Why Things Are Looking “UUP” for the Dollar
by Alexander Green, Investment U Chief Investment Strategist
Monday, September 19, 2011: Issue #1603
Since then, that ETF has jumped 7 percent. I see more upside in that fund.
However, today I’m going to recommend another way to take advantage of an oversold dollar: PowerShares DB US Dollar Index Bullish (NYSE: UUP). It’s likely to rally in the months ahead.
Two weeks ago, I was in France and the U.K. on personal business. As anyone who travels to this part of the world knows, every time you change a Ben Franklin, you get back a couple of bills and a smattering of coins. The almighty dollar doesn’t go far in this part of the world.
My cab ride from Heathrow to Notting Hill cost $120. A pizza and a coke was $35. And you can forget about finding any bargains at Harrods these days.
The Top Reasons For a Weak Dollar
We all know the reasons why the dollar has been weak:
- The persistently high U.S. budget deficit,
- Huge unfunded entitlement liabilities
- And ultra-low interest rates.
Yet Europe is hardly a model of financial strength, economic growth, or fiscal propriety. What too many analysts fail to appreciate is that, in many respects, matters are worse in the Eurozone and Great Britain than they are here.
I’ve already covered the extensive problems and lack of viable solutions in the Eurozone. But take a look at Britain.
Two weeks ago, the Bank of International Settlements reported that – following a 10-year binge under the last Labour government – debt in the U.K. grew faster than in any other country. It now amounts to $284,000 per household.
The near doubling of government, corporate and household debt in Britain over the last decade was the biggest increase of any Western economy. And the Bank of International Settlements reports that this debt is further set to “explode” in the years ahead.
This is no small problem. In 2010, Britain had government debt of nearly 90 percent of GDP, corporate debt of 126 percent and household debt of 106 percent. Of the G7 economies, only Britain and Canada are in the danger zone for all three types of debt.
Why Now is Time to Be Long the Dollar
So the question remains. Why the heck should the pound sterling be so strong against the dollar? I’m not arguing that the United States is doing everything right. Clearly, it isn’t.
But there are good reasons to believe that America is in better shape than our friends across the pond.
Where, for instance, is the grassroots movement in Europe – like our Tea Party – that’s crying out for fiscal responsibility and limited government? Our politicians are at least getting the message that a large bloc of voters won’t accept out-of-control spending from either party anymore.
This looks like the inflection point for a higher dollar. Take advantage of it with UUP. PowerShares DB US Dollar Index Bullish is designed to replicate the performance of being long the U.S. dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
It’s almost a shame that the Swiss franc – a genuine reflection of fiscal responsibility – is included in the group. On the other hand, the Swiss are sick and tired of their surging currency and are intervening heavily in currency markets to stem its rise.
In short, this is a good time to be long the dollar. And UUP is a great way to play it.
About Alexander Green
An expert on momentum investing, value investing and investing based on insider activity, Alex worked as an investment advisor, research analyst and portfolio manager on Wall Street for 16 years. He now runs the wildly successful Oxford Communiqué, ranked as one of the top investment newsletters by Hulbert Digest for more than a decade. He is also the author of four national best-sellers: The Gone Fishin’ Portfolio, The Secret of Shelter Island, Beyond Wealth and An Embarrassment of Riches. He shares his wisdom in his free daily e-letter, Liberty Through Wealth.