By Sean Hyman, Editor, Currency Cross Trader
I want to introduce you to an opportunity that I’m eyeing for 2012.
It’s a currency play that looks to pay a nice yield of over 4%. That’s about 17 times what a two-year Treasury bond is paying right now.
Even better, this currency play could rise as much as 100% over the next three years.
Now it’s not quite time to get in on this currency play yet, but if you time it right this could be the gem of your portfolio by the end of the 1st or 2nd quarter of 2012.
It’s not easy finding a currency play like this that pays a decent yield and still offers room for capital appreciation. You have to time it just right – that’s why most investors miss out on plays like this.
So consider this your advanced warning to put this currency play on your investment watch list for 2012.
You Have to Wait for the Market
Fire-Sale to Buy
As markets have dropped this year, value is starting to creep back into the markets. Assets have gone on sale recently. But to time this currency play right, you need to wait for most stocks to hit the clearance rack first.
Look at the chart of the Dow Jones Industrial Average below and you’ll see why I say that stocks have begun the process of “going on sale.”
Stocks have begun to correct lower. In fact, they’ve been doing it for about five months now. This new downtrend has further to go. But the good thing about downtrends is that they unfold much more quickly than uptrends.
Uptrends can take years to play out. That’s why you’ll see years of stock market gains – followed by a quick few months that can steal all your stock gains.
That’s pretty typical. Downtrends are brutal and quick. Even one of the longest downturns in modern history (the credit crisis) only forced the Dow lower for a year and a half before turning around.
Well, this correction lower likely won’t have a Lehman-like failure. It won’t likely cause as deep recession as we saw in 2008.
So I don’t expect this downturn to last as long. We’re already five months into this downturn as it is. That means there’s some good news on the horizon for all financial markets.
Stocks will likely find a bottom in the coming months. It could be as soon as the end of the 1st quarter of 2012. When that happens, I’ll be looking to dive into this high-yielding currency play.
I’m talking about the Australian dollar.
Let me be clear – it’s not time to buy this currency yet. But when stocks start to recover, I’ll be looking to dive into this high-yielder (and I’ll make sure all my subscribers do the same.)
The Australian dollar is one of the most stock-market-sensitive currencies out there. You can see that on the chart below. When U.S. stocks recovered, the Aussie dollar recovered. When stocks broke their uptrend the Aussie did the same.
Last time we had a recovery in stocks, the Australian dollar soared. That’s why it’s on my watch list for next year. In fact, let’s look at the last recovery that the Aussie dollar had right along with stocks.
If you had bought an Australian dollar ETF at the bottom of the last stock market sell-off, you would have made almost 100% of your money over the next three years while stocks and the Aussie dollar rallied back.
At the same time, you would been earning a fat dividend of over 3%. Today, the dividend yield on this gem is now over 4.3%.
Keep the Aussie Dollar On Your
Watch list for Next Year
So the key is in finding out when will be the next “right time” to buy the Australian dollar ETF. To determine that, let’s look a bit broader than the Dow’s 30 stocks to the S&P’s 500 stocks.
In the coming months, I believe the S&P 500 will work its way back down into the 800s as this whole European debt crisis plays out over time.
It’s not just going to affect MF Global and Jeffries. It’s going to hamper a lot of our big-named banks here in the U.S. that hold a lot of Italian and Spanish debt. As this all unfolds, it’s going to bring these financial stocks lower along with the entire market.
Before all is said and done, I see the S&P 500 falling to the 800 range. As stocks hit this mark, I’ll be looking for stocks to start to make a reversal.
As soon as the timing is right on stocks, it will be time to buy this high-yielding Australian dollar ETF once again.
The present yield on that ETF is around 4.35%. This could drop a bit over the coming months but will still be one of the best yields to be had out there in your stock account.
The key to making serious money over the next decade will be buying at the right times. So make sure to put FXA on your watch list for 2012 – to help you grab some significant gains by 2015.
Have a Nice Day!
Editor, Currency Cross Trader