Ways to Combat the Declining U.S. Dollar
Wednesday, July 18th, 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 USD continues to be negative, and I expect it will continue to drift lower.
Driven by energy and metals, the commodity-based Canadian dollar is now approaching par with the USD, trading at over US$0.95.
The decline of the USD should not be a surprise, especially for those of you who 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. This may be a sign China is feeling the pressure from Washington to let the value of the Yuan rise. The massive U.S. trade deficit with China remains a sticky point for Washington.
The cash U.S. Dollar Index on the FINEX is moderately bearish at this time, with weak relative strength.
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 it has.
It is clear that President Bush wants a softer USD despite not coming out and saying it. The trend for the USD is clearly negative and, as an investor, you need to deal with this.
You should try to increase some non-USD-denominated stocks. For instance, you can buy some major U.S. stocks on the Toronto Stock Exchange – the major stock exchange in Canada — 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 TSX.
Another strategy is to 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: blue chips, S&P 500, 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.




