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Before You Put a Cent in Commodities, Read This

By Brian Hunt, Editor in Chief, Stansberry Research
Wednesday, October 13, 2010

There's an interesting piece of research making its way around Wall Street this week.
 
It's from banking giant Credit Suisse… and it concerns the U.S. dollar.
 
As Jeff Clark outlined last week, the dollar has suffered an enormous fall in the past month… and is down 12% from its summer high. This is a huge fall for a major currency in such a short time.
 

The weakness is driven by the belief that the U.S. government will print money in order to pay for our huge "bailouts and handouts" stimulus programs and the debts they pile up. While that's a valid long-term concern, in the short term, shorting (and hating) the dollar is now the world's most popular trade.
 
The interesting report from Credit Suisse notes that shorting the dollar is so popular right now, speculative bets against the currency are at an extreme level we've seen just five times in the last 10 years.
 
Each time these extreme "dollar hating" levels were reached, the dollar staged a three-month rally 100% of the time… with an average gain of 2.5% (a big short-term move for a major currency).
 
Sure, the dollar has big long-term problems. Sure, we're in a big hole of government debt and digging for more. But when a specific trade gets extremely popular, it's like a boat's passengers crowding themselves on one side of the ship. It's perfectly natural for the ship to tip over and throw them all into the water, then lurch in the opposite direction.
 
If you've been short the dollar the past few months, congratulate yourself and take profits. If you're looking to take any "anti-dollar" positions, like buying gold and silver or other commodities, you're likely going to suffer a severe short-term setback on your position.
 
There's a huge crowd huddled on one side of the boat… and the odds are excellent they're going into the water soon.
 
Good trading,
 
Brian Hunt




Further Reading:

For some actionable ideas on playing the dollar rally, make sure to read Monday's essay How to Play the Coming Dollar Bounce. You'll find both a stock and a currency idea on trading the extreme situation in the dollar.
 
To get master-trader Jeff Clark's take on the dollar's chart pattern, make sure to read last week's essay on why the "technicals" are favoring a big rally in the dollar. Read the essay here: We Could See a Huge Rebound in the Dollar Right Here.

In The Daily Crux Recent Articles
Market Notes
Treasury craze continues… demand for three-year notes sends yield to record low of 0.57%.
 
Global brewers soar… AB InBev, Fomento Econ, and Ambev hit all-time highs.
 
Skyrocketing commodity prices send fertilizer seller Agrium up 70% since early July.
 
Earnings today... JPMorgan Chase (giant bank), Apollo Group (University of Phoenix).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1178.10 +0.7% +9.8%
Oil 36.16 +1.4% -5.2%
Gold 134.07 +1.6% +28.6%
Silver 23.49 +2.9% +34.4%
US-Dollar 77.30 -0.4% +2.0%
Euro 1.40 +0.3% -6.0%
Volatility 19.07 +0.7% -17.1%
Gold Stocks 533.53 +2.6% +17.4%
10-Year Yield 2.43 +0.4% -26.6%

World ETFs
Symbol Price
Change
52-Wk
USA 117.92 +0.8% +9.7%
Canada 29.40 +1.3% +11.9%
Russia 20.27 +0.5% +1.5%
India 39.37 +2.5% +31.3%
Israel 16.83 +2.1% +19.9%
Japan 10.15 +0.3% +2.3%
Singapore 13.78 +1.7% +27.1%
Taiwan 13.48 +0.7% +9.4%
S. Korea 54.99 +1.2% +19.3%
S. Africa 70.39 +1.8% +22.8%
China 45.74 +2.4% +6.9%
Lat.America 52.75 +1.7% +15.6%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 119.41 +2.2% -3.0%
Big Pharma 66.48 +0.6% +0.8%
Internet 64.25 +0.8% +24.1%
Semis 13.56 -0.5% +7.4%
Utilities 31.85 +0.4% +8.6%
Defense 17.77 +1.3% +10.2%
Nanotech 9.64 +2.3% -9.8%
Alt. Energy 10.34 +2.3% -5.8%
Water 17.52 +2.1% +6.3%
Insurance 15.74 +1.0% +13.2%
Biotech 20.19 +0.9% +20.0%
Retail 17.91 -0.2% +14.0%
Software 23.09 +1.6% +17.9%
Big Tech 50.52 +0.8% +18.7%
Construction 12.40 +1.6% +3.3%
Media 13.00 +1.6% +19.9%
Consumer Svcs 62.63 +0.4% +17.9%
Financials 53.82 +0.3% +0.5%
Health Care 64.38 +0.7% +9.1%
Industrials 60.15 +1.4% +18.8%
Basic Mat 69.00 +1.6% +21.3%
Real Estate 55.25 +1.0% +31.8%
Transportation 85.39 +2.5% +21.6%
Telecom 22.03 +0.5% +19.5%