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Option1307 (30.51)

$US Dollar$, Up up and away!

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March 24, 2010 – Comments (7) | RELATED TICKERS: UUP , EUO

The US dollar just surpassed the 82 mark today (3.24.10), and in doing so it smashed through the recent high of ~81.2 which was reached on 2.18.10. More importantly, the USD is now at a 10 month high and looks to be resuming it's upward march towards ~90 that was reached during the spring 2009 stock market lows.

What does this mean for the general stock market you ask? I haven't the slightest clue Fools. However, it sure doesn't make me feel all warm and fuzzy inside when I think of commodities/metals/etc.

Run for the hills commodity lovers, the end is near!

Ok ok, I'm kidding. In fact I own several commodities and related companies and plan to hold them for the long term. However, I truly believe, and have believed, that this USD rally will continue to have some legs in the near term. Yes, the USD is trash and isn't worth the paper it is written on. However, currencies are all reletive friends. And let's be honest with ourselves, we are by no means the country with the worst financial situation currently. Have you seen the Eurozone lately? Greece is getting slaughtered, Portugal's credit rate was cut, the problems there are seemingly endless. That is not to say the USD will rally forever, eventually our debt problems will catch up with us and push the USD back down to where it rightfully belongs.

But for now Fools, the USD is going up up and away! Let's enjoy it while we can, for surely it won't last long. Let the good times keep on rolling!

7 Comments – Post Your Own

#1) On March 24, 2010 at 11:50 AM, cbwang888 (25.84) wrote:

Stocks are generally up lately. So investors in US are big winners comparing to European ones. Looks like US Treasury will have no problem selling more T-bonds ...

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#2) On March 24, 2010 at 11:58 AM, jason2713 (< 20) wrote:

The only reason we are not seeing worse currency problems is because we hold the reserver currency.

We are actually structurally and financially worse off than the eurozone.  When people figure out the reason the USD has gained is because of demand (people hopping off euros) and not lack of supply (since we will continue to print)....eventually it will be known that ALL currencies are worthless. 

 It just isn't mainstream yet, and I'll hold my gold holdings.  The US will continue to monitize debt, no doubt about it.  I'm not trying to time gold when it spikes, and it will spike.Gold in my IRA's for the long haul, swing trading in my brokerage accounts.  I stay liquid about 60% for swings/risk aversion.  I jump on a stock if I see panic selling.  I may just buy up the gold stocks when the panic starts :)

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#3) On March 24, 2010 at 12:08 PM, Option1307 (30.51) wrote:

The only reason we are not seeing worse currency problems is because we hold the reserver currency.

While this is certainly not the only reason, I do agree, having the status of world/reserve currency definitely goes a long way in supporting the USD and for that matter our unsustainable spending habbits.

We are actually structurally and financially worse off than the eurozone. 

In some specific aspects we may be better off, but what are you refering to? Several EU countries have much higher Debt/GDP ratios etc. Also, it is important to rememebr that b/c the Euro is tied to the Eurozone, they are not nearly as financially flexible as the US is. i.e. we can inflate/print/etc. our currency much easy than they can. I'm not arguing that this is a good thing, but and improtant difference.

and I'll hold my gold holdings

Fair enough, I hold some gold too. Again, I'm not calling for a true bull market in the USD, just a continuation of a short term upward trend. 

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#4) On March 24, 2010 at 1:01 PM, jesusfreakinco (29.61) wrote:

Gold and Silver are hitting record highs in other currencies.  They are still 'go to' investments, but we are not seeing the big upside because of the strength of the USD.

The fate of the USD in the short-term is in the EUR and politics regarding the PIGS and... to a certain extent, the ability of the Fed and friends to paint the rosy picture.  They are doing one helluva job on the PR front.  I gotta hand it to 'em.

JFC

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#5) On March 24, 2010 at 1:11 PM, Option1307 (30.51) wrote:

They are doing one helluva job on the PR front.

Ha, I couldn't have said it better!

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#6) On April 04, 2010 at 6:10 PM, djshagggyd (71.83) wrote:

Hey Option,

This was an interesting post for me to read because I am just now starting to research inflation/deflation and how it affects the market. Thanks for your insight.

We were talking about refiners last week... and as per your suggestion I did some research. I came across WNR , and to me (obviously a complete novice) they seem to be undervalued. Since you are very knowledgeable when it comes to the refining industry... I was wondering what your take was... how do you feel about WNR?

Hope you had a nice easter weekend,

~djshagggyd

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#7) On April 04, 2010 at 10:08 PM, Option1307 (30.51) wrote:

djshagggyd

I like WNR a lot and own some in RL; however, it certainly is not my favorite refiner by any means as they have a significant amount of debt and thus are more of a gamble. Personally, I feel confident that they'll be able to cope with their ~1.2 Billion dollar debt as the sector contineus to pick up, but it is not the "sure thing" as other refiners are IMO. 

My two favorites are hands down, VLO and SUN, and I own both of them in RL as well.

Something to keep in mind is the location of the refining plants. Refiners that are concentrated by the gulf cost are succeptable to hurricanes which is bad for business. Hurricanes = closure of refiners in their path = losing money for refiners. So, ideally you want refiners away from the coasts.

As I mentioned before the refiners are a tricky sector simply b/c you have to approach them differently. Normally, at least for me, I tend to like companies with good balance sheets, increasing revenue, favorable sector, and a decent value (I rarely will chase earnings). However, with refiners you have to essentially throw these characteristics out the window b/c the sector is cyclical in nature. Thus, during boom times they will look spectacular in terms of revenue increases and EPS increases etc. and downright terrible when a bust occurs.

The tricky thing about this cyclic nature is that you want to be buying when the companies look absolutely awful, negative earnings, decreasing revenue etc. and everyone else is running away as fast they can. This is when you want to position yourself for the eventual upturn in revenue/earnings. 

The last year or so the entire sector has been destroyed, and presented an excellent buying opportunity. Things have been looking up the past few months as crack spreads have continued to improve. Crack spreads are basically a fancy way to measure the profit ($$$) a refiner will make per barrel of oil it "refines" into gasoline and other products. The higher the crack spread, the higher the profit margin per barrel of oil and thus the more money a refiner will make. More money equals a higher stock price!

I'm basically making a sector bet that all refiners will rise significantly in the next 2-5 yrs.; although I do have my favorites as I mentioned above. I honestly don't see how refiners won't make you some nice $$ in the next few yrs. I'm not advocating going "all in" as that is never a good strategy, but I'm certainly glad I have a nice chunk of refiners in my portfolio.

Does this help?

I think I've mentioned this before somewhere but here is a nice blog discussing refiners and a good place for more info, check it out.

Keep up the questions, it's how we all learn!

 

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