I thought that was interesting. Not only did he have the beginning and upcoming years in mind but he also had an “exit strategy” in place as well too.

Well, as with a business, you need to have an exit strategy for every Forex trade too. Many trading systems out there mainly put the emphasis on the entry. (”You need to get in on this trade now!”) But it’s rare that a Forex site describes the exit strategy built into their trading system. But that’s a crucial element of your trade.

Let me explain why with an example.

The other day I saw the Forex account of one trader who started with US$10,000 as his initial balance. In just 30 days, he managed to turn that US$10,000 seed money into US$70,000…and then unfortunately, lost all his gains and closed out the month with US$5,000 (HALF his initial balance).

Can you believe it? He was up sevenfold on his money…and then lost 50% of his initial balance by the end of the month!

He obviously had a great initial strategy with profitable entry points, but he didn’t have an exit strategy to lock in those gains. This is actually pretty easy to do, if you’re not ready with an entry and exit strategy for each trade.
I want you to hang onto your profits when you earn them, so let’s talk strategy…

You Have to Play Both Offense and Defense!

For starters you really need two exit strategies.

You need one offensive and one defensive. Just like a good football team has to be able to play both sides of the game…well, you need to play both sides as a Forex trader.

You better not only know how to make profits (offensive) but also how to protect those profits (defensive).

So let’s talk about the defensive strategy first because it’s really the most important.

A defensive exit strategy is your stop. You place a stop-loss at the point where the market will prove you wrong in your trade. You can also place a stop-loss where you have risked the maximum amount of your account that you are willing to lose on that particular trade.

So one way to do this is to identify areas on the currency chart that show signs of support. Place a stop below that area. That way, if support is broken and a new downtrend emerges, you don’t ride it all the way down and give up your account balance in the process.

Your Stop-Loss Goes Under the Support Line!

However, another approach is not only to analyze this aspect but also to analyze the potential damage to the account percentage too.

So before you place the trade, look at your entry and your stop-loss price. How many pips is the difference between your entry and stop? (You can find this out by looking at any chart.) Once you know the difference in pips, multiply that number by the number of lots that you are considering investing in. How much does that equal in dollars? Ask yourself: Are you willing to risk that much?

If it’s over 1-5% of your account balance, I’d suggest investing in fewer lots.

That’s my best defensive strategy. Check tomorrow’s A-Letter to hear about playing offense.

Source: Why You Need an Exit Strategy for Every Trade

This from The Sovereign Society:

The currency market is bigger than all of the world’s stock markets combined. This market gushes with $4 trillion worth of currencies EACH DAY, 24 hours a day.In times of turmoil, there’s always a safe haven in currencies. The trick is finding it. These opportunities normally don’t pop up on investors’ radar screens because most investors have no idea how to even get a quote or a chart for a currency.

In fact, in these tough times the Japanese yen has been soaring like a rocket and so has the Swiss franc. Savvy hedge fund managers have been buying up the yen as stocks have crumbled. They saved their portfolios (not to mention their jobs) by grabbing this lifeline.

So how can you take the sting out of your portfolio like they do? After all, can the Average Joe get involved with this market or do you need to have billions of dollars under management to gain access?

Well, since the late 1990s, retail investors have had access to the spot forex market. And in the last couple of years, industry leaders have invented more investments to allow stock investors in on the currency game too.

So let’s take a look at some of the easiest ways to get diversified into currencies so that the madness happening to most portfolios never has to happen to you again.

Trade Currencies Through Your PRESENT Stock Brokerage Account

Now you can use currency exchange traded funds (ETFs) to invest in currencies through your current stock brokerage account. And it’s true that many brokers don’t know much about these because they aren’t a focal point of their business.

However, you can use ETFs to buy currencies from many of the world’s major countries.

In fact, you can buy ETFs that track the euro (NYSE:FXE), the British pound (NYSE:FXB), the Japanese yen (NYSE:FXY), the Swiss franc (NYSE:FXF), the Canadian dollar (NYSE:FXC), and the Australian dollar (NYSE:FXA).

