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Currency Wars To Break Dollar?


The stronger dollar has caused defensive equity sectors to lead.

"The quickest way of ending a war is to lose it." - George Orwell

Seemingly many people out of nowhere are now bullish on the Dollar.  After all, the Federal Reserve is winding down stimulus, desperately hoping to raise rates so that they have room to lower them again for whenever the next recession comes.  Meanwhile, Europe is flirting with deflation, and central bank paranoia likely means the European Central Bank will attempt to juice inflation expectations.  Traditional currency analysis would argue that when one country is reducing stimulus at the same time another is increasing it, the country reducing stimulus tends to see its currency appreciate on interest rate differentials.

The strong dollar has served as a drag on commodities clearly given that when adjusting for strength, dollar denominated raw materials become cheaper.  This in and of itself is a disinflationary force, which may explain why low beta defensive sectors have been strong recently as our equity sector ATAC Beta Rotation Fund (Ticker: BROTX) remains positioned all-in defensively in the current environment.  However, there likely will be concerns being expressed by Federal Reserve officials about Dollar strength should appreciation continue.  Why?  Because this would serve as a headwind against the Fed's attempts to increase inflation expectations, given that a strong currency tends to put downward pressure on domestically made products relative to cheaper imported goods.  And the Fed likely will not be willing to go down easily as global currency wars take hold.

The fear of central bank jawboning might reverse strength in the Dollar into the end of the year.  Take a look below at the price of the PowerShares DB US Dollar Index Bullish ETF (UUP) and notice that the ETF, which represents a basket of currencies, may be ripe for a turnaround just as new highs are reached.  Over the past three years, it is at this level that declines have tended to happen.

Click to enlarge

I know it sounds patriotic to want a strong Dollar, but when inflation expectations are already low, a strong currency can be damaging to domestic growth activity and potentially send the US into a deflationary environment.  The Federal Reserve must know this, and as we've seen, words seem to be enough for markets to initiate new trends.  I believe we may soon see this, which could for a short period of time dampen the Dollar's strength. 

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  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 fund as of 10/27/2014 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.

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.

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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.

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