Your currency bets resumed their upward moves this week as your bet on a strong U.S. dollar, the Direxion Funds Dollar Bull 2.5x Fund (DXDBX), hit a new record high yesterday. The Market Vectors Double Short Euro ETN (DRR) now is within striking distance of its record high on Oct. 24 as the euro resumed its downward trend.
Relentless negative headlines notwithstanding, there are signs that the credit crunch is definitely easing. LIBOR, the interest rate at which banks lend to each other overnight, has now fallen 22 days in a row to its lowest since April 2004. On Friday, LIBOR enjoyed its biggest one day drop since September 17, 1992. That’s why you’re seeing the media’s attention imperceptibly shift away from the credit crunch toward the weakening of the global economy. This doesn’t call for a shift in the strategy of your Global Stock Investor portfolio just yet. But it does indicate that coordinated government policy efforts are having their effect, and that financial panic is easing.
Portfolio Update
The Direxion Funds Dollar Bull 2.5x Fund (DXDBX) hit a record high yesterday. The British pound sterling tumbled to 1.53 dollars yesterday as the Bank of England cut interest rates by an unprecedented 150 basis points to 3% last week. In addition, the European Central Bank cut its benchmark rate by 50 basis points to 3.25% last week. Look for the dollar to continue to strengthen against its European rivals. DXDBX remains a BUY.
The Market Vectors Double Short Euro ETN (DRR) rose sharply yesterday as the euro plunged against the dollar and investors sought refuge in the U.S. currency. The euro fell to 1.2523 dollars from 1.2748 dollars late Monday. DRR is now back near record highs, and flirting with the $59.00 level. I expect the euro to continue its downward trend. DRR is a BUY.
The CurrencyShares Japanese Yen Trust (FXY) rose back above the $100 level this past week. Last Thursday’s massive 150 basis point rate cut by the Bank of England, along with the European Central Bank’s 50 basis point cut, had the smell of blood and fear. Any sign of panic is bullish for the yen. The U.S. dollar’s relative strength notwithstanding, a long exposure to the yen continues to be a solid bet. FXY is a BUY.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) strengthened slightly this week, as the Chinese government announced its $586 billion rescue package for the Chinese economy. But the prospect of slower growth in China is driving down expectations of the yuan’s continued appreciation. Non-deliverable forwards contracts show the yuan will weaken to 6.9150 versus the dollar in 12 months, compared with a rate of around 6.83 today. Nevertheless, the downside in the yuan — an actively managed currency — is limited. CYB is BUY.
Overall, the long-term trend for the rising yen and dollar is still in place, and I encourage you to add to your existing positions here. All of the current Global Stock Investor recommendations remain BUYs.
P.S. Surging oil and food prices, as well as deteriorating economic confidence, have stoked inflation fears around the world in recent months, leaving volatile markets and jittery private investors in their wake. In times such as these, it’s good to have this forum to discuss key developments and to hear from the best financial minds in the world. I invite you to join me at the 4th Annual World Money Show London, 14-15 November, at the Queen Elizabeth II Conference Centre. Call 800.970.4355 and mention priority code 009613 or visit The World Money Show London to register FREE today!