In fact, you can even invest in some country’s currencies that aren’t so “major” such as the Swedish krona (NYSE:FXS) and even the Mexican peso (NYSE:FXM).

And the good news is more currency ETFs are coming out all the time.

The best part is that you can invest in them in the very same account that you would use to buy shares of Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL), IBM (NYSE:IBM) or GE (NYSE:GE).

There are only two drawbacks to investing in ETFs. First, ETFs can’t provide the leveraged returns you can earn in the spot Forex market. Also, you have to pay commissions just like a typical stock (on the buy and on the sell side, just like stocks). However, it’s worth noting that the spot forex account doesn’t have commissions on the buy or the sell side.

So if I buy FXY in a Charles Schwab or E*trade account, then I can profit from the yen in a typical stock brokerage account. Then once normalcy resumes in the markets, I could sell the yen position and buy something like the euro or the pound (both tend to do better in good times).

FDIC-Insured Foreign Currency CDs Provide Shelter from the Storm

Another very simple way to invest in this asset class and shield your portfolio is to buy Foreign Currency CDs (yes, you can buy Certificates of Deposits that are denominated in euros, yen, pounds, francs, etc.)

It’s an excellent way to get some of your market exposure away from stocks and into something that can actually counteract your present losses.

So where can you buy a currency CD?

Do you have to send your money to a foreign land and into a foreign bank? Of course not! You can take your U.S. dollars (or other currencies) and buy CDs denominated in another currency through a bank right here in the United States.

EverBank (in Florida) is the only US bank I know of that offers such unique products like this…not only for Americans but for clients from around the world.

And best of all, most of these Foreign Currency CDs are FDIC-insured, so you can rest easy knowing that your deposit is backed by the full faith and credit of the U.S. government.

In fact — just to keep it simple — EverBank offers CDs that focus on a basket of Asian currencies for instance…or yet another than focuses on most other major currencies except the US dollar. That way you can diversify away from the greenback when it’s falling like a rock, or just minimize your exposure to any single currency (including the dollar) for better portfolio stability.

Source: The Two Easiest Ways to Diversify into the “Hidden World” of Currencies Tomorrow

More from Sean:

Let’s look at a 10-year chart of the US dollar index below to illustrate this point.

The Unnoticed Trend: The Buck Finally Breaks Its Six-Year Trend

This will be a hard pill for many currency traders to swallow.

But even the buck has “up” years. While they are few and far between, 2009 will be one of those years. As a matter of fact, it is starting even now. Yet most won’t realize it until it’s too late and it has eaten up most or all of their account!

Any way you look at the above chart, a monumental thing just happened. The US dollar index closed the month above its downtrend line for the first time in SIX years.

That’s huge.

It’s easy to believe everything will continue to rise against the buck forever. But if you’re buying currency pairs in the Forex market, that belief could clean out your account. This stronger dollar tend will be in force for so many months, so it could wipe you out before you know what hit you if you’re not careful.

That means the only ones that will survive are those that realize “quickly” that the dollar is one of the best places to be during that time.

I know it sounds crazy but its going to be the “place to be” and the place to profit in the coming year (and even now)!

Source: The Shocking Dollar Trend of 2009

Where can you run and hide when the market experiences confusion like this? After all, it could be days, (more likely weeks) before the stock market settles down again.

Answer: You dive into a few key risk-adverse investments, including specific currencies, as fast as you possibly can. In fact, I call these investments “rip cord currencies” because you should only buy them when the stock market is skydiving.

First of all, you won’t find a better “rip cord” investment than the Japanese yen. The yen is the ultimate risk-adverse investment. It responds faster and more violently to stock market drops.

The yen has a low interest rate yield, so traders tend to pass this currency up for higher-yielders when markets are calm. But as soon as markets start to drop, traders rush back into the yen, to take whatever interest they can get.

Along with the yen, there’s another low-yielder that tends to prosper during rough economic times. Of course, I’m talking about the “safe haven” currency – the Swiss franc. For years and years, gold partially backed the franc, so traders ran to it as markets sank. Well, even though it’s not backed by gold anymore, traders still run to this low-yielding currency in times of uncertainty…out of habit.

