Dollar Collapse or Rally?
Investment U’s Take On the Liquidation of the Dollar “Giga-Bubble”
May 10, 2005 – The euro started the year at around 1.35. This morning, it’s around 1.29. So, contrary to everything you hear, the dollar has actually strengthened versus the euro in 2005, not crashed.
According to Dr. Steve Sjuggerud, editor of the Investment U E-Letter (http://www.investmentu.com), it could be the liquidation of the “dollar giga-bubble”. Dr, Sjuggerud agrees with currency commentator John Percival that there could be an unprecedented speculative bet against the dollar right now, to the tune of $1.2 TRILLION dollars. And the way that bet is liquidated is by BUYING DOLLARS, pushing the value of the dollar higher.
The Dollar: Why a Recovery and Rise Is More Likely Than a Collapse
We once had a massive currency-trading “bubble” in the yen. The Japanese yen lost about half its value from mid-1995 to mid-1998. And there was a sure-thing bet built in there as the hedge fund superstars saw it.
The financial “engineering” is a little complicated. But it was wildly profitable.
It was free money in the late 1990s and then for some reason, the yen just started strengthening. To the surprise of the big hedge funds, which had so far made a killing, the trade went against them.
Even worse, defying the skeptics, the yen just kept rising. It was up nearly 30% from its 1998 lows by the end of 2000. As the yen rose, the hedge funds actually became their own worst enemies. In order to cut their losses, they had to close out their loans in yen. And to pay off those yen loans, they needed to BUY YEN.
Uh-oh….
The crushing losses became a vicious circle. Their own actions of closing out their positions were killing them.
“The Yen Bubble Pales In Comparison to Today’s Dollar Bubble”
Right now, everyone thinks the dollar crashing is a sure thing. Meanwhile, the dollar is super cheap (Europe is super expensive), and you earn more interest on your money in the U.S. than you do in Europe. And if there is $1.2 TRILLION in speculative money right now betting against the dollar, the smart play is to buy the dollar before that $1.2 trillion comes in. The dollar could soar versus the euro, just like the yen in 1998, when it’s all said and done.
In Investment U E-Letter # 428 Dr. Sjuggerud points out that we are at the true beginning of the uptrend. “At the very least, don’t buy euros now,” he says.
For the complete story, as well as our series of free articles on dollar-related opportunities, visit our website at http://www.investmentu.com. Dr. Steve Sjuggerud, Alex Green, and D.R. Barton head up our Investment U panel and are available for interview. Contact Juan Muñoz at 410.223.2693 or via e-mail at jmunoz@www.investmentu.com.
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