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Time to Go Long the Dollar

By Stansberry Research Interview Series
Tuesday, February 20, 2007

The dollar is going to rally.
 
By now, we've all heard the endless reports that account deficits are spiraling out of control, that the U.S. economy is busted because of the housing bubble, that the dollar is doomed. The negative press is overwhelming.
 
And it's all already weighing heavily on the dollar.
 
Since it was taken off the gold standard in 1975, the U.S. dollar is a paper currency. And throughout history, paper currencies have always crashed. Ultimately, the dollar will add itself to the list.
 
But currently, the dollar is oversold. To some extent, the doom and gloom has already been priced in. You can see this in a 20-year chart for the U.S. Dollar Index. 
 
 
The U.S. Dollar Index takes the geometric average of six foreign currencies versus the dollar. As such, it's a great gauge for whether the dollar is under- or overvalued compared to other major currencies.
 
Going back more than 20 years, whenever the U.S. Dollar Index hits 80, it rebounds, usually to the mid-90 range. This happens every single time.
 
And right now, the dollar is attractive from a yield perspective. Money tends to flow where it's best treated. And right now, U.S. dollars are yielding far more than most major world currencies.
 
Currency
Yield
U.S. Dollar
5.25%
Euro
3.50%
Yen
0.40%
Swiss Franc
2.03%
Yuan
3.09%
There are plenty of talking heads and analysts who argue that the dollar can and will fall farther. Bloomberg news reported recently:
 
Standard Chartered, a London-based bank predicts the dollar will drop to a record $1.38 per euro by March 31, from $1.3001 presently.
 
Deutsche Bank, Germany's biggest bank, predicts a dollar decline to $1.33 by the end of March. BNP, the biggest French bank, says the dollar will fall to $1.35 in the same period.
 
So the dollar is near its historic lows, yielding more than most major world currencies, and everyone says it's due to fall farther. It very well may... but from a yield perspective, the dollar is growing more and more attractive every day.
 
And in the end, money talks and opinions walk.
 
Good trading,
 
Graham




Market Notes
Chemical stocks at new highs: Dow Chemical, DuPont, Mosaic, Agrium.
 
Food giants Dean Foods, Tyson, and Campbell Soup all new highs.
 
Korean steel giant POSCO at new high... up 71% in the last 52 weeks.
 
In the news: Stocks down today on news of lowest U.S. home starts since 1997.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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