Who is a dollar-bear?
A dollar-bear is a forex trader or speculator that uses a pessimistic strategy when trading USD against other currencies. This strategy assumes that USD decreases in time against other main currencies and the trader considers that factor when they position investment portfolios. A dollar-bear works to protect themselves against the inevitable decreasing of USD by using moves like liquidation of assets.
Definition of a dollar-bear
A dollar-bear trader picks a strategy that includes the weak dollar. Basically a weak dollar means that for one dollar you get less foreign currency. Some factors, including the economical situation, may bring a period of weak dollar. Dollar-bears may not know exactly what currency the dollar is weak against, but they are sure it doesn’t meet their expectations.
The bear market and a weak dollar goes on for a longer period of time (months and years). Bear market is opposite of the bull market, where prices of assets are high. Investors that often believe in the value of dollar, are often called bull investors. A bull investor often makes contrary acts compared to a bear investor and invests into securities as a long-time investing strategy.
Trading of the dollar-bear
The dollar-bear takes a short position in a USD currency pair. In order to get a profit, the exchange rate of dollar must continously decrease. They take US economics, the ratio of debt and spendings, market surpluses, worldwide prices of products and geopolitical climate into consideration. As