Alternative to Bill Ackman's long HKD / short USD trade

[Guest fedcep]

What does everyone think about Ackman's long HKD / short USD pitch?

 

I personally use a variation of that trade, where I sell USD and buy SGD during market panics. I think the economy of Singapore is much healthier than that of the United States, and I think the safe-haven premium is unwarranted. This is akin to Ackman's argument.

 

You can find more details about the idea here: http://valuetakes.blogspot.com/2012/03/short-usd-long-sgd-during-panics.html

 

Thanks for reading and, as always, I look forward to your feedback.

[petec]

Depends on your time horizon.  How does the dollar do if treasury yields rise (inevitable at some point) and shale oil significantly reduces oil imports, which account for >80% of the trade deficit?

[Guest fedcep]

Pete, sorry for the late reply.

 

I agree that yields are bound to increase at some point, and that a reduction in the trade deficit would be positive for the value of the USD versus other currencies, all else equal. However, there is a much stronger force that is bound to drive the value of the USD down. A lot of the expansion in the monetary base after 2008 hasn't made it into the real economy yet. Instead, it has been sitting idle in banks' balance sheets. Eventually, banks are going to have to put that money back in circulation as they start making credit available again. This would bring the velocity of money back up and inflation can spiral really quickly. The same is true about the EUR.

 

Here's an article by Mark Spitznagel that explains this effect and what it means for the USD that I found interesting: http://www.project-syndicate.org/commentary/capital-shrugged

 

I'm admittedly pessimistic about Western economies in the long run, but I feel there's a decent chance that we're gonna see a situation similar to that of Britain in the 70s in the next few years. I've been hedging my USD exposure and buying deep out of the money long-term calls on gold miners as a result, much like Klarman, Einhorn, Loeb, and a few other value guys have been doing. Let's hope I'm wrong!

[Mephistopheles]

Kinda off topic, but for those of you who have piggybacked Ackman on his trade of buying HKD call options, what broker did you use? Do you need a broker that offers forex + options, or one that offers only options is good enough?