I wrote extensively about investing in the Euro last year. In September 2007, I considered the CurrencyShares Euro (FXE) the "closest thing to a sure thing."
Yet smarter investors are not going to bet in favor of the euro and against the U.S. dollar for much longer. Consider the facts:
1. The U.S. economy is experiencing recessionary pressures from "real estate gone wild." Still, we're not headed for the bread lines. And the treasury yield curve is signaling that the U.S. will recover down the road. (See my previous column, "Wanna Know When Things Will Get Better?")
2. The U.S. Federal Reserve is going to hold rates steady for the foreseeable future. Meanwhile, there's already evidence of slower growth in Europe. In fact, some economists see eurozone growth slowing to the point where the European Central Bank will have to cut interest rates. While the differing directions in monetary policies won't send the U.S. dollar soaring, the circumstances do not indicate further deterioration for the U.S. currency.
3. Investors typically move in droves to gold when they worry about the safety of the U.S. dollar. Yet, gold peaked in the third week of March as the Fed was busy orchestrating JP Morgan's acquisition of Bear Stearns. Similarly, The U.S. dollar more or less hit rock bottom during "March Madness." (See the price movement of Gold (GLD) and the PowerShares DB US Dollar Index Bullish (UUP) in the chart below.)
The "contrarian" indicators couldn't be more favorable for the U.S. dollar; that is, there have been endless stories on the death of the U.S. currency, beginning with the Economist's December 1, 2007 cover. There, one sees George Washington's face on the $1 bill of an airplane going down in flames. Similar stories on the death of the U.S. currency have appeared with increasing frequency throughout 2008.
It follows that it makes little sense to favor the euro over the U.S. currency. The CurrencyShares Euro (FXE) is yesterday's news.
Am I bullish on the U.S. dollar? Not exactly. Our stagflation-prone/super slow-growth economy isn't a prescription for steady appreciation in the buck.
Instead, I have suggested that the next "sure thing" may be the Chinese renminbi (yuan). Other emerging market currencies may gain ground as well.
How can you successfully invest in these currencies? Starting tomorrow, May 13, the launch of 3 new ETFs by WisdomTree will give investors the opportunity to invest in the Chinese Yuan (CYB), the Indian Rupee (ICN) and/or the Brazilian Real (BZF).
Before diving in, it would be nice to see a pattern of trading for these new currency ETFs. If you're looking to invest immediately in Asian currency strength, you may wish to consider the Merk Asian Currency Fund (MEAFX).
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.
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