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(Almost) Time to Buy the Dollar: Searching for Alpha for May 2011
Talk is cheap—especially when one is dishing on the economy. Take Treasury Secretary Tim Geithner, for example. His recent insistence that the U.S. believes that a strong dollar is in the best interests of the country was met with a collective yawn by currency dealers, who actually bid the greenback lower on the news.
Similarly, the announcement by several Eurocrats insisting that a Greek default is not on the table was met with significant selling pressure on that country’s debt.
There may be a surprise reversal for the greenback if the Fed plays its cards right. With QE II ending in June, and no QE III in sight, any plan for reducing the deficit would likely be a turning point for a higher dollar.
Let’s be clear. Although QE is ending, it really isn’t—I’m sure that the government will continue its off-balance sheet support of the economy in some form. And when I say “any plan,” I imagine that even the most ill-conceived scheme could result in a surprise rally in the dollar.
The massive popularity of the short dollar trade will only add fuel to the fire. Once the greenback gets a bid, the many hedge fund and mutual fund managers who hold the position will have no choice but to flee.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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