Tuesday, June 03, 2008

End of an Era

The era of unlimited abundance is ending. Instead of delusioning on windmills and solar power destined to provide only a few percent of our needs for the next 300 years, the world must go immediately to nuclear energy. Instead of going on and on about Chernobyl and Three Mile Island, the truth is that France has gone nearly 80% nuclear since the 1970s, and it's never had an accident. And the choice is not between nuclear and solar, it's between nuclear and all of us shivering in the dark.

Nuclear at least would give the planet enough energy for everybody for the next few centuries. And by then, we might have practical nuclear fusion that would emulate the power of the sun, and just pray some lunatic at that point doesn't use it to destroy the whole planet.

The Pacific Ocean is like a huge lake with a circular current around it, and it's recently been discovered that there's a huge collection of plastic garbage in its centre, twice the size of the United States; everything from old toothbrushes to nets that trap the remaining fish.

Personally, I'll say good riddance to oil so that the air can be clean again, and I can once again see the beauty of the planet in the distance, instead of hazy smog. As my father said, "If you abuse yourself, you'll go blind." And I said, "Hey, Dad, I'm over here."


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Monday, June 02, 2008

Profiting from the dollar's decline

Commentary: If the dollar continues to fall, don't invest in dollars
By Bill Donoghue, MarketWatch
Last Update: 12:01 AM ET Jun 2, 2008

SEATTLE (MarketWatch) -- Federal Reserve Chairman Ben Bernanke painted himself and the American economy into a corner. Treasury Secretary Henry Paulson is promising help -- but not until after he is likely out of office. At least the paint will be dry by then and Bernanke and Paulson can go home in peace (or disgrace).

There are two factors strongly affecting the value of the dollar; the trend of interest rates, which directly affects the value of the dollar, and the depressing state of our economy. Rates are not likely to fall far any time soon (they're more likely to rise with inflation) and a long painful recession is in the works.

Bernanke's policy to ease financial markets by lowering the ultrashort overnight rates he can set (the discount rate where banks borrow from "the lender of last resort" -- a crowded line this summer -- and the Fed funds rate where mostly country banks lend their excess reserves on deposit at the Federal Reserve to regional and financial center banks who make the largest commercial business and real estate loans) has been slow to stimulate the American economy.

It also undermined the value of the U.S. dollar and made investing in foreign stocks "safer," as non-U.S. dollar-denominated securities offer an added extra currency cushion. That attracts rational security-cautious investors and denies capital to American borrowers trying to reestablish market leadership.

Profit directly from a weakening dollar index

To profit directly from a weakened dollar on a day when the U.S. dollar index (DXY: news) falls 1%, the inverse Falling Dollar U.S. ProFunds (FDPIX: news) should rise 1% and the leveraged Rydex Weakening Dollar 2X strategy fund (RYWBX: news) earns 2%. In a rising dollar day the funds lose 1% and 2%, respectively. These funds can be disturbingly volatile but if you feel the dollar is likely to continue weakening, these are excellent choices.

There is also the PowerShares U.S. Dollar Bearish ETF (UDN: news) that tracks the Deutsche Bank Short U.S. Dollar Index Futures Index. They beat both ProFunds and Rydex to the exchange-traded funds market as their rising dollar index ETFs are still in registration.

Profit from investing in currency funds

CurrencyShares are ETFs distributed by Rydex. They offer eight currency choices; the Australian Dollar (FXA: news), the British Pound Sterling (FXB: news), the Canadian Dollar (FXE: news), the Euro (FXE: news), Japanese Yen (FXY: news), the Mexican Peso (FXM: news), the Swedish Krona (FXS: news) and the Swiss Franc (FXS: news).

Currently, the Australian dollar and euro, along with our neighbors to the north, the Canadian "loonie," and our neighbors to the south, the Mexican peso, represent the best profit opportunities -- although you might choose to build a portfolio of all four. Remember, that will require four times the trading costs as these are ETFs, though using discount brokers like E-Trade or TD Ameritrade should keep your trading costs to $7 to $10 dollars per ETF.

Profit from investing in foreign currency-denominated bank accounts

If you wish a wider choice of currencies, you could open certificates of deposit or money market deposit accounts at Everbank.com and reduce your trading costs to exchanges within 1% of the institutional exchange rates; a low cost you probably couldn't get at most banks or brokers.

Profit from investing in foreign stock funds

Of course, the best way to take advantage of a falling dollar is to invest in foreign-currency denominated stocks where your return is a combination of strong local stock opportunities and currency profits. Brazil (EWZ: news) and Canada (EWC: news) are excellent choices. Brazil has become the "OPEC of sugar ethanol" (we blew it on less efficient corn ethanol), is energy independent and has just found new oil reserves off its coast. Canada is the U.S.' largest supplier of oil (from oil shale) and their currency last year was so strong that simply opening a checking account in Vancouver or Toronto would have bought you 23% more dollars by year end without earning any interest.

Profiting from the falling U.S. dollar is easy; Profiting in the U.S. is hard

Which U.S. sectors will be the hottest (to buy long) or the coldest (to sell short) is always a hard choice, but with a dollar this weak and interest rates so low and a Fed that seems impotent to fight back, makes being a dollar bear an easy bet.

Even if they are successful, it will take a long time to know they succeeded -- and even then, the best investments are likely to be across the border anyway.

Bill Donoghue is editor of The Proactive Fund Investor, a weekly newsletter published by MarketWatch, and chairman of W. E. Donoghue & Co. in Norwood, Mass. donoghue.com


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm