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Michael Gayed: A Rising Dollar May Change Everything
If economic growth does not pick up, interest rates could stay low longer than you think.
Michael A. Gayed    

Everything changes but change.
-Israel Zangwill

Expectations have been building the Fed will finally raise rates in 2014 and "normalize" monetary policy. With the end of Quantitative Easing near, the hope for many market participants is that the economy is accelerating to the point where finally, years after the financial crisis, the Fed will end its zero interest rate policy and favor savers as opposed to asset holders. However, as the Bank of Japan knows, it is extraordinarily hard to raise rates when there is legacy debt that must be paid off, and when deflationary pressures still persist.

Of course, you really can't normalize interest rates unless you normalize growth and inflation expectations, which continue to be muted. This is where the US Dollar comes into play as it could be a significant driver of Fed policy.

I know it sounds patriotic to want a stronger dollar, but in reality, we need a weak currency.

When a country's currency is weak, it makes goods and services cheaper to buyers overseas, and makes imports more expensive. This is inherently inflationary because more money is coming in than going out.

A strong currency, on the other hand, is a disinflationary force. When a currency appreciates in value, it makes goods and services more expensive to overseas buyers (who are then less likely to buy), and in some ways, imports deflation from other countries. 

The reason? 

When a currency depreciates (in this case, the Euro), it makes goods and services cheaper to foreign buyers. This dampens demand for domestic goods and services from that buyer, lowering costs, and putting downward pressure on prices.

For a sector rotation strategy, which our ATAC Beta Rotation Fund (BROTX) aggressivelyl uses to maneuver between cyclical and defensive areas of the stock market, a strong dollar would favor domestically focused groups relative to multinationals.

Take a look below at the chart of the PowerShares DB US Dollar Index Bullish Fund ETF (UUP), which seeks to track changes in the Deutsche Bank Long US Dollar Index (USDX).

Note the strength which began in mid-June 2014, around the time European Central Bank President Mario Draghi announced negative deposit rates. 

The timing is important because as of August 20, 2014, the Euro made up 57% of the ETF.



On the surface, this looks like the start of what could be a strong uptrend for the greenback, given that a rising price means the Dollar is strengthening relative to the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc (all of which make up the ETF). 

This could change everything in terms of interest rate expectations for market participants because the stronger the Dollar gets, the more disinflationary the currency becomes on the overall economy. If growth does not pick up in a meaningful way and inflationary pressures continue to weaken precisely because of a strengthening dollar, then rates could stay lower for longer than current investors and traders believe.

Twitter: @pensionpartners

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The fund as of 08/26/2014 does not invest in any of the following investments: UUP.  Fund holdings are subject to change and are not recommendations to buy or sell any security.  Current and future holdings are subject to risk.

The Fund's investment objectives, risks, charges, expenses and other information are described in the statutory prospectus, which must be read and considered carefully before investing.  You may download the statutory or summary prospectus or obtain a hard copy by calling 855-ATACFUND or visiting www.atacfund.com.  Please read the Prospectuses carefully before you invest.

Mutual fund investing involves risk. Principal loss is possible.  Because the Funds invest primarily in ETFs, they may invest a greater percentage of its assets in the securities of a single issuer and therefore is considered non-diversified.  If a Fund invests a greater percentage of its assets in the securities of a single issuer, its value may decline to a greater degree than if the fund held were a more diversified mutual fund.  The Funds are expected to have a high portfolio turnover ratio which has the potential to result in the realization by the Fund and distribution to shareholders of a greater amount of capital gains.  This means that investors will be likely to have a higher tax liability.  Because the Funds invest in Underlying ETFs an investor will indirectly bear the principal risks of the Underlying ETFs, including but not limited to, risks associated with investments in ETFs, large and smaller companies, real estate investment trusts, foreign securities, non-diversification, high yield bonds, fixed income investments, derivatives, leverage, short sales and commodities.  The Fund will bear its share of the fees and expenses of the underlying funds.  Shareholders will pay higher expenses than would be the case if making direct investments in the underlying funds.  The Beta Rotation Fund is new with no operating history and there can be no assurances that the fund will grow or maintain an economically viable size.

All investing involves risks. 

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

The Deutsche Bank Long US Dollar Index (USDX®) Futures Index - Excess Return™ is a rules-based index composed solely of long U.S. Dollar Index futures contracts that trade on the ICE futures exchange (USDX® futures contracts).

MA(4) = 4 week moving average

References to other securities should not to be interpreted as an offer of these securities.

ATAC Beta Rotation Fund is distributed by Quasar Distributors, LLC.  No other products mentioned are distributed by Quasar Distributors, LLC.
< Previous
  • 1
Next >
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Michael Gayed: A Rising Dollar May Change Everything
If economic growth does not pick up, interest rates could stay low longer than you think.
Michael A. Gayed    

Everything changes but change.
-Israel Zangwill

Expectations have been building the Fed will finally raise rates in 2014 and "normalize" monetary policy. With the end of Quantitative Easing near, the hope for many market participants is that the economy is accelerating to the point where finally, years after the financial crisis, the Fed will end its zero interest rate policy and favor savers as opposed to asset holders. However, as the Bank of Japan knows, it is extraordinarily hard to raise rates when there is legacy debt that must be paid off, and when deflationary pressures still persist.

Of course, you really can't normalize interest rates unless you normalize growth and inflation expectations, which continue to be muted. This is where the US Dollar comes into play as it could be a significant driver of Fed policy.

I know it sounds patriotic to want a stronger dollar, but in reality, we need a weak currency.

When a country's currency is weak, it makes goods and services cheaper to buyers overseas, and makes imports more expensive. This is inherently inflationary because more money is coming in than going out.

A strong currency, on the other hand, is a disinflationary force. When a currency appreciates in value, it makes goods and services more expensive to overseas buyers (who are then less likely to buy), and in some ways, imports deflation from other countries. 

The reason? 

When a currency depreciates (in this case, the Euro), it makes goods and services cheaper to foreign buyers. This dampens demand for domestic goods and services from that buyer, lowering costs, and putting downward pressure on prices.

For a sector rotation strategy, which our ATAC Beta Rotation Fund (BROTX) aggressivelyl uses to maneuver between cyclical and defensive areas of the stock market, a strong dollar would favor domestically focused groups relative to multinationals.

Take a look below at the chart of the PowerShares DB US Dollar Index Bullish Fund ETF (UUP), which seeks to track changes in the Deutsche Bank Long US Dollar Index (USDX).

Note the strength which began in mid-June 2014, around the time European Central Bank President Mario Draghi announced negative deposit rates. 

The timing is important because as of August 20, 2014, the Euro made up 57% of the ETF.



On the surface, this looks like the start of what could be a strong uptrend for the greenback, given that a rising price means the Dollar is strengthening relative to the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc (all of which make up the ETF). 

This could change everything in terms of interest rate expectations for market participants because the stronger the Dollar gets, the more disinflationary the currency becomes on the overall economy. If growth does not pick up in a meaningful way and inflationary pressures continue to weaken precisely because of a strengthening dollar, then rates could stay lower for longer than current investors and traders believe.

Twitter: @pensionpartners

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The fund as of 08/26/2014 does not invest in any of the following investments: UUP.  Fund holdings are subject to change and are not recommendations to buy or sell any security.  Current and future holdings are subject to risk.

The Fund's investment objectives, risks, charges, expenses and other information are described in the statutory prospectus, which must be read and considered carefully before investing.  You may download the statutory or summary prospectus or obtain a hard copy by calling 855-ATACFUND or visiting www.atacfund.com.  Please read the Prospectuses carefully before you invest.

Mutual fund investing involves risk. Principal loss is possible.  Because the Funds invest primarily in ETFs, they may invest a greater percentage of its assets in the securities of a single issuer and therefore is considered non-diversified.  If a Fund invests a greater percentage of its assets in the securities of a single issuer, its value may decline to a greater degree than if the fund held were a more diversified mutual fund.  The Funds are expected to have a high portfolio turnover ratio which has the potential to result in the realization by the Fund and distribution to shareholders of a greater amount of capital gains.  This means that investors will be likely to have a higher tax liability.  Because the Funds invest in Underlying ETFs an investor will indirectly bear the principal risks of the Underlying ETFs, including but not limited to, risks associated with investments in ETFs, large and smaller companies, real estate investment trusts, foreign securities, non-diversification, high yield bonds, fixed income investments, derivatives, leverage, short sales and commodities.  The Fund will bear its share of the fees and expenses of the underlying funds.  Shareholders will pay higher expenses than would be the case if making direct investments in the underlying funds.  The Beta Rotation Fund is new with no operating history and there can be no assurances that the fund will grow or maintain an economically viable size.

All investing involves risks. 

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

The Deutsche Bank Long US Dollar Index (USDX®) Futures Index - Excess Return™ is a rules-based index composed solely of long U.S. Dollar Index futures contracts that trade on the ICE futures exchange (USDX® futures contracts).

MA(4) = 4 week moving average

References to other securities should not to be interpreted as an offer of these securities.

