Dollar Dive: Two Paths To Profit

Last week we profiled the recent declines in the value of the dollar…and why we believe this is a trend that will continue.  

That was 14 days ago, and already the USD Index is down another 4.2%—we’ll say it again:

These declines will beget more declines; The world’s reserve currency has a lot further to fall.

For more background and to understand the underlying forces at play, take a look at our last article “The Dollar is Down Over 10%, What happens next?”  if you haven’t already.

With the trend now identified, the larger point as an investor becomes what to do about it.

We’re going to cover two very simple plays—plays that we have in place ourselves– to profit from a continuing decline in the dollar. And while the bets themselves are rudimentary, understanding the context is crucial, especially if you’re new to the currency game:

Normally, we use currency as a tool to measure or establish the value or worth of a product or service. That boat is worth X dollars, those tickets cost X amount, etc.

But when you start asking how much that dollar itself is worth, it can get a bit Zen.

Because we can assign a value to any product in terms of dollars—we’re using dollars as a means of measurement—pretty simple.

But how can you measure the means of measurement itself? How do we measure an inch, if not in inches? What is an inch if not….an inch?

An inch has always been, and will always be, an inch in length…right?

Well, as long as we’re talking about inches—about distance—yes.

Because it is fixed. It is a fixed and constant value. And it used to be like this with the dollar: the dollar was fixed to a certain amount of gold. X amount of dollars equaled X amount of gold.

And, because the Dollar had a constant, known value, the other nations of the world didn’t bother fixing their currency to gold, they just fixed their currency to the Dollar, which was itself fixed to gold. And all was well.