Currency / Forex Trading is Hot These Days. Which Currencies  Can Earn You Big?

Inflation is rearing his ugly head.  How do we know? Treasury rates are going up.  Mortgage rates are going up.  Gold, silver, copper and coffee, oil, lumbar and grains like soybeans and corn are up. These and many other commodities are up significantly.  The gurus of the hedge fund world tell us this is where they are putting the big money.

They are telling us to short the long Treasury because as rates go up, their prices will fall dramatically—and have already started. They expect inflation.  Paulson and other hedge fund managers are buying gold.  Rogers likes the yen and grains while Robertson advises us to short the bonds.

There are other areas getting hot too.  You should look at what real estate has done over the last few weeks. The Vanguard’s Real Estate Fund (VNQ) was up 5.8% last week.  The LMP Real Estate Income Fund (RIT) rose an astonishing 19.9% last week.  You need to take a look at where commercial real estate and other real estate sectors are heading.  These are all hedges.

However, real money can also be made trading the currencies.  First of all, more ETF funds are becoming available.  There are already many that one can use to trade. You can trade the Deutsche Bank Power Shares US dollar Bull (UUP) or Bear (UDN).  You can buy Rydex funds to go long the Euro (FXE), Japanese yen (FXY), British pound sterling (FXB), the Swiss franc (FXF), the Australian dollar (FXA), Canadian dollar (FXC), Mexican peso (FXM) or Swedish krona (FXS).  These are Rydex Currency Shares ETFs.  They have grown in popularity since their introduction in December of 2005.

In fact, one can use the spread difference between the UUP and UDN of the Power Shares ETFs to evaluate if the dollar is oversold or undersold (see Abe Cofnas, FUTURES February 2008). It helps you decide if traders are bullish or bearish.

The real hot money though is in the currency ETFs from the emerging market countries.  Wisdom Tree has three funds now:  South Africa rand (up 22% this year); Brazilian real (up 14% this year) and New Zealand dollar (up 11% this year).  The Ryder Canadian and Australian ETFs are both up 11% year to date.

What does this tell you?  They are up like their stock markets.  They are up because natural resources are up.  Gold, silver, copper, oil and so on are climbing. Their economies are based on these assets.  But beware; these are definite signs of inflation.  In fact, the cause of inflation we now see is due to the increase in commodity prices around the world.  This happened in the ‘70s and inflation came in like a March lion.  In the depression, there was no commodity inflation.  Beware.