ATAC Beta Rotation Fund is distributed by Quasar Distributors, LLC.  No other products mentioned are distributed by Quasar Distributors, LLC.
< Previous
  • 1
Next >
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

More From Michael A. Gayed
Daily Recap
Michael Gayed: A Rising Dollar May Change Everything
If economic growth does not pick up, interest rates could stay low longer than you think.
Michael A. Gayed    

Everything changes but change.
-Israel Zangwill

Expectations have been building the Fed will finally raise rates in 2014 and "normalize" monetary policy. With the end of Quantitative Easing near, the hope for many market participants is that the economy is accelerating to the point where finally, years after the financial crisis, the Fed will end its zero interest rate policy and favor savers as opposed to asset holders. However, as the Bank of Japan knows, it is extraordinarily hard to raise rates when there is legacy debt that must be paid off, and when deflationary pressures still persist.

Of course, you really can't normalize interest rates unless you normalize growth and inflation expectations, which continue to be muted. This is where the US Dollar comes into play as it could be a significant driver of Fed policy.

I know it sounds patriotic to want a stronger dollar, but in reality, we need a weak currency.

When a country's currency is weak, it makes goods and services cheaper to buyers overseas, and makes imports more expensive. This is inherently inflationary because more money is coming in than going out.

A strong currency, on the other hand, is a disinflationary force. When a currency appreciates in value, it makes goods and services more expensive to overseas buyers (who are then less likely to buy), and in some ways, imports deflation from other countries. 

The reason? 

When a currency depreciates (in this case, the Euro), it makes goods and services cheaper to foreign buyers. This dampens demand for domestic goods and services from that buyer, lowering costs, and putting downward pressure on prices.

For a sector rotation strategy, which our ATAC Beta Rotation Fund (BROTX) aggressivelyl uses to maneuver between cyclical and defensive areas of the stock market, a strong dollar would favor domestically focused groups relative to multinationals.

Take a look below at the chart of the PowerShares DB US Dollar Index Bullish Fund ETF (UUP), which seeks to track changes in the Deutsche Bank Long US Dollar Index (USDX).

Note the strength which began in mid-June 2014, around the time European Central Bank President Mario Draghi announced negative deposit rates. 

The timing is important because as of August 20, 2014, the Euro made up 57% of the ETF.



On the surface, this looks like the start of what could be a strong uptrend for the greenback, given that a rising price means the Dollar is strengthening relative to the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc (all of which make up the ETF). 

This could change everything in terms of interest rate expectations for market participants because the stronger the Dollar gets, the more disinflationary the currency becomes on the overall economy. If growth does not pick up in a meaningful way and inflationary pressures continue to weaken precisely because of a strengthening dollar, then rates could stay lower for longer than current investors and traders believe.

Twitter: @pensionpartners

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The fund as of 08/26/2014 does not invest in any of the following investments: UUP.  Fund holdings are subject to change and are not recommendations to buy or sell any security.  Current and future holdings are subject to risk.

The Fund's investment objectives, risks, charges, expenses and other information are described in the statutory prospectus, which must be read and considered carefully before investing.  You may download the statutory or summary prospectus or obtain a hard copy by calling 855-ATACFUND or visiting www.atacfund.com.  Please read the Prospectuses carefully before you invest.

Mutual fund investing involves risk. Principal loss is possible.  Because the Funds invest primarily in ETFs, they may invest a greater percentage of its assets in the securities of a single issuer and therefore is considered non-diversified.  If a Fund invests a greater percentage of its assets in the securities of a single issuer, its value may decline to a greater degree than if the fund held were a more diversified mutual fund.  The Funds are expected to have a high portfolio turnover ratio which has the potential to result in the realization by the Fund and distribution to shareholders of a greater amount of capital gains.  This means that investors will be likely to have a higher tax liability.  Because the Funds invest in Underlying ETFs an investor will indirectly bear the principal risks of the Underlying ETFs, including but not limited to, risks associated with investments in ETFs, large and smaller companies, real estate investment trusts, foreign securities, non-diversification, high yield bonds, fixed income investments, derivatives, leverage, short sales and commodities.  The Fund will bear its share of the fees and expenses of the underlying funds.  Shareholders will pay higher expenses than would be the case if making direct investments in the underlying funds.  The Beta Rotation Fund is new with no operating history and there can be no assurances that the fund will grow or maintain an economically viable size.

All investing involves risks. 

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

The Deutsche Bank Long US Dollar Index (USDX®) Futures Index - Excess Return™ is a rules-based index composed solely of long U.S. Dollar Index futures contracts that trade on the ICE futures exchange (USDX® futures contracts).

MA(4) = 4 week moving average

References to other securities should not to be interpreted as an offer of these securities.

ATAC Beta Rotation Fund is distributed by Quasar Distributors, LLC.  No other products mentioned are distributed by Quasar Distributors, LLC.
< Previous
  • 1
Next >
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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