Betting Against the Greenback

This week’s Global Bull Market Alert pick places a bet against the U.S. dollar through the Rydex Weakening Dollar 2x Strategy H (RYWBX) mutual fund.

After soaring last year as a “safe haven” asset, the U.S. dollar is regaining its status as the whipping boy of global currencies. With skepticism surrounding the Obama Administration’s exorbitant spending plans increasing, speculation is growing that the United States may eventually lose its AAA credit rating. As the United States’ biggest single creditor, China is becoming increasingly concerned about the United States “printing money.”

The threat of a U.S. credit downgrade came to the forefront of attention last week after Standard & Poor’s announced that the United Kingdom’s AAA rating is under scrutiny. Ironically, the knock on effect on the U.S currency was even worse than the effect on the British pound sterling. Although a downgrade of the United States’ credit rating won’t happen for at least for another few years, investors are starting to price in that risk.

Momentum is building against the U.S. dollar, with the dollar index falling below the 80.00 level to 79.81, its lowest level since the end of 2008. According to data from the Commodity Futures Trading Commission, currency speculators increased their short positions on U.S. dollars last week by a whopping 31%. The last time speculators were short U.S. dollars was in early February.

So buy the Rydex Weakening Dollar 2x Strategy H (RYWBX) and place your stop at $16.50. If you want to play dollar weakness with options, I recommend the September $27 call options (UDNIZ) on the un-leveraged PowerShares DB US Dollar Index Bearish ETF (UDN).

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) held its own, as the top emerging markets eked out about a 1.5% gain over the week. With emerging markets in a solid uptrend, BKF remains a BUY.

The iShares MSCI Chile Investable Market Index (ECH) rose another 2% this week, breaking through $43 for the first time since September. Backed by strong fundamentals, Chile remains a BUY.

The iShares MSCI Hong Kong Index (EWH) fell slightly last week as Asian markets consolidated their recent sharp gains. Nevertheless, the conditions remain in place for a strong move upward in Hong Kong. EWT is a BUY.

The iShares MSCI Taiwan Index (EWT) recovered about 3% last week. With Asian stock markets the top performers of the year, EWT remains a BUY.

Both the SPDR Gold Shares ETF (GLD) and the PowerShares DB Gold Double Long ETN (DGP) rose another 3% and 6%, respectively, as concern about the U.S. deficit and inflation increased. With gold hitting levels not seen since early April, both GLD and DGP remain a defensive BUY.

Your position in the iShares iBoxx $ High Yield Corporate Bond (HYG) jumped about 3% on the week, ending above the $77 level for the first time since Oct. 2. With this position yielding over 11%, HYG remains a BUY.

The iPath DJ AIG Copper TR Sub-Idx ETN (JJC) rose about 3% for the week, climbing back above the $29 level. With global recovery on the horozon, “Dr. Copper” remains a BUY.

Russia’s Mechel (MTL) lived up to its billing as a volatile stock, soaring as much as 30% through Wednesday morning, before ending the week with about a 15% gain. Still trading at a P/E of less than 2, Mechel remains a BUY.

Your Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) had a strong week, rising to $15.22. With attention focused back on the U.S. government’s enormous funding needs, your bet against U.S. Treasuries remains a BUY.

Sincerely,