10 Ways To Profit From Bernanke's Big Move

ben bernanke

Photo: AP

In light of the new tightening cycle, we wanted to revisit recent analysis from David Rosenberg on how to play the markets when the dollar is showing strength (as it is today, and as it will for sometime as the cycle continues).It’s not easy, seeing as a rising buck has been coinciding with a decline in everything priced in dollars.

Rosenberg writes:

Since the onset of the credit crisis in 2007, there have seen three occasions when a surge in risk aversion caused a period of U.S. dollar strength on flight-to-safety trades — July 15, 2008 to September 11 2008 (around the GSEs); September 22, 2008 to November 21, 2008 (post-Lehman financial collapse) and then from December 17, 2008 to March 5, 2009 (the final leg down in the financials). Here is what happened, on average, during these dollar-rally episodes — ultra-defensive strategies and heightened volatility.

He then outlines 10 specific patterns...

How to take advantage of a surging dollar >

Buy dollars directly (obviously)

'The DXY (U.S. dollar index) rallied an average of 12.3% during this time.' Make like a fund manager and embrace it. Notice the huge rise in the value of the dollar during last fall? It could have been your play.'

Source: Gluskin-Sheff: Breakfast With Dave

Image: Bloomberg

Check out utilities, staples, and healthcare

'The S&P 500 corrected an average of 18.5%. Underperforming S&P equity sectors included materials, energy, industrials and financials. Outperformers included utilities, staples, health care, tech and telecom.'

Source: Gluskin-Sheff: Breakfast With Dave

Image: BI

And surprisingly, Canadian markets don't do as bad as you'd expect.

'Despite the downdraft in commodities, the TSX performed in line with the S&P -- losing 18%.'

Source: Gluskin-Sheff: Breakfast With Dave

Image: BI

And don't forget: the TSX isn't correlated to the S&P 500

'In the TSX sectors, the winners and losers were different than in the U.S.A.: Financials and industrials actually outperformed. Only materials and energy seriously dragged down the Canadian market. As in the U.S., staples, health care, utilities, tech and telecom outperformed. Outside of resources, the TSX sectors actually outperformed their S&P comparable.'

Source: Gluskin-Sheff: Breakfast With Dave

Image: Google Finance

Still, if the economy sucks, you can't do much about it

As the dollar rises, use the pullback in commodities as a buying opportunity

'During the aforementioned period (2008) the price of oil, on average, fell 26%, and gold was off an average of 11%. The CRB index corrected an average of 22%.'

Source: Gluskin-Sheff: Breakfast With Dave

Image: BI

Buy the VIX

'The VIX index surge an average of 34% during these U.S. dollar-rally episodes.'

Source: Gluskin-Sheff: Breakfast With Dave

Image: Wong Park via BI

The yield curve steepens.

'We saw a bull steepening in the bond market -- 2-year T-note yields plunge an average of 36bps while 10-year T-note yields dipped 8bps.'

Source: Gluskin-Sheff: Breakfast With Dave

Image: BI

Don't go chasing junk bonds.

'Baa corporate spreads widened an average of 54bps; and by 268bps for high-yield bonds.' Fat returns will soon find their way into your portfolio during this time.'

Source: Gluskin-Sheff: Breakfast With Dave

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.