Bottom line: Cling to the low-yielders like the yen and the franc as markets hit the drop zone.

Source: Rip-Cord Currency Plays for a Market Freefall

Then I thought, if my stock buddies only knew what I know now about currency trading, they’d hang up their stock-trading hats and come over to my market.

Let me show you a few advantages of trading currencies over stocks in any kind of market – even a market as bad as this.

When an economy falls on hard times, profits are squeezed. Companies have to lay off workers as growth slows. You can see this miserable outlook reflected in the company’s stock price. Of course this doesn’t just happen to a few companies, it murders entire economic sectors.

Secret Weapon #1: VIX Gives Me the Upper Hand

So as traders all around the globe watch their bottom lines bottom out and their hedge funds blow-up, I’m flat-out loving this market.

Why? I have a secret weapon that lets me profit when markets are sinking, while my stock trading buddies can barely stay afloat with their stocks.

What’s that secret weapon? The Japanese yen. You see, when volatility increases in the markets and stock traders lose their shirts, their loss is my gain. The Japanese yen experiences an uptrend when almost every other asset class (even commodities) is headed downhill.

At times like these, I can pair the yen with almost any currency in the foreign-exchange market and I’ll win. I know the yen thrives off of volatility, so one of my buddies’ strongest tools works even better for me during bear markets.

Stock traders all over the country look to the VIX (Volatility Index) to gauge when the stock market may bottom. They wait until the VIX rises to an extreme level and then they go in and buy. However, I watch the VIX heading higher and I know it’s giving my yen trades another boost.

Then when the VIX appears to peak, and these stock traders are just beginning to make some headway in their trades; all I have to do is reverse my yen trade and I’m still making a killing the whole time. If they only knew it was so easy…

Take a look at the VIX in the chart below, and the Japanese yen price right above it. When the VIX hits extreme levels (above 30 but especially around 35 or higher), the yen starts to peak. At that time, I just reverse my trade and start shorting the yen.

The VIX and the Yen…Traveling Buddies!

As a currency trader, you can buy or short the yen based on what you see using the VIX, their so-called “stock tool.” If you’re a stock trader and you understand the VIX, then you also understand the yen whether you know it or not.

As you can see above, the yen’s run may be almost over because the VIX is showing an extreme reading (i.e. it’s soaring higher). So it may be time to reverse your Japanese yen trades.

Secret Weapon #2: Collect Daily “Dividends” from the Currency Market

But there’s one secret that would REALLY push my stock buddies over the edge if they knew about it. It’s one I use in “up” markets, when stocks are also doing well

Most traders know the S&P 500 hasn’t gone anywhere for a number of years. However, once you take into account these companies’ dividends, then you could have an overall gain even while stocks stay flat.
However, these stocks only pay out dividends on a quarterly basis, while currencies pay out interest on a daily basis. Yes, you read that right…

It’s like getting a dividend daily.

So I have 365 opportunities a year to profit, while my stock buddies get four. If they only knew…

Secret Weapon #3: No Commissions, So There’s Less Fees in Currencies

The third advantage I have over stock traders is my stock buddies have to pay a spread AND a commission for each stock trade, while I ONLY have to pay the spread.

And I pay a smaller spread than they do because I control more currency with less money down and because the currency market has more volume which leads to tighter spreads.

So while my stock buddies are trading in this bear market, losing money on their positions AND paying commissions along the way, I’m earning profits now and paying less in fees.

Let’s say my stock trading buddies and I place the same number of trades each year. My stock buddies pay a measly US$7 per trade (even though many firms charge more). If we both made only 10 trades each month, we’d both have 120 trades over the course of a year.

Now remember that stock traders are charged twice on each trade (when they buy and when they sell). So over the course of the year, my buddies must pay 240 different commissions, costing US$7 each. That’s US$1,680 in commissions. That doesn’t even count how much they also pay in spreads.

What do I pay in commissions for completing those same 120 trades? Nothing! I only pay my much smaller spread all year long.

