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What’s Hated Most May Be a Contrarian Buy (U.S. Dollar)

What’s the obvious contrarian trade? Long the U.S. dollar.

I’ve been discussing the U.S. dollar since January (Could the U.S. Dollar Rise 50%? January 12, 2011), based on a simple trading observation: it’s the most despised investment on the planet. Warren Buffett famously said “Try to be fearful when others are greedy and greedy when others are fearful.”

This is a classic description of contrarianism: that the way to reap big profits is to do the opposite of the herd. By what metric do we measure extremes of greed and fear?

There are various technical tools like the VIX “fear index,” but if there were a perfect measure then everybody would be using it, and then of course it would lose its edge.

Another way of saying the same thing is to buy what’s completely hated and sell what’s over-loved.

At this juncture that would suggest selling AAPL (Apple) and buying the U.S. dollar, which is almost universally expected to go to zero. Let’s stipulate that barring drastic political changes which are unlikely, the case for eventual devaluation or destruction of purchasing power via inflation is strong. As Jesse at the always excellent Jesse’s Cafe Americain recently noted, the question is when.

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