The Dollar Could Easily Get Stronger

Ever since the start of 2017, the dollar has been in an almost constant decline.

In fact, the PowerShares DB U.S. Dollar Bullish ETF (NYSE: UUP) has dropped over 12% from its 2017 highs, despite a 2% gain.

UUP is an exchange-traded fund that measures the dollar against six other currencies. When the dollar strengthens relative to the others, the price of UUP goes up.

Generally, the dollar is seen as a safe haven, somewhere for investors to put their money in times of market uncertainty. And since we have seen a market that went straight up over a 15-month period, there was less demand for safety assets like the dollar.

But that can only last so long. Right now, there is a fear of inflation in the markets due to higher employment and wages.

When the economy is strong, inflation usually follows. That’s because when people make more money, they spend more. And when more money is spent, there’s more in circulation, and the excess supply makes each dollar less valuable.

However, inflation fears are likely overblown due to the fact that we haven’t seen an economy this strong since before the financial crash.

When inflation gets too high, it sends production costs up and business slows. But right now, inflation remains steady around 2%.

That may seem high, as it was around 0% for all of 2015 and some of 2016, but in the big picture, it’s normal. In fact, it’s seen as healthy.

As a reference, inflation had gotten over 4% in 2005 and 2006, right as the economy showed signs of slowing.

Many are wondering how to profit from this analysis.

Demand for the Dollar

The dollar could easily get stronger from here as well.

Right now, a huge part of the world’s economy has extremely low interest rates. Much of Europe, for example, is under 1%, and they aren’t planning on raising rates aggressively anytime soon.

The United States, however, has a rate of 1.5%. This isn’t high, but we could easily see that go over 2% this year if the economy stays healthy.

That would also increase the rate of government bonds, which is 2.86% right now. As the rate get higher, international investors will begin to buy more U.S. bonds, which increases demand for the dollar and sends its value up.

How to Profit

Even though the only way to directly invest in the strength of the dollar is through UUP, there are other ways with higher return potential.

One is buying call options on the UUP fund, but that’s much riskier, as you could lose your whole investment.

Another way would be buying a leveraged ETF against a different currency.

For example, the VelocityShares Daily 4X Long USD vs. EUR ETF (NYSE: DEUR)returns four times the percentage that the dollar appreciates against the euro.

There are also similar funds that produce the return of the dollar against other currencies, like the pound (NYSE: DGBP), the yen (NYSE: DJPY) and the Australian dollar (NYSE: DAUD).

Investing In Silver For the Long Term

Many people are aware that silver is one of the most in demand precious metals in the world. Silver is a very common precious metal that is used to make jewelry, utensils, computers, vehicles, industrial metals and so on. It is one of the commonly traded precious metals in the commodity market, like gold. It has given many of the enthusiastic investors good returns for their investment in the commodity market. Silver is a very safe precious metal to trade with unlike foreign exchange or other areas in trading.

Lower Risk Factor

Silver has lower risk factors when compared to many other commodities as well as stocks, and shares. The risk in trading sliver is very low when compared to bonds or ETFs. If you are looking to invest in the market for long term, then there is no better commodity that you can think of than silver. It is not similar to any stock trading business but, is more or less similar to gold, which always has a value in it.

Accumulating Silver

One of the best ways to gain good profits out of silver trading is to consider it as a long term investment option. Silver is highly volatile like gold and if you are knowledgeable about making the right moves in silver trading at the apt times, you will end up pocketing good amounts of profit. You should always invest in silver with a long term bullish attitude. Accumulating silver at regular intervals will help in increasing your wealth insurance as well as can be a good trading instrument.

Invest In Physical Silver

One of the best ways of making better investments is to buy silver in its physical form. It not only adds on to your wealth over the years, but you will also be experiencing a steady increase in the price of the silver. There is no dearth for availability of physical silver as you can get it in the form of mint coins that are minted by mining companies, or even can get it in the form of fine bullion that is produced by the national governments.

Silver Bullion

One of the best ways and the traditional way of investing in silver to enjoy long term benefits, is to go for silver bullion. You can opt to buy silver bars which are rectangular metal pieces that come in different sizes ranging from 1 troy ounce bars to 1000 troy ounce bars. You can store these silver bars in your home or even better, in your bank lockers. You can sell all of it or trade in limited quantities whenever you feel that the price of silver is at its peak. Silver is easier to buy than the gold bars, and is also a much cheap investment option with huge returns, very similar gold.

Small Investments

One of the main advantages that you will get by investing in silver is that it just attracts small funds. This small investment can lead to huge profits after many years. With just about $10,000 you can buy huge quantities of silver. You will be able to increase your assets and wealth by investing in physical silver. It is a good buffer that you can always rely on whenever there is an economic crisis, you may need greater financial support in times of financial disasters.

Keep Tab Of Gold Rates

Silver and gold always go hand in hand and hence you need to keep a tab on the rates of gold every time when you have invested in silver. They both normally trade in harmony and whenever gold prices sky rocket or is increase, the prices of the silver will also be seeing an upward trend, and vice versa. But, the fact is that silver is available in more quantities than gold. There is almost 16 times more silver than gold in the world, and this is the reason why demand for gold is in excess of its supply.

