The United States dollar over the past 9 months has been on a once in a generation move. I read recently that it appreciated so much, so quickly that it hasn't happened in 40 years. When stuff like that happens it should peak your interest. So how does somebody make money off of this? By betting against the US dollar.
Currencies are more like a zero sum game vs stock markets that can grow into perpetuity because of the ingenuity of humans and the growth of the money supply. Currencies on the other hand essentially move around a mean due to market forces and fluctuations. As a result when you see a huge discrepancy in the market it could be a huge opportunity to pounce on it.
Something else is going on as well. It just so happens that some of the emerging markets of the world are very cheap as well. This isn't a fluke, these two things often happen in pairs. Think about it. Foreign money stops buying into a certain country. They exchange rate falls, so does the stock market because money leaves the market and the country. This may not happen quickly. Sometimes it can takes years or decades.
Take Brazil and Russia for example. The 'B' and the 'R' of the BRIC countries. Both economies are growing at good rates, Russia will most likely be going through a recession due to oil and economic sanctions, but I think these will eventually subside. Their markets for almost any way you want to measure them are undervalued. Price to sales, price to book, PE, CAPE, they're really really cheap! When you throw in their weak currency it's like a double whammy!
For currencies alone, I've found that the Yen, Euro, Canadian dollar, and Australian dollar are all at extreme lows. In those situations I've only invested in their currency, not their markets. If these currencies eventually revert back to their mean I think you could expect a return of around 20-35% depending upon the currency. If you like more of a return, but also more risk, you could check out a leveraged ETF currency like ULE.
For the foreign market ETFs like RSX (Russia) and BZF (Brazil) you can get the hopeful currency appreciation and also the hopeful price appreciation of the underlying stock market. Another thing that I find interesting is that these markets haven't crashed like you'd expect considering the abysmal news stories coming from the country, but instead it's just been bumping along for the past 5 years even though their economies have recovered from the Great Recession.
How long will it take for these currencies and stock markets to recover? I have no idea! I try to find opportunistic situations where the downside is minimal and the upside is huge. Hopefully it will happen in less than two years, but if not, then I'm reminded of Warren Buffett's two rules of investing:
Rule 1: Never lose money.
Rule 2: Never forget rule #1.
Disclaimer: I'm not a CPA, attorney, or investment adviser. These posts are for entertainment purposes only! Invest at your own risk! As always consult with a professional before doing any investing. Please don't sue me if you lose money.