ETF Expert

In the past year, there have been countless articles on the demise of the U.S. dollar. And few writers seem to think that our currency can ever recover. (That’s why the contrarian in me would not be surprised to see the U.S. dollar stage a recovery in the latter half of 2008.)

The gloom surrounding the U.S. dollar reminds me of the late 80s. At that time, nearly everyone opined that the Japanese yen at 140 would be 1:1 with our currency. Although the yen did make it to nearly 80:1 by 1995, the doom-n-gloomers never came close. Today, the yen/dollar exchange rate is roughly 110:1.

I’ve certainly contributed my share to the "U.S. dollar depreciation" story. In 2007, I made money for clients with the CurrencyShare ETFs for the Euro, Loonie and the Aussie dollar.

What strikes me, however, is the lack of discourse regarding another currency’s fall from grace. Specifically, the British pound sterling is trading near 52-week lows whereas the Eurozone’s Euro is near 52-week highs.

Why should this be? Why is England’s pound worth little more than it was worth at the start of 2007?

For a period, the CurrencyShares British Pound Sterling Trust (FXB) had fared about as well as the CurrencyShares Euro Trust (FXE). The "disconnect" seems to have taken on a life of its own in and around November of 2007.

In brief, the British economy has drastically weakened in recent months, due to trouble in its housing market and a reduction in consumer spending. What’s more, the European Union has not signaled a need to lower rates whereas the Bank of England may follow the U.S. lead.

The weaker "pound" has also taken its toll on stocks in the region. The iShares MSCI United Kingdom Fund (EWU) is dangerously close to a dreaded -20% bear.

Both the iShares MSCI United Kingdom Fund (EWU) and the CurrencyShares British Pound Sterling Trust (FXB) are well below their 200-day moving averages. And that begs the question, if the global credit crunch has already taken down the British and American markets, what’s next?

For now, I am continuing to stick with the intact bull markets and a number of defensive investments as described in earlier posts. (And I WON’T be fighting the Fed.)

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, 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.