NEW YORK ( ETF Expert) -- There are times when the dollar tells investors all they need to know ... at least in the short term.
For example, the
PowerShares DB US$ Dollar Bullish Fund
gained ground for nine consecutive days in an expression of serious doubt about Europe's finances and leadership. Indeed, the almighty buck still reigns supreme during gargatuan uncertainty.
In the first chart below, UUP's black bars in May graphically depict the recent aversion to risk. And yet, the greenback's appeal is not entirely new. The price of this ETF has effectively stayed above a long-term trendline for six months.
So what might this mean for a forward-thinking ETF investor? Essentially, countries with lower deficits as a percentage of their respective economic output should become attractive assets in the second half of 2012.
Perhaps ironically, one of the worst offenders in this arena is the U.S., with a 2012 estimate of -9.3%.
That said, countries like the U.S. and Japan have been able to run monstrous deficits without immediate consequences during wars and/or recessions.
Smaller countries in Europe (e.g., Portugal, Ireland and Greece) haven't had that luxury. It follows that lower-deficit countries (e.g., Germany, Finland and Sweden) will become more attractive investments as soon as the world conjures up a way to bail out Europe and its financial institutions.
Toward the end of 2011, the European Central Bank (ECB) was extremely successful in lessening concerns about the eurozone crisis. It served up refinancing loans with 1% over three years, boosting cash flow and increasing credit availability.
However, as I pointed out in previous posts, interbank lending in Europe flatlined in mid-March after 10 previous weeks of declining 3-month LIBOR rates (Jan. 1 - March 15). In effect, you can see the positive impact of the ECB intervention on a low-deficit country fund such as
iShares MSCI Germany
. It rallied 20% at roughly twice the rate of the U.S. markets.