Worried about the dollar?
Today's Financial News - Posted November 17, 2009
The dollar is moving the equities market. It may be creating profits these days, but it won’t last. This may be your last shot at protection.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): What exactly are you purchasing when you buy a stock these days? You used to call your broker to purchase a share of a company’s future revenue stream. The value of your position would rise and fall inline with market estimates.
But now, things are a bit different. Sure, you are technically buying the same underlying asset.
Nothing has changed fundamentally. But the correlation between rising revenues and a rising stock price have been tossed out the window.
As of late, when you buy an equity, you bought yourself a bet against the dollar.
It is not a positive trend.
Now that the House has passed a healthcare bill onto the Senate, Pelosi and her gang are moving towards the next issue. The rhetoric and pressure surrounding the health debate have waned, making room for discussions on the value of the dollar.
That can’t be good
It has been a central theme for Obama during his Asian visit. Bernanke even made rare comments about the value of the dollar yesterday. And today’s economic data shows inflationary pressure is not nearly as high as some thought.
What’s more, data released this morning shows foreign holdings of American Treasuries was on the rise during September, with a net increase of $40.7 billion during the month.
That means while all of us financial pundits think it is crazy for foreign states to purchase massive amounts of U.S. currency, buyers appear to have few other viable choices.
Combine all of the recent economic “noise” with the increased political pressure from the Fed, the Treasury and the White House and we will certainly see less downward pressure on the dollar.
That is not good news for Wall Street’s growing herd of bulls.
With the equities market moving in tandem with the weakening dollar, a turnaround in the greenback’s valuation will spell a turnaround for the recent surge in prices.
What’s the best way to play the situation? As the guy at the helm of an options-trading service, what else could I recommend but an options strategy?
With the markets threatening a marked pullback, a covered call strategy is an excellent play. Back up the largest positions in your portfolio by selling their out-of-the-money calls.
That way, if prices dip, you have the income generated by selling the contracts to protect your bottom line. And if prices continue to rise, you will have an established exit strategy to help you lock in the gains.
It is all about the dollar these days and you had better not forget it. Fortunately, the options market is there to protect us from dangerous situations like this one.
If you haven’t checked out all the options market has to offer, do it now.
Next Article: Where is the End for Gold?
One Response to “Worried about the dollar?”
Your comments are welcome
Follow TFN via RSS or Twitter |
 |
 |
 |
Advertisement
Latest Headlines
- The Big Picture for Sinobiopharma, Inc. (SNBP)
- Beazer Homes USA, Inc. (BZH) and Hovnanian Enterprises, Inc. (HOV) up despite horrid housing news
- The FDA catalyst: 2010 moves in MannKind (MNKD), Roche Holding (RHHBY), Acorda Therapeutics (ACOR) show it still works!
- Steepest drop since Feb. 2009: Here we go again!
- Is the silver run over? Coeur d’Alene Mines (CDE), Silver Wheaton (SLW), Alto Group (ALTO), Hecla Mining (HL), Endeavour Silver (EXK) close down
November 17th, 2009 at 11:04 pm
I really have to disagree with several areas of this piece.
As you say “What’s the best way to play the situation? As the guy at the helm of an options-trading service, what else could I recommend but an options strategy?” So in other words this whole piece is a urgent plea to; Please give me business ‘cause we’re dying here! I don’t think Options is a good strategy for anyone but the broker. We all know why they call them “Brokers” ‘cause that what they make you, Broke. There are plenty of great undervalued stocks out there and as long as the company doesn’t rely on the American consumer to reach revenue goals it is a pretty safe bet for the near future. Emerging markets whether via ETF’s or straight buys will be a winner. Look to Europe and Asia. They weren’t hit as hard by the crisis and they’ll be back faster if not already.