A Radioactive US Dollar

By Tony D’Altorio
Analyst, Oxbury Research

There is a rather interesting scientific experiment going on right now in the United States. The experiment involves the effect that intensive radiation has on the brains of rats. Who is conducting this experiment? Why Wall Street, of course!

With all of the highly leveraged, stupid bets blowing up in Wall Street's face, it has been the equivalent of a nuclear bomb going off right in the middle of Wall Street. Most people would use common sense and get as far away as possible from the nuclear blast.

However, Wall Street money managers have abandoned all caution and have run full speed toward the center of the nuclear blast. These Wall Street money managers are the rats in this grand experiment which attempts to turn science on its head. Wall Street is attempting to prove that it is safer to be at the heart of a nuclear blast than far away from it.

Wall Street money managers have pretty much forsaken all investments elsewhere in the globe and poured all the money into the “safety” of the US dollar. Everyone should take a moment and ponder what Wall Street has done.

Wall Street has taken clients' hard-earned money, such as pension and retirement money, and moved that money to the heart of the radiation field. My belief is that this money will most likely become so irradiated that it will be unusable.

The World's Greatest Magician – Uncle Sam

Sadly, it looks like the effect of the intensive radiation has further scrambled the already scrambled thinking of those Wall Street rats, I mean money managers. Look at how easily they have all bought into the deflation fairy tale.

Wall Street money managers have poured clients' funds into the deflation fairy tale as they eagerly purchase Treasuries at zero per cent. Unfortunately, unlike in a real fairy tale, the clients' money will not “live happily ever after”. The clients' money will be vaporized in a radioactive blast of inflation and a declining US dollar.

The radiation-weakened brains of the Wall Street rats, I mean money managers (I can't understand why I keep confusing the two) has fallen for a basic magician's trick. Why do you think magicians always have a beautiful female assistant wearing a sexy outfit? Obviously, so that your eyes are focusing on her and not following closely what the magician is doing.

In real life the magician is Uncle Sam. The beautiful assistant in a sexy outfit is deflation. Uncle Sam, with a tremendous amount of help from his minions at CNBC, wants everyone to look at deflation. “Yes, look at her. Look at deflation.” Wall Street is completely enraptured by deflation.

While everyone's attention is focused on deflation, Uncle Sam is doing two things. First, he has Ben Bernanke utter the magic words “Quantitative Easing” and magically the Federal Reserve begins spewing forth untold trillions of dollars of funny money. But poor love-sick Wall Street can only say, “Duh, that's ok. What funny money? All I see is deflation. Isn't she beautiful?”

Then, Uncle Sam also begins spending dollars like mad, spending the funny money that the Fed created like every drunken sailor wishes they could on a night on the town. After all, what sailor isn't interested in stimulus? The only thing love-sick Wall Street chimes in with is, “Duh, isn't deflation so stimulating? Do you think she'll go out with me?”

So while everyone, especially Wall Street, continues to be mesmerized by “beautiful” deflation, the magician Uncle Sam has lit the fires of future inflation. Uncle Sam has also pushed the US dollar to the edge of a cliff and is ready to give it one final shove. And poor brain-radiated, befuddled Wall Street has all of their clients' funds in the “safe” US dollar – how sad it will be for their clients who entrusted their money to Wall Street.

In my previous article – In Gold We Trust, I wrote about a specific gold investment and how gold itself is an excellent way to hedge yourself against a fall in the US dollar. Of course, there are some people who will not touch gold. Some people are more comfortable with a “paper” investment.

Well, I have a “paper” investment for you that has nothing to do with gold and which does offer protection against a decline in the US dollar.

PowerShares DB US Dollar Bearish Fund – UDN

The PowerShares DB US Dollar Bearish Fund is based on the Deutsche Bank Short US Dollar Index (USDX) Futures Index. The Index is composed solely of short USDX futures contracts. Since its inception on May 30,1997, a $10,000 investment into the index would have grown to just over $18,000. A similar investment into 3-month US Treasury bills would have grown to $13,586.

The USDX futures contract is designed to replicate the performance of being short the US dollar against the following currencies: the Euro, Japanese Yen, British Pound, Canadian Dollar, Swiss Franc, and Swedish Krona. Something to keep in mind however – the index is currently heavily weighted toward the Euro with smaller weightings given to the other currencies in the index.

This ETF trades under the symbol of UDN and is a fairly liquid security with an average daily trading volume of nearly 330,000. Over the past 52 weeks, UDN has traded between a high of $30.50 and a low of $24.10 which was reached in November.

Since that November low, UDN has rebounded somewhat and is currently trading near $25.50. Investors looking for a non-gold way to play the upcoming decline in the US dollar are urged to consider a purchase of UDN at current prices.

Tony D’Altorio
Analyst, Oxbury Research