My stock buddies have to earn that much more in profits before they even break even. So obviously, the deck is stacked in my favor. If they only knew…

You now know my three secret weapons that give me an edge in the currency markets.

And now they’re your edge too.

SEAN HYMAN, Currency Analyst

Source: If My Stock Buddies Only Knew…

This week, Russian President Dmitry Medvedev and Georgian President Mikheil Saakashvili are already planning to sign a peace plan. But still the damage has already been done – particularly to the Russian ruble.

Honestly, what happened to the ruble this week is pretty common during wartimes. So this begs the question: How does a war affect a currency?

Well, as I often say: Money hates instability. There is nothing more unstable and unpredictable than a war where anything can happen. You also never know how long one will last, who will win, and what will be lost along the way.

As an investor, you’re left to suspect the worst. That’s why most investors grab their money and run to safer, more stable countries until the coast is clear.

Russia Declares War and
the Ruble Sinks 4% in 5 Days

To this day, Russia still has a bad reputation for decades of shady dealings. As such, investors never seem to fully trust the Russian markets. If a conflict breaks out, investors rush in and grab their cash even faster than they would another country.

And that’s exactly what happened when Russia declared war on Georgia.

Check out the chart of the U.S. dollar vs. the Russian ruble below. You’ll notice the ruble tanked over 4% in just 5 days after war broke out.

With Leverage, You Can Turn that 4% move into 400% Profits

Now that may not seem like much to you. But you have to remember that small movements in currencies add up to a lot in trading accounts.

Spot Forex accounts are commonly leveraged 100 to 1 or even 200 to 1. So a 4% move can be magnified to equal a 400% to 800% move in just 5 days.

If you bet against the ruble just as the Russians declared war, then you would be sitting on some healthy profits right now. However, if you bought the ruble formerly because it has done well in this “energy/commodity” boom, then you probably watched your account sink into the negative territory over the last few days.

Most trading accounts can’t take 400% to 800% losses on their positions over a five-day period and survive.

So ruble traders really had a wild ride since this began.

Is the War Over Yet?

Let’s suppose for a moment that the war truly is over and things somewhat revert back to normal (a Russian normal anyway). If that happens, then Forex traders will probably see it as a buying opportunity and grab the ruble once again at bargain prices.

However, if the conflict isn’t truly over, or if another one erupts, then you will see the rollercoaster ride begin again.

It takes a strong stomach to invest in the ruble right now. Much of the time it has been a very profitable “one way bet” against the buck since 2003. However, in times like these, you never know what the Russians are going to do.

On the other side of the coin, if you’re pulling money out of Russia, you’d better hide behind another BIG country. So many traders ran to the U.S. dollar since it’s the “Big Brother” that might be able to protect them and their money.

However, other traders chose to run to the “risk adverse” currencies of the Japanese yen and the Swiss franc. Both of these currencies have torn a chunk out of most currencies over these same five days with the exception of the U.S. dollar.

Right now, the buck can’t seem to do anything wrong and is rallying against any currency I have on my screen.

So war really “stirs the pot” because it not only causes money to run away from the country at war but also it has to find a hiding place. That hiding place won’t be the same for every investor. It may be two or three of the other biggest currencies in the market.

Bottom line: Money tends to run for cover at the first sign of conflict and tiptoes back in later after the conflict ends. Something to keep in mind the next time a war breaks out…

SEAN HYMAN, Currency Analyst

Source: Why a War Can Kill a Currency and ‘Also’ Hand You 400% or More

If you’re looking for what stocks to buy, you have over 13,000 publicly traded stocks to choose from right now.

That’s a lot to weed through and it significantly drops your odds of choosing a winner. Even the best of stock pickers don’t always screen for the exact combination of things that you would look for in a stock.

However, in the currency world, there are only eight major currencies: U.S. dollar, euro, British pound, Japanese yen, Swiss franc, Canadian dollar, Australian dollar and the New Zealand dollar. So this makes about seven major pairs when paired against the U.S. dollar.

