Double Dollar Warning


Excerpts from our latest Purposeful investing Course update (Pi) shows a double/dollar warning.

This update looked the ENR Asset Management Portfolio that Pi created and tracks based on the recommendations of  ENR Asset Management in Montreal, Canada (1).  They are one of only a few SEC registered asset managers who manage funds in overseas banks for US clients.

The first dollar warning shows that there is US dollar weakness in the long term.  ENR made these points.

The U.S. debt ceiling remains unresolved and must be extended by the middle of October. The U.S. Treasury is already engaged in unorthodox financial engineering since the summer as it manages the nations’ monetary and debt commitments. In August 2011, Congress went down to the wire, delaying raising the debt ceiling and triggered a big sell-off in stocks – the largest decline since the financial crisis. Moody’s also downgraded America’s debt in 2011 to AA.

According to a study from the International Monetary Fund (IMF), advanced economies are increasingly responsible for imbalances in the world economy with Germany overtaking China as the world’s leading net saver. Data also confirmed the United States continues to hold title as the world’s largest current-account deficit nation. The IMF warned that rising deficits and higher savings in Germany are fanning protectionist sentiment in the United States. Germany ran a current-account surplus of 8.3% of gross domestic product (GDP) in 2016 while China’s fell to 1.7% of GDP.

The United States finished the year with a current-account deficit worth 2.4% of GDP.  The UK current account deficit also grew and is the second-largest in the world after the United States.

ENR Asset Management offers many portfolios but it’s worth noting that the Multi Currency Sandwich  Portfolio has risen 6.7% this year simply due to US dollar decline.  The ENR Economic Outlook said:

Global Currency Sandwich Rallies 6.7%

As of August 14th, the ENR Global Currency Sandwich, including gold, has rallied 6.70% this year. Excluding gold, the currency basket gained 5.70%. Top performers this year in our sandwich are gold bullion (+11.7%), the Swedish krona (+10.9%), the Norwegian krone (+8%) and the Swiss franc (+4.6%). On June 30th, we also introduced the Canadian dollar to the currency basket (+1.9%) and the EUR (+3.1%). We dropped the Brazilian real on June 30th.

2017 ENR Global Currency Sandwich (Equally-Weighted):

EUR: Added on June 30, 2017. Guggenheim Currency Shares EURO Trust (NYSE-FXE)

Canadian dollar: Added on June 30, 2017

Brazilian real: Sold on June 30, 2017

Swedish krona: Guggenheim Currency Shares Swedish Krona Trust (NYSE-FXS)

Swiss franc: Guggenheim Currency Shares Swiss Franc Trust (NYSE-FXF)

Norwegian Krone

Gold Bullion (OPTIONAL)

However ENR also warns that there may be a short term US dollar correction and says:

U.S. Dollar Heavily Oversold; Beware of Big Rally

Bearish bets against the American dollar hit a three-year high this recently as more speculators believe the Federal Reserve won’t hike interest rates again this year. If going long, the dollar was a very crowded trade heading into 2017, the opposite is now true in August as traders turn increasingly negative. Declining inflation this summer in the United States has served to cool the Fed’s rate-hike ambitions. In 2017, the USD Index has shed 9% against a basket of six major currencies. The largest constituent weighting in the USD Index is the EUR at 57.6%.

enr

Recently strong export data, rising consumer confidence and strong retail sales in July might force the Fed to tighten again. The American dollar is very oversold at current levels and we’d avoid selling dollars. According to the CFTC, speculative accounts boosted their net short positions on the dollar to $7.4 billion dollars for the week ending August 11.  That’s the highest short positioning since May 2014.

Using mathematical based value and trends analysis is important because short term recoveries can confuse investors and cause them to pay too much attention to short term volatility.

For example the article “Silver ETFs slide as dollar-bounces at www.benzinga.com (3)  says:

Though it is still in the doldrums relative to other currency exchange-traded funds, the PowerShares DB US Dollar Index Bullish Fund UUP has perked up in recent sessions. The dollar’s awakening, albeit modest, is pressuring commodities and the related ETFs, including silver funds.

However, the chart below (from Forbes) shows that the back of US dollar strength really broke back in January of 2017.

forbes

Pi double checks value trends with trending algorithms processed by Tradestops.com (4).

In the case of the US dollar, we look at the Stock State Indicator and Volatility Quotient of the PowerShares Dollar Bull ETF. Tradestops shows that the dollar is trending down and has been since May 2017.

tradestops

This mathematical analysis shows that the trend of the US dollar index shifted downwards in early May. It reached an alert stage on May 9, 2017.  The trend eroded so quickly that a stop loss warning was issued May 22, 2017 and the bear trend remains now.

This ETF has a very low volatility quotient which suggests that we will not see any quick, strong reversal in this trend.

Learn more about the Purposeful investing Course below.

Gary

 


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