Invest During Inflation

One of the top most methods that you can think of to invest in silver is when there is inflation. If there is a few issues related to the stability of the financial market, then gold and silver would more often than not be the main hedge against inflation. Many people will try to look at various other options when the gold prices are soaring, and the next best option of investment is surely silver. This precious metal is chosen by many because of its huge affordability. These type of chances do not come often and when you encounter such a chance, it is important for you take advantage of this and enjoy a good return on investment. This is the reason why you need to think of buying silver as a long term goal.

Advantages Of Investing In Silver

The following are the advantages that you can enjoy when you are investing in silver.

The demand for silver is always there until silver is used for industrial purposes. The demand for silver does not depend upon the economic condition that much. As there is constant demand for silver, its prices will keep on increasing and hence is a very good source of investment option if you are looking for long term returns.
Silver is known as ‘poor man’s gold’. It is highly affordability when compared to gold or other precious metals and it also offers better returns.
As silver is traded in different forms all over the world, it has high liquidity. Silver, in fact, was used as a currency in many parts of the world earlier.
You can also invest in silver in various forms like: silver bars, bullion coins, jewelry, junk silver, scrap silver, collector’s coins as well as silver rounds.

Protecting Stock Market Gains

This is the third cautionary report I’ve written on the stock market in six weeks. The last time I focused this heavily on the stock market was in early 2009. Back then, I was making a point to everyone who’d lost their shirt on the way down that employing the leverage provided by stock index futures contracts would be a great way to recoup some of their lost funds when the market bounced. This week, we’ll discuss the same strategy only in reverse. I’ll explain how to use leveraged futures to protect your equity portfolio ahead of time in case you haven’t taken the appropriate actions.

Everything that I’ve written over the past several weeks regarding the stock market still holds true. Quoting from our December 5th article, “… we have reached valuations that bode poorly for long term investing. Research abounds on the usefulness of long-term valuation models. Very simply, expecting these returns to continue through long-term investment at these valuations would set an historical precedence. Anything can happen in the world of markets but the odds clearly show that bull markets do not begin when the P/E ratio of the S&P 500 is above 15. The S&P 500’s P/E ratio currently stands above 19 and Nobel Prize winning Yale economist Robert Schiller’s cyclically adjusted price earnings (CAPE) ratio is over 25. Both of these will continue higher as long as the equity markets continue to climb. Neither is sounding the, “Everyone to cash,” alarm bell. Their history simply suggests that it would be foolish to expect these multiples to continue to climb and climbing P/E ratios are necessary for stock market growth.”

Coincidentally, the market is trading exactly where it was when I wrote that and after Friday the 24th’s action, we are in fact sounding an alarm bell. Friday’s action sounded a technical alarm based on the 90/90 rule. In short, 90% of the stocks in the S&P 500 closed lower for the day and 90% of the volume was on the downside. This analysis was originally publicized by Lowry’s Reports in 1975 and has been appropriately updated over time. The general market response is for an upward blip for a few days to a week followed by continuation of the selloff. This typically signals a momentum swing and could very well be the catalyst that brings the market back in line with long-term valuations.

The single most common phrase I hear for peoples’ failure to take protective measures for their portfolio is, “I don’t want to pay taxes on anything I have to sell.” The key to using stock index futures as a hedge against your portfolio falling with the broader market is the cash advantage that allows their low margins and high leverage to be put to work for you. The e-mini S&P 500 futures contract is one of the most liquid markets in the world. The face value of the contract is $50 multiplied by the index price, currently 1777.00. Thus the contract is worth $88,500. The margin, which is the amount of money the Chicago Mercantile Exchange (CME) needs on deposit to carry every contract from every market participant is currently $4,510. Both the buyer and the seller of the contract place this amount with the CME. This leaves a margin to equity ratio of approximately ten to one ($88,500/$9,020).

Here’s how it plays out in real terms. First of all, customers need more than the minimum margin requirement to trade. Otherwise, the first day the market closed above the initial entry price, the customer would be issued a margin call by the clearinghouse to make up the difference. Therefore, I suggest allocating enough capital for the minimum margin plus enough additional cash to cover general market fluctuation or, to a point that the trade becomes invalid and the hedge should be removed. In this case, I’d use the recent market highs of 1846.50 as a price that would invalidate the hedge’s necessity. The math works out as follows; $4,510 for margin plus $3,475 to allow for market movement from 1777 to the high at 1846.5 equals a necessary beginning cash balance of $7,985. This is the amount that’s needed to hedge $88,500 worth of the S&P 500 Index against further declines.

If we do get the 10% correction that we discussed in our January 16th letter, the cash balance in your futures account will have grown to $13,760. This would offset the loss incurred by your equities account without forcing you out of any positions or, leaving you with any capital gains tax to pay.

Finally, this is one case where a leveraged ETF simply won’t provide the same bang for the buck. There have been many studies that track inverse leveraged ETF’s against the underlying index and the research consistently shows that they fail to capture the same percentage gains on big down days as the futures markets on which the ETF’s are based. This is one of those times when trading and investing are best done via two separate vehicles.