| Saturday, May 3, 2014 | Issue #50 | The Biggest Investment Opportunity... Since Julius Caesar? Later this year, a historic event will transform money supplies worldwide. It will impact every major currency all at once. Dollars... Yen... Euro... Rubles... Yuan... According to scholars, this event will mark the biggest monetary shift since the rise of ancient Sparta, more than 2,699 years ago. It promises to make some investors very rich. Others could lose nearly all, overnight. Already, the world's most powerful investors are preparing. For details on this $633 trillion mega-event, please go here now.
Eric Fry, reporting from Laguna Beach, California...
Earlier this week, we read from the "Book of Fear and Trembling," in which we cited both chapter and verse for selling stocks in the month of May... especially expensive stocks.
But today, we'll read from the "Book of Confident Hope," citing the chapter that provides reasons to buy the U.S. dollar in the month of May... especially when the U.S. dollar seems poised to rally for many months... even after May turns to June.
Today's guest columnist, Sean Brodrick, points out that the dollar has rallied in each of the last five Mays. This perfect short-term track record, Sean readily admits, is no guarantee that the dollar will rally for a sixth straight May. But he likes the dollar's chances here.
Sean expects the dollar to begin a meaningful rally, as the Fed gradually moves away from its years-long policy of suppressing interest rates. So he believes the month of May 2014 could be an opportune time to go long the dollar.
Check out Sean's thoughts below...
The Single Most Successful Investment in May By Sean Brodrick
 | | Today, I'm going to talk to you about a trade with a 100% track record of success over the past five years. That doesn't guarantee future results, of course. Something could go wrong. But odds are it will go very right. And there's more than one way you can play it.
Here's the trade: Go Long the U.S. Dollar.
You probably think the U.S. dollar is in big trouble. Longer term, I'd agree with you. But May is a very special month for the U.S. dollar. That's because in every May over the past five years, the U.S. dollar has gained. The average gain is 3.7%, as you'll see from this chart...  That's a pretty good track record of success. Sure, the gains aren't huge. But there are ways to leverage that, and I'll get to those in a bit.
But more importantly, I think the dollar has a shot at rallying well past the month of May. I'm cautiously bullish on the greenback because the U.S. economy is showing signs of life. Manufacturing is expanding. Capacity utilization is rising. Weekly hours worked is going up. This kind of news makes the Fed more likely to "taper" its flow of easy money. And that is generally good for dollar strength.
Lastly, from a technical standpoint, the dollar is near the bottom of the trading range that has "trapped" it for more than two years.  So if the dollar's technical "support" at the bottom of its trading range holds, traders might start buying the dollar more aggressively to position for the dollar moving higher and potentially breaking out of its two-year range.
Two Ways to Play This... and One to Avoid
Let me give you three ways to play this potential dollar rally.
Pick No. 1: Long the Dollar. The most obvious and direct way to play a rising U.S. dollar is to bet on the greenback. That's most easily done through the PowerShares DB U.S. Dollar Index Bullish ETF (NYSE: UUP).
This exchange-traded fund tracks an index composed of six major world currencies: euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. As the U.S. dollar gains strength against these currencies, PowerShares DB U.S. Dollar goes up.
Pick No. 2: Double-Short the Euro. If the U.S. dollar goes up, the euro usually goes down. And the ProShares UltraShort Euro ETF (NYSE: EUO) gives you a leveraged play on that move. It targets twice the inverse of the daily movement of the euro.
Mind you, leveraged funds aren't for everyone. They're for speculators only.
What to Avoid
There is a triple-leveraged long dollar fund called the PowerShares DB 3X Long US Dollar Index Futures Exchange Traded Notes (NYSE: UUPT). Triple-leverage sounds good, right? That would turn the dollar's average 3.7% move into a potential 11.1% move. Not bad for a month!
Here's the thing: The PowerShares DB 3X has abysmal trading volume - an average 2,705 shares a day. So that means you're likely to get hurt badly on the spread going in and getting out. And that could chew up any gains in a hurry.
Finally, remember this: Just because the U.S. dollar has a track record of going up in May doesn't mean it has to happen again this May. But it's also true that the odds favor this trade this year, for the simple fact that the Fed may finally stop suppressing interest rates.
All the best,
Sean Brodrick
for Free Market Café
Photo originally posted by Images Money on Flickr. | | |
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