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The QE2 program has caused a weakening of the US Dollar.  And as the program ends, liquidity will dry up in the marketplace, driving stock and bond prices lower.

But that’s not all.

In addition, we’ll see interest rates rise sooner rather than later.  And the anticipation of the increase will drive the dollar higher.  At the same time, we’ll see bond values fall as yields rise.

My stance is to get mostly into cash.

But after the recent stock market rally you may be questioning my thesis, asking yourself, “Will this really happen?”

I’m going to give you three more great reasons why we’re sure to see US Dollar buying in the coming weeks and months...

First, we’re seeing inconsistent economic news in the US right now.  For example, we’ve seen strong ISM and Chicago PMI numbers.  At the same time, consumer confidence numbers are declining and jobless claims continue rolling in.

The housing market also remains weak, with millions of foreclosures waiting in the wings.

The inconsistent economic data is keeping investors on edge.  As a result, they’re going to continue rotating money out of riskier assets, like stocks and commodities, and into safer assets like the US Dollar.  Remember, the dollar is still considered one of the safest harbors to seek shelter in during a storm.

Speaking of easy money…

Fed Chairman Bernanke recently said there will be no more quantitative easing.  That ends the debate clearly and decisively.  And it presents us with our second reason the US Dollar will climb.

Simply put, the Fed is finally shutting the printing press off… drying up liquidity and pushing borrowing costs higher.  Even though we should expect the Fed to keep their word, a large number of analysts are exclaiming “there’s no way the Fed can stop the printing press now”.

But serious experts disagree with the analysts…

Former Fed Chairman Alan Greenspan, in an interview with CNBC last week, said QE2 is the primary reason for “equity premium and a weak (US) Dollar”.  He continued on, stating he felt there would not be a QE3, which furthers the notion of a stronger US Dollar.

I couldn’t agree more with Dr. Greenspan.  It's obvious stocks have risen as a result of QE2.  Why else would the market continue climbing in the face of continual weak economic data?

Stocks rose because large investment banks were able to borrow money for almost zero interest and stuff it into cheap risky assets, which at the time were stocks and commodities.

And less demand for safe assets, combined with a poor economic growth outlook for the US, sent the dollar lower.  But interest rates have nowhere to go but up, and it’ll be sooner rather than later, according to the Fed.

Once the Fed signals a rate increase is coming, watch out… the almighty dollar will soar!

And while these two reasons alone should drive the US Dollar higher, my final reason could have the largest impact of all…

The US government will raise the debt ceiling, sending the US Dollar to new highs!

The single greatest threat hanging over the greenback is a potential default by the US government.  If we defaulted on our debt, the US Dollar would lose credibility in the world.  However, if Congress can manage voting into law an increase, we’d be able to take on more debt and avoid default.

But if we fail to raise the debt ceiling, we’d see billions of dollars lost.  Once again, Alan Greenspan points out that if we default, we lose the ability to spend 40 cents of every dollar!

No congressman in their right mind would allow this to happen.  And it’s my opinion they’ll have no option but to get the job done by the estimated deadline of August 2nd…

I’ve laid out a number of reasons in black and white why the US Dollar is heading higher from here.  And now, at the end of QE2, it’s a perfect time to profit from the coming US Dollar boom.

The safest way to get in on a currency trade is by purchasing an ETF.  And the ETF of choice for the Dollar is none other than PowerShares DB US Dollar Index Bullish (UUP).


You can see from the chart there’s been a recent consolidation.  While fundamentals alone give us reason to enter the trade now, the recent selling gives us a great entry point in this ETF.

Consider buying some UUP for your portfolio so you can capitalize on the coming surge in the US Dollar!

•  Silver ($35.52/ounce)

Silver has been trading between $33 and $38 per ounce over the past two months.  After margin requirements for traders were raised, silver experienced a record selloff from near $50 an ounce.  A solid base looks to be in place for the commodity.  Silver should gradually rise as industrial demand rises.
 

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