Investors are falling over themselves to buy U.S. dollars.
The popular trade is to buy dollars and Treasury bonds and sell everything else. Sell stocks… sell high-yield bonds… sell hard assets like gold and silver.
Sell EVERYTHING that isn’t the U.S. dollar or U.S. government bonds.
But this trade ends NOW.[ad#Google Adsense 336×280-IA]Today, investors are too excited about the U.S. dollar.
Positive sentiment is at an all-time high.
The U.S. dollar is on the verge of a major reversal.
Let me explain…
The U.S. dollar has been on a roll over the past few months.
Since the end of April, the dollar is up a quick 5%.
A 5% move in just a few weeks is enormous in the currency markets.
U.S. government bonds are riding the same trend…
In March, the 10-year U.S. Treasury yield peaked at 2.38%. Today, that yield has crashed to just 1.56%. When yields crash, prices rise. You’d be up a quick 6% if you’d bought a basket of these bonds back in March. Again, that’s a HUGE move for boring government bonds.
The U.S. dollar and U.S. government bonds are just about the only major markets out there that are in uptrends right now. Nearly everything else is in a real downtrend.
This has been the one trade that everyone in the world has been making over the last two months – buy the dollar (and U.S. government bonds) and sell everything else.
In True Wealth Systems, we’re not interested in buying the U.S. dollar right now. And we’re definitely not interested in lending money to the government for 10 years at just 1.56% (especially with inflation well over 2%).
The reason is simple. Based on history, this “long-dollar, short-everything-else” trade may be peaking – right about now…
You see, right now investors are more bullish than ever on the U.S. dollar.
According to my friend Jason Goepfert (who runs www.SentimenTrader.com), history shows that when investors get this bullish, the dollar goes into freefall over the next couple months.
We’ve seen sentiment near these extremes four times since 2008. The table below shows how bad it got for the dollar shortly after…
When investor sentiment gets this high, the U.S. dollar tends to fall. On average, we’ve seen 9.4% declines in one to two months. That’s an epic move for a major currency.
Today, investors are MORE BULLISH than they were before any of these previous dollar crashes. Sometime soon, this trend will turn. And investors will be rushing to sell their dollars.
When that happens, the long-dollar, short-everything-else trade will be finished…
As investors, our best option isn’t to short the dollar or U.S. government bonds. These assets move slowly on percentage terms. A GREAT trade might only make us 10%.
The better way to play a dollar crash is through just about any kind of risky asset. These include stocks, high-yield bonds, gold, and silver. When the dollar crashes, these assets will soar.
Right now, we don’t have uptrends in ANY of these risky assets. It’s dangerous to try to catch a falling knife. So we can’t think about buying until buying until the uptrends appear.
Be patient for now. But when the dollar breaks down, be ready to pile in.
Brett Eversole[ad#jack p.s.]
Source: Daily Wealth