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March 15, 2005

Buy the Dollar Index

"Given the recent intense interest in the future course of the Dollar, I would like to raise a technical issue and a flag of caution regarding those forecasts--or, for that matter, any forecast of exchange rates. There may be more forecasting of exchange rates, with less success, than almost any other economic variable."
                                Alan Greenspan
                                July 16, 2002

"Statistics have shown forecasting exchange rates has a success rate no better than forecasting the outcome of a coin toss."
                                Alan Greenspan
                                November 19, 2004

Whether or not you agree with his policies, my guess is you will agree Alan Greenspan probably has more economic information and expertise at his fingertips than 99.99% of the world's population....And when he says, "Nobody Knows" when it comes to the currency markets, I'm willing to take his word for it.

Fact is, for the greater part of my 25 years in this business, I have been of the same opinion. Over the years, I have seen more "experts" be totally wrong in the currencies more times than you would believe. My first inkling of this occurred in 1983 while still a rookie commodity broker at Merrill Lynch Commodities in downtown Atlanta. Currency trading was all the rage then and Merrill brought a team of blueblooded international banking experts to town for a Currency Trading Seminar attended by roughly 500 people at one of the local ritzy hotels. With less than three years experience, and certainly not kidding myself that I understood anything about what moved the exchange markets, I truly held these experts in awe. They were from New York and London, sophisticated, expensively dressed, extremely articulate and exuding confidence in their fundamentally based opinion that the Dollar, which had been on the rise, was going to reverse, and was therefore an absolutely tremendous short sale. As I stood at the back of the room, doing my best to soak up what I believed to be definitive currency market wisdom, they began to project large long term charts of the major currencies on a screen on stage. As I had been "doing charts" almost from my first week in the business several years earlier, I knew a little about the "art" of technical trading and as they projected chart after chart, all I naively could think was, "Boy, it sure looks like the Dollar is about to blast off and go dead opposite what these guys are saying." However, knowing that charts were not the only answer in futures trading, and having had very little experience in the currencies, I assumed they really knew what they were talking about, and gave it no further thought. At that time I was positioning in Soybeans and all the agricultural markets were more interesting to me anyway.....The end of the story is that over the next 15 months the Dollar went virtually straight up about 30%, in spite of a long, logical, sophisticated list of reasons why it shouldn't. By no means do I present this to say, "I was right. They were wrong"....It's just that moment when they started flashing charts up there has always stuck in my memory, and was the first of MANY occasions in the 22 years since, when I have seen exactly what Alan Greenspan expressed be true...NOBODY KNOWS what the currencies are going to do..

Even if you do not read the financial pages, you are certainly aware of the one sided, universally bearish opinion out there as regards the Dollar. I picked up a major news magazine last night and there it was as the cover story....what EVERYBODY KNOWS....The Dollar is trash and can only be going lower....And there are seemingly countless "logical" reasons as to why this is just inevitable....

So I'll now ask you this....In this market, that is patently unpredictable, when everybody is unnanimously bearish, when there is "no hope" for the Dollar, does it not make sense, as a speculator to look at the other side? For my own two cents, if I put the answer to this question in the form of an equation, it would be something like this:

Nobody knows means....Everybody is generally wrong.
Dollar opinion is NOT two sided right now.
Everybody is unanimously bearish.....Be bullish.

I am not going to sit here and give you any fundamental reasons why I think the Dollar is a major buy....except to say I don't think the United States is going down the drain, and if this is the case, the Dollar is not in some bottomless spiral with no hope, ever, in sight. At some point, all the selling has been done (and we have had several years worth) and the Dollar will do what I have seen countless bear markets do.....which is turn around and go the other way. It is ALWAYS bearish at the bottom.... Remember $10.00 Crude Oil FIVE years ago? Remember Stocks in March 2003? To me, the Dollar is no different now and I start placing my bets tomorrow. Like all those experts, I may be dead wrong but I think at least a 10-15 point ($10,000-$15,000 per futures contract) rally is in the cards.

Even though I prefer using the both sides stragegy (2 calls to every put), there are a number of ways to do this. I will be working in both the June and September contracts.

Think about what I've written here. Go read everything you can on the Dollar. If you think this is an idea you want to risk money on, give me a call.....the sooner the better. The Dollar has been sitting here about 4 months now, and on the chart below, you'll note this thing can come off the lows fairly quickly.


Bill Rhyne

3-15-05dollarmonthly.gif (14995 bytes)


3-15-05june05dollar.gif (11939 bytes)

There is more leverage in June but September is probably the best place to be.....

3-15-05sept05dollar.gif (11481 bytes)


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