Shorting the US dollar

[TStoneMBD]

All this talk about the dollar falling I'm starting to believe it. I hear that Buffet and Gates are shorting the dollar so why shouldn't I? From my understanding, any dollar you invest in the forex market allows you to control $100 worth of currency. Wouldn't it be a sound investment to short the US dollar with 100x leverage? If i diversify in foreign exchanges the only fear I have to worry about it is if the dollar somehow rises. Of course if it does I risk getting wiped clean. If it maintains its position for a long time I lose nothing, but if it collapses I would make a fortune once I buy back into the economy.

I'm a novice with these things so please fill me in on anything I am missing. It appears to me that the upside of shorting the US dollar is so great while the downside is so minimal. Because of this, I'm skeptical on its potential.

On another note, is there a way for me to setup my neteller account directly to the forex market so that I can enter and exit easily? Do I need to withdraw everything to my bank account and eft it into Forex?

What software would you recommend I use to short the Forex market and how could I get setup easily with minimal costs. I understand that 4xmadeeasy is a good program but I also understand that it costs far more than I'm willing to invest.

[MMMMMM]

You do realize that if you work with 100x leverage, a 1% move against you will wipe out your entire margin thus closing out your position at a loss, right?

You should take a look at some past charts of the dollar's movement--hour charts, day charts, monthly charts, and yearly charts--just to see what kind of fluctuations are involved.

It is not that hard to call the direction right overall, yet still have your position wiped out in the shorter term if you are highly leveraged.

[TStoneMBD]

yah i entirely understand that, which is why i wouldnt invest everything with 100x leverage. also, 4xmadeeasy apparently has a stop/loss feature where you can tell the software once you lose x amount of money it immediately sells your position so you only lose that amount. you can still leverage 100x but you can at least keep half your roll if the us dollar rises. clearly though its not uncommon for a .5% influx on the dollar so leveraging in this sense is highly volatile. despite risk, it seems the ROI of this investment would on average be gigantic. do you not agree?

[MMMMMM]

[ QUOTE ]
yah i entirely understand that, which is why i wouldnt invest everything with 100x leverage. also, 4xmadeeasy apparently has a stop/loss feature where you can tell the software once you lose x amount of money it immediately sells your position so you only lose that amount. you can still leverage 100x but you can at least keep half your roll if the us dollar rises. clearly though its not uncommon for a .5% influx on the dollar so leveraging in this sense is highly volatile.

[/ QUOTE ]

It's not just "highly volatile", but the chance you get stopped out at a loss is very high if you only have one-half of one percent allowable wiggle room. That's likely to happen even if you call the overall direction correctly, meaning you'll be right but you'll lose money.

[ QUOTE ]
despite risk, it seems the ROI of this investment would on average be gigantic. do you not agree?


[/ QUOTE ]

I don't agree amd here's why: it MIGHT turn out that way, but it's a lot more gamble than I suspect you may be thinking it is. Also, you can't divorce risk from ROI, because your EV must include weighted risk as well as weighted return.

Also, just calling the direction correctly is a lot harder than it might seem. Calling the direction correctly AND at about the right time AND being so right that your position never even moves against your entry level by a tiny 0.5% due to fluctuation is way harder yet still. And don;t forget you are fighting the spread as well.

Basically with that kind of leverage you have just about no wiggle room at all and you have to be immediately right and stay right or you will get stopped out very soon at a loss.

By the way, many good experienced forex traders generally recommend that you risk no more than 1%-2% of your bankroll on any one trade. And they'e typically using a lot less leverage than you are contemplating.

[TStoneMBD]

Ok I understand the risk of leveraging so significantly and see that is clearly wrong unless Im doing it with a portion of my bankroll that I dont mind losing. however, this has nothing do with ROI. if its certain that the USD is going to drop in the future by a good percentage then shorting the USD is +EV assuming you can ride out the short term swings. I certainly see that my original post in this thread was naive on certain levels now, but I still feel strongly that if it's likely that the USD is going to drop a good amount in the upcoming months/years and is unlikely to rise that the ROI of leveraging against the dollar is very significant, but very risky and volatile.

