Macro Tsimmis

intelligently hedged investment

SELL PowerShares DB US Dollar Bearish ETF (UDN)

Posted by intelledgement on Fri, 09 Sep 11

OK, this move is going against the macros. Everything we said when we took this position back in October 2010 still applies, and then some. The US government continues to extend-and-pretend with a vengeance. Just last night, President Obama proposed another $450 billion amalgam of temporary, emergency salves for the sundry symptoms assailing our teetering economy, without the faintest hint of of any effort to cure the actual disease—systemic malinvestment driven by out-of-control banksters and corporatists whose incentives have become misaligned with the greater good of humankind. No surprise, as Obama’s biggest contributors have always been and still remain those very same guys.

So—among other bad effects coming sooner or later—the dollar is toast, given the compulsion of the government to keep printing more in their pathetic efforts to push on the stimulus/bailout string.

However, there is no chance of that happening this month. In contrast, that is, to the Euro, which could potentially be undone depending on how things play out with Greece, Italy, and Spain. If the Eurozone comes completely unglued and the Euro collapses, the dollar is likely to (temporarily) benefit as a (relatively) safe haven play. If that happens, we will have an opportunity to get back into UDN at a much lower price point.

Of course, it’s possible that the Eurozone could expel the troubled peripheral economies and we could end with a strengthened (temporarily) Euro. In which case, dumping UDN here will prove to be unnecessary, and possibly even cost us. But it is unlikely to cost us much to get back in under those circumstances—there is no immediate reason for the dollar to plummet in value—whereas if the Euro collapses—which appears to be the more likely scenario anyway—we could see substantial dollar strengthening.

Thus when the micros—in this case, the potential imminent collapse of the Euro and concomitant short-term effects —overwhelm the macros—long-term destruction of the dollar—stepping aside is the prudent play.

Previous dollar short-related post:

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