ETF Expert

Subscribers, money management clients, radio show listeners, casual readers — most know about my background in Asia. In my "expat" years, I lived and/or worked in Taiwan, Singapore, Hong Kong and Thailand.

It follows that I have more than a passing interest in emerging markets, the "China Boom" and even the Japanese yen. In fact, I remember the 80s… and the widely held belief that the Japanese yen and the U.S. dollar would be equal in value.

(20 years later… the U.S. dollar is actually better off than it was when it fell below 100 to 1. We’re at roughly 116 to 1.)

Still, the weakening of the U.S. dollar against other world currencies, coupled with rate hikes in Japan, forges a commonly voiced fear on Wall Street; that is, if Paul Revere were riding on his horse, he’d be yelling, "The Carry Trade’s Unwinding! The Carry Trade’s Unwinding!"

Indeed, the big time fear has been that the popular practice of shorting weak currencies (yen) to invest in strong currencies (New Zealand dollar) will come to a painful conclusion. After all, can investors borrow the Japanese currency at a very inexpensive rate (0.5%) and invest in high yielding instruments of other countries forever?

Well… we all know that forever won’t happen. But the carry trade may continue much longer than many "Chicken Little" types believe.

Since Japan is an economy that is entirely dependent on its exports, it can’t afford to have its currency be too strong. Some suggest that, if the Japanese government allows any more appreciation due to poor monetary policy, the export-dependent economy would crumble.

So yes… the U.S. dollar may continue to weaken in a U.S. Fed rate cutting environment. And that may be all the more reason to continue investing in the CurrencyShares Canadian Dollar Trust (FXC) and CurrencyShares Euro Trust (FXE).

However, it wouldn’t be wise to be petrified about a stronger yen. In fact, the world’s currencies are not that likely to depreciate agains tthe yen in the near-term.

How can you profit? The exchange-traded fund that employs the yen carry trade strategy, the PowerShares DB G10 Currency Harvest Fund (DBV), has rebounded from the 10% July/August correction. Moreover, it has bounced nicely off it’s 200-day moving average.

Disclosure Statement:  As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.