If U.S. Dollars Are in Your Portfolio, Now’s the Time to Diversify
Thursday, May 3rd, 2007
By George Leong, B.Comm. for Profit Confidential
If you own U.S. dollar-based assets such as stocks and bonds, you really need to think about diversifying your portfolio. The trend for the U.S. dollar (USD) has been down, and I expect it will continue to drift lower going forward. The USD is near its 25-year low against the commodity-based Canadian dollar, which has seen renewed strength from the higher oil, gold, and mining markets.
The USD is also weak against the Yen and the Euro. The decline of the USD should not be a surprise to you, especially if you have been following the commentaries in PROFIT CONFIDENTIAL, where we have been bearish on the USD. The USD is also gaining some strength against the Chinese Yuan; a sign China is trying to please Washington and let the value of the Yuan rise.
The reality is the White House wants the USD to depreciate in order to make U.S.-made products and services cheaper for foreigners and, in turn, help to pump up U.S. exports and reduce the surging trade deficit. The Federal Reserve appears to be finished with its current cycle of higher interest rates, and this will help ease some support for the USD.
The trend for the USD is clearly negative. As an investor, you need to deal with this. You should try to increase your exposure to non- USD denominated stocks. For instance, you can buy some major U.S. stocks that are interlisted on the Toronto Stock Exchange in Canadian dollars. You can also buy U.S. index instruments, such as the S&P 500, based in Canadian dollars.
Alternatively, you can buy major blue chip or large-cap Canadian stocks listed on the Toronto Stock Exchange, the major stock exchange in Canada.
Another strategy is to buy put options on the USD to hedge against further weakness. This strategy would make sense if you have a significant portfolio.
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Tags: euro, gold, U.S. dollar
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.