Unfortunately I don't know nearly enough about economics to come to my own conclusions about the future of the dollar, all I know how to do is to react to the thoughts of others and it seems that intelligent investors are expecting a great inflation in the near future and as a result are investing in foreign currencies and assets to hedge themselves against catastrophe. Of course, they are investing conservatively while my plan would be extemely nonconservative.

[Sniper]

Trading in the forex market is a high risk venture, especially for a newbie... make sure you read up on position sizing and risk management before stepping up to the plate!

Some brokers that will allow you to setup (usually 30 day) demo accounts, where you can actually trade play $...

Capital Market Services - http://www.cms-forex.com/
Forex Capital Markets - http://www.fxcm.com/
Advanced Currency Markets - http://www.ac-markets.com/
Gain Capital - http://www.gaincapital.com/

The software and services are slightly different for each, so I would recommend you do some testing of each platform and see which YOU find the most comfortable.

Also, remember that currencies basically trade around the clock [img]/images/graemlins/wink.gif[/img]

[Dan Mezick]

TStone,

I see this post and I see your other post over there, on real estate.

You sense more inflation coming-- HERE, now-- and dont want your wealth's purchasing power to disappear. You seem to sense an opportunity in all this danger and are looking for specific action steps.

All you have to do is remember the lessons of 76-81 to do well in an big-inflation scenario. Study that period to be OK in your decisions regarding positioning.

The main thing to do is borrow cheap today-dollars at low FIXED rates, and make sure your cash (existing savings and debt) are positioned to benefit from monetary inflation. (An increase in the total dollars in circulation.)

This usually means real stuff: real estate, gold, gold stocks etc.

Lots of people will put homes on the market in the spring because of the expected real estate crisis and current attractive selling prices.

For example in my own home town this time last year there were 75 homes on the market; right now there are 175 homes available. Spring will bring even more supply; price must drop as a result to compensate. That may be an opportunity.

If you are so inclined consider buying gold (see symbol GLD).

The Fed says they are fighting inflation and that is PR and total BS. The reality is inflation is running away and these rate increases dont even come close to what is needed to stop it. They know exactly what they are doing. The cost of stopping the acceleration of the inflation trend with rate increases is huge: recession, a huge impact on balance of trade, etc. Just look at 1980-81 for an idea of how fun this will be.

At current real rates of interest (cost of money, minus inflation rate) they are literally paying you to borrow todays dollars and pay them off in inflated cheap future dollars later. Governments will always print more money to get out of a crisis. War is inflationary. Perpetual war means (likely) perpetual inflation.

It is unlikely China's cheap imports will continue to provide sufficient deflationary pressure to counter what has already started in terms of monetary inflation in the USA.

Add to this the statements from new-Fed-Chair Bernanke about "inflation targeting", "printing presses", and "dropping dollars out of helicopters" and you have the ingredients of a once-in-a-generation, perfect (inflationary) storm.

Inflation is a legal form of robbery. Anyone with savings in an account is being literally robbed blind by the inflators. The victims typically have no idea.

Ben Bernanke Background and Links

Lessons from 1976-1981

Investing in an Inflationary Scenario

Largest Producer Price Index Increase in 31 Years (since 1974)

Good source of info on current USA inflation situation.

[TStoneMBD]

when deflation occurs, how will this affect leasing rates and property prices? Inflation naturally raises prices but say the USD gets drops by 25%, would that mean that housing prices and rental rates are going to raise 25% to match the rate of inflation? i understand the theory that if i borrow money now and pay it back later i am paying it back with weaker dollars, but if borrowing now doesnt make me money through the process of inflation then what good is that?

if a deflation occurs, i have been told that the economy would collapse and real estate prices would drop. that makes sense to me but with deflation shouldnt the price of property stablilize to meet the rate of the us dollar? as a result, would real estate would initially plummet but rebound shortly after to make a gigantic profit for those who enter the market when it first crashes?

[laserboy]

TStoneMBD,

It helps to conceptualize inflation/deflation in terms of money supply.

Debt is highly inflationary. When people borrow billions of dollars in mortgage loans, billions of dollars in "money" is created and introduced into the money supply. This lessens the value of the dollar and inflates the value of assets like real estate. Furthermore there is somewhat of a multiplier effect, as people can then borrow money against the inflated value of their homes, pumping even more money into the economy. This cycle of debt, in a nutshell, is what drives the US economy.

Deflation occurs when debt is paid down or defaulted on, that money leaves the economy. This results in an increase in the value of the dollar and a decline in asset values as billions of dollars in fake money is sucked out of the markets. In a severe enough deflationary cycle, financial institutions will fail, destroying billions of dollars in assets and bringing additional lending to a screeching halt. This is what happened in Japan in the 1990s and the US in the 1930s. Note that this is actually bullish for the dollar, though the dollar may still decline relative to other currencies due to other macroeconomic factors such as trade deficits, reserve allocations of foreign central banks, interest rates, etc.

In the long run, price to rent ratios will likely revert toward their historical mean through a combination of declining real estate values and incrasing rents. Here is a graph of historical price/rent ratios in the US for the past twenty years:

OFHEO House Price to Rent

The way to profit from this trend would be to invest in apartment rental REITs. It would be important to invest in well managed REITs that make sense from a cashflow perspective, that are not highly leveraged, and that had the discipline not to invest in new properties during the boom.

[KaneKungFu123]

[ QUOTE ]
TStone,

I see this post and I see your other post over there, on real estate.

You sense more inflation coming-- HERE, now-- and dont want your wealth's purchasing power to disappear. You seem to sense an opportunity in all this danger and are looking for specific action steps.

All you have to do is remember the lessons of 76-81 to do well in an big-inflation scenario. Study that period to be OK in your decisions regarding positioning.

The main thing to do is borrow cheap today-dollars at low FIXED rates, and make sure your cash (existing savings and debt) are positioned to benefit from monetary inflation. (An increase in the total dollars in circulation.)

This usually means real stuff: real estate, gold, gold stocks etc.

Lots of people will put homes on the market in the spring because of the expected real estate crisis and current attractive selling prices.

For example in my own home town this time last year there were 75 homes on the market; right now there are 175 homes available. Spring will bring even more supply; price must drop as a result to compensate. That may be an opportunity.

If you are so inclined consider buying gold (see symbol GLD).

The Fed says they are fighting inflation and that is PR and total BS. The reality is inflation is running away and these rate increases dont even come close to what is needed to stop it. They know exactly what they are doing. The cost of stopping the acceleration of the inflation trend with rate increases is huge: recession, a huge impact on balance of trade, etc. Just look at 1980-81 for an idea of how fun this will be.

At current real rates of interest (cost of money, minus inflation rate) they are literally paying you to borrow todays dollars and pay them off in inflated cheap future dollars later. Governments will always print more money to get out of a crisis. War is inflationary. Perpetual war means (likely) perpetual inflation.

It is unlikely China's cheap imports will continue to provide sufficient deflationary pressure to counter what has already started in terms of monetary inflation in the USA.

Add to this the statements from new-Fed-Chair Bernanke about "inflation targeting", "printing presses", and "dropping dollars out of helicopters" and you have the ingredients of a once-in-a-generation, perfect (inflationary) storm.

Inflation is a legal form of robbery. Anyone with savings in an account is being literally robbed blind by the inflators. The victims typically have no idea.

Ben Bernanke Background and Links

Lessons from 1976-1981

Investing in an Inflationary Scenario

Largest Producer Price Index Increase in 31 Years (since 1974)

Good source of info on current USA inflation situation.

[/ QUOTE ]

im not in a position to borrow money.

whats the best way to protect my money?

how can i buy Euro's? is this what forex is for? what EFT's I can buy to offset inflation?