If you’re trading in the FX market, you could technically also pair these currencies with other currencies besides the U.S. dollar. But even then, you only have 15-30 pairs to choose from – compared to over 13,000 stocks.

In other words, you don’t have to watch thousands of currency pairs, because the pairs are such “macro” instruments.

This makes things simpler. All you have to do is pay attention to the most important data that comes out each day on those eight currencies. The economic announcements for a country can easily be found on an economic calendar at www.dailyfx.com or www.forexfactory.com.

Source: Why Currencies Are Easier to Trade Than Stocks

For starters, the market got some shockers last week from European Central Bank (ECB) President Trichet. Mr. Trichet did everything except come right out and say he would raise interest rates next month.

I’ve never heard Trichet be quite so blunt in any of his speeches. So you can tell the rising inflation in the Eurozone is really getting to him. However, it’s not quite so simple. He may want to raise rates but he’s also battling the high EUR/USD exchange rate. That could force him to keep rates where they are, despite how he feels about inflation.

Plus, a high interest rate and a high exchange rate are starting to cause hard times for the Eurozone’s economy fundamentally. In fact, several of their numbers have been missing estimates lately. Before, that rarely happened.

So when Trichet “popped off” last week it instantly set the euro soaring against almost any other currency – especially the dollar.

Unemployment in America Rockets Higher!

Then at the end of last week, the unemployment rate came out for the United States. Last month, it hovered around 5.5% and was expected to inch up a hair this month. However, it launched a half point higher in just a month’s time. That’s the fastest unemployment has risen since 1986.

That’s a huge leap. And everyone is noticing – even the politicians. Don’t forget the election coming up.

No one wants to be the president who either was in office or coming into office when unemployment numbers are soaring.

As a result, the dollar tanked and the euro soared once again.

Why? Well, a couple of reasons. First of all, more unemployed people means less money sloshing around out there in the retail market place to be spent. So it will spill over into corporate earnings which may cause more layoffs.

Of course the other main reason is that the Fed Chairman is having a problem raising rates – when he knows higher rates will likely slow down corporate America even more and make the situation even worse.

Yet, the Man behind the Fed also has to control inflation. Yet he also has to help keep America employed and not kill the little bit of growth that we do have in the economy.

Pick Your Poison: Fight Inflation or Aid Growth

So what can central bankers do? Both Trichet and Bernanke are between a rock and a hard place. Trichet needs higher rates to squelch inflation, yet a thriving economy and a lower exchange rate. You can’t get all of that together; so now come the tough choices…

Then Bernanke needs to kill high inflation, yet keep America employed. Plus, he and Paulson are also trying to support the dollar. If they lower rates, they’ll stoke inflation and possibly cause the dollar to head lower and send the euro into the stratosphere.

So how does all of this unfold without the Eurozone or American economies getting clobbered? It’s not going to be easy.

That’s the tough part about the stagflation that’s been building in the economy. Your growth slumps, yet inflation doesn’t come down as the growth slumps. In fact, inflation goes even higher while growth slows.

So you can attack inflation and growth, and let employment suffer. Or you can allow inflation to get out of hand (which is a nightmare for a central bank) and allow the economy to grow.

With all of the hard choices and confusion in the air, guess where big institutions are running to until these guys get it all figured out?

When There’s Confusion, Money Runs to Two Places: Gold and the Swiss franc

The big name traders are dumping assets into the Swiss franc and gold. Remember when I said the euro gained against almost every currency out there? Well one currency that’s still beating the euro (even in the thought of a Eurozone rate hike) is the Swiss franc.

That’s right. Check out the chart below. The euro actually lost ground against the Swiss franc in these days of uncertainty. In fact, the Swissie even gained against the euro on the day that Trichet hinted at a rate hike. Normally that would send the euro soaring across the board and it almost did.

Though I couldn’t help but notice on these days where the money was flowing. It never ceases to amaze me. Once, the mighty Swiss franc was backed by gold so it was an obvious safe haven for traders. But today, the Swiss franc is not necessarily “safer” than any other currency.

Yet traders instinctively still run to this currency just as if it were backed by gold in uncertain times. So that’s one of the “safety zones.” Not because it’s one in reality but because it’s still treated as one by traders.

The “Unstoppable” Euro is Sinking Lower Against the Swiss Franc

George Soros has a laundry list of reasons why he’s betting against the pound – including higher household debts and a damaged financial sector that’s weighing on the whole economy.

But honestly, that just skims the surface of U.K.’s troubles. There are several other reasons why you should follow Soros’ lead and short the pound in the coming months. I’ll tell you how in just a minute. First, why does the U.K. have such a bad reputation these days?

More Mortgage Nightmares,
Not Just on Elm Street Anymore

On Monday, Bradford & Bingley – the U.K.’s biggest lender to landlords – announced they lost £8 million (US$15.6 million) in just the last four months. That is just one example of how bad the housing situation has gotten in U.K.

So now, Bradford & Bingley has to raise some cash. They’re planning to sell 23% of the company to the Ft. Worth-based buy out firm, TPG Inc. And they’re selling it for £42 million (US$82.2 million) less than they thought they were going to get for it.

It’s not going to get better anytime soon either. The U.K. Mortgage Approvals number came out the same day and it was the lowest reading since they started keeping records over nine years ago.

Yesterday, the Bank of England decided to hold rates steady. Why? Because when many people’s number one asset, their house, is going down in value, the last thing you need to do is raise rates. Higher rates make homes just more expensive – especially when many Brits are trying to sell.

Furthermore, consumer confidence numbers are down. You can’t raise rates and improve. If consumers aren’t confident in the economy’s future they’re not going to spend. If they don’t spend, the economy has no “fuel.”

On top of this their manufacturing and services sectors are in the tank as well. So if you raise rates you’re going to make progress a lot more difficult in the corporate world too.

But if you keep rates steady for now, then you’ll allow the economy to continue to hurt and slow down which could ease the inflationary pressures for now.

So that’s the pound side of things. What about the ole greenback?

How could a market – 40-times bigger than the New York Stock Exchange – be “hidden” from the general public?

Simple… it was roped off. Only millionaires, hedge funds, and bankers were allowed inside.

Over the past 34 years, these elite traders built a wealth-making machine. And today, it’s the envy of the world.

For a peek behind the curtain – and the chance to earn 319% in the coming weeks, click now.

Big Pensions, Mutual Funds and Insurance Companies Have Been Quietly Collecting Dollars

According to State Street Corp and Bank of New York Mellon Corp, institutions have actually bought more dollars this year than they’ve sold. That’s the first in quite a while. In fact, Bank of New York Mellon points out that the “dollar buying” is twice that of the 12 month average. These guys aren’t playing around.

Why do these big-name traders feel that the buck could go up from here? These institutions are betting that rates have bottomed and have no where to go from here but upward.

Now two Fed officials have hinted that their focus has shifted back to inflation once again. That means higher rates – if the Fed follows through. For my money, I’m betting the Fed will eventually raise this year simply to fight inflation.

Also, growth is starting to climb again in the U.S. – it just went from 0.6% to 0.9%. The Fed estimates that next year the U.S. economy will grow as fast as 2.8%. I sincerely doubt growth will rebound that fast, but I do think the U.S.’s growth will exceed the U.K.’s growth next year.

You Want to Short the Worse of Two Evils

The Fed has tougher decisions to make right now than they’ve had in years. They’re trying to tiptoe and maneuver around stagflation.

However, I fully believe that they’ll raise rates later on this year and that the U.K. will probably have to cut rates as their economy is expected to slow further just as the U.S. is starting to pick up a hair.

So compared to the pound, the dollar is the “lesser of the two evils.” That means the British pound vs. the U.S. dollar currency pair (GBP/USD) will drop in value in the months ahead. So look for shorting opportunities.

Sean Hyman, Currency Analyst

P.S. My colleague, Jack Crooks is playing this strong dollar trend with quick, timely plays in the spot foreign-exchange market in The Money Trader. In case you’re not familiar with this service, The Money Trader is the longest running spot-trading service tailored for retail investors like you. In timely updates, Jack tells you when to buy, when to sell and gives you running commentary on what’s happening with your money worldwide. Click now to get more details on where your money is headed next.

Source: Why Soros Is Getting Ready to Break the Bank of England Again, Part II

Almost immediately, pension funds and hedge funds from around the world poured money into this BRIC nation. In fact, Brazil sold over $500 million in bonds to these hungry investors. That doesn’t even count the investment assets that poured into Brazil’s stocks, real estate, etc.

Brazil’s tax revenue also jumped 13% last month alone. Household income has increased, unemployment has gone down, and Brazil’s booming real estate market has all added new money to the government’s coffers.

Brazil has made huge strides in recent years. Just 20 years ago, Brazil was an entirely different country.

The largest economy in South America was drowning in debt. The Brazilian currency, the real, was practically worthless. And even in the ’90s, Brazil was still trying to get its act together and dig itself out of years of debt.

Today, it’s a completely different story. For the past decade, Brazilian officials have capitalized on its expanding commodities and completely rebuilt the economy from the inside out.

And now, Brazil is one of the hottest emerging markets on the planet. I believe Brazil will continue to soar for years to come. I say that because Brazil’s economy expanded 6.2% in just the fourth quarter alone (when other economies around the world were slowing). That’s the highest growth rate since 2004.

Brazil’s currency, the real, has now gained 28% against the buck in the last four years. That’s the very best performer of the top 16 currencies of the world.

And right now, things have never been better for Brazil. Petrobras, Brazil’s state-owned oil company, is hiring another 14,000 engineers, geologists, and drillers as it taps into the biggest crude discovery in the Western Hemisphere since 1976.

In fact, this latest “oil find” may allow Brazil to overtake all of OPEC’s output with the exception of Saudi Arabia. So this will be huge. It will provide a huge base going forward for Brazil to divert some of its oil money into other viable investments.

Money just keeps pouring in as the demand for Brazil’s bonds, stocks, and commodities continues to pump money into the economy.

So what will Brazil do with all this newfound money? Brazil’s reserves have already doubled since 2006 to a whopping $195 billion. Not bad for a country that had trouble paying its debts just a few years ago.

Brazil’s policymakers have considered many options lately. Rather than touch the $195 billion in reserves, they have decided to start a $20 billion sovereign wealth fund (SWF). This new SWF would take this newfound wealth and diversify it into many different investments.

What’s the plan now? First, Brazil’s policymakers will use the proceeds from the recent bond sale to pay off more expensive debts. Then they’re planning to build their SWF. They’ve already announced they’re investing at least part of that $20 billion in U.S. dollars.

Brazil’s policymakers are also planning to use part of this money to buy rivals overseas, fixed income assets, and finance companies seeking to invest in their operations.

Brazil is becoming more solid all the time. And as they diversify their income streams, Brazil’s leaders will just create a brighter, more stable future for themselves.

I find it interesting that they feel buying dollars at this point in time is a worthwhile investment. You buy things only because you think they will go up in value…as far as investments are concerned.

Even the epic dollar bear Jim Rogers agrees there could be a short-term dollar rally. He estimates that it may last only about a year. He’s going to use that dollar rally to finally exit his dollar-denominated assets.

He also stated another reason why the U.S. dollar may rally for about a year: America is a huge agriculture producer. The world is in dire need of agricultural commodities, so our American farmers are going to pick up the slack where the economy has fallen.

So, in the near term, you can see that both Brazil and Jim Rogers are betting on the greenback.

In the longer run, Rogers believes the commodity dollars (Australian dollar, New Zealand dollar, and the Canadian dollar) will do better than those that aren’t commodity exporters during this commodities boom. In fact, he especially emphasized his Aussie dollar position (and since Brazil is also a “commodity currency,” I believe it will prosper right along with these others that Rogers has listed).

So don’t get me wrong, over the years, the dollar will have problems. But in the next few months, there’s money to be made by investing in dollars, and Brazil knows it.

Sean Hyman
For International Living

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Source: Brazil Is Hitting the Town and Buying…Dollars?