed=&size=M&log=0&t=BAR&v=2&g=1&evnt=1&late=1&o1=DXY00&o2=SPY00&a2=on&o3=&sh=100&indicators=&addindicator=&submitted=1&fpage=&txtDate=&x=69&y=15

If you look at late 1999 and early 2000–that is what makes me a bit nervous about t-bombs. Sometimes you have to have dollar strength before you have t-bomb strength–and who is to know if there is some carry trade on them. That is a confusing chart–but t-bombs took some big drops late 1999-early 2000 and in 1987 . Funny, I don’t know what 1987 would have in comon with today!!!

By: John

John — Fri, 29 Apr 2011 14:09:43 +0000

Been looking around and can’t really find any alternative to UUP–started averaging in yesterday after Benron yapped the day before.

Thanks!!!

By: Mike

Mike — Fri, 29 Apr 2011 14:09:23 +0000

I might also think about adding a touch of TLT (20+ year Treasuries) or TLH (10-20 year) for extra oomph, though I’m less bullish on bonds than the buck on a longer time frame because we must be fairly close to a secular top there, and I’m not comfortable chasing the last few points of a move.

On the other hand, it’s a great time to just relax and sit in cash.

By: Mike

Mike — Fri, 29 Apr 2011 14:02:25 +0000

That’s a tough question. I prefer to just buy the futures contract, but in an IRA I don’t know what I’d buy besides UUP since derivatives and shorting are out of the question.

UUP is not bad though - it could easily move up 10-20% in a few months, which is not bad if everything else falls at least as much.

By: John

John — Fri, 29 Apr 2011 13:48:10 +0000

Mike:

What is the most cost effective way to go long the US dollar? Not asking you to recommend the US dollar, just looking for any alternatives other than UUP–for use in an USA IRA (short of just being in a money market fund).

Thanks

By: Mike

Mike — Fri, 29 Apr 2011 11:49:43 +0000

Nice charts. The last one shows how tight an inverse relationship exists between commodities and the dollar. Result of a massive carry trade of course.

By: John

John — Fri, 29 Apr 2011 10:04:47 +0000

http://www.economicsjunkie.com/wp-content/uploads/2010/11/china-money-supply.png

http://www.economicsjunkie.com/wp-content/uploads/2010/11/china-vs-usa-money-supply-growth.png

http://www.barchart.com/chart.php?sym=CIY00&style=technical&p=MN&d=X&x=64&y=12&sd=&ed=&size=M&log=0&t=BAR&v=0&g=1&evnt=1&late=1&o1=dxy00&a1=on&o2=&o3=&sh=100&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump

Yuan now strengthening–when the music’s over turn out the lights :).