With the conclusion of the debt debate last week and the recent slaughter on Wall Street, one may wonder if there is any high ground anywhere in this brave new world of debt and possible double dip recessions.
In addition to intense action in the United States, governments and central banks were busy in Japan and Switzerland as those two governments tried to control their currencies while the European Central Bank was on the intervention highway as they said that they will start buying Italian bonds in exchange for financial reform and austerity in yet another effort to stop the contagion in Europe.
As always, opportunities for enormous profits appear in the aftermath of any disaster, and this time is no exception.
With the debt ceiling debate concluded for now, the US dollar is likely to stay weak for quite some time. Given that the dollar is the worldwide reserve currency and is currently in jeopardy, where on EARTH is the high ground? As we scan available asset classes, we find that foreign currency ETFs could offer some high ground and safety in the near future.
In recent weeks, investors have flocked to the Japanese Yen as the dollar tanked, and finally in response, Japan last week tried to stop the skyrocketing Yen with the Japanese Central Bank depositing nearly 4.5 trillion Yen into its economy. The excess cash slowed the currency down, but only for a short time, as investors still continued flocking towards its perceived safety and value.
Currency Shares Japanese Yen Trust (FXY) ETF illustrated this phenomenon, FXY could continue to be a good source of potential profits in spite of the Japanese Central Bank’s effort to stop the Yen’s appreciation.
The same applies to Switzerland and their Franc, as Swiss National Bank President Philipp Hildebrand claims that the Swiss National Bank will do what is necessary to curb his rising currency. With the ongoing debt woes in the EU, the Franc also looks like a safe haven as the worldwide debt debacle continues to unfold.
So far, Currency Shares Swiss Franc Trust (FXF) has registered a near vertical climb during the chaos of recent days.
Finally, the Euro might live to fight another day as The European Central Bank said they would start buying Italian bonds in exchange for fiscal reform. On any normal day (say a strong dollar), the Euro would likely be in trouble due to the ongoing Continental debt blues, however, with the fiscal soap opera in America showing no signs of being cancelled anytime soon, the Euro might prove to be another safe haven for investors. (But this bears close watching because the situation in Europe generally remains a powder keg with the potential to blow careless investors into little pieces with no warning at all). The Currency Shares Euro Trust (FXE) might be worth watching.
All in all, the last few weeks have been historic, and, to say the least, terrifying. Under usual circumstances, interventions by the Central Banks of Japan, Switzerland, and the EU would likely stunt the growth of these currencies for quite some time. However, we have seen that current market conditions are far from normal, and with global confidence in America’s government and reserve currency badly shaken, it’s likely that investors will be able to continue to find high ground in the Yen, Franc, and Euro and their respective ETFs: (FXY), (FXF), and (FXE).
Disclaimer: Wall Street Sector Selector trades a wide variety of Exchange Traded Funds (ETFs) and positions can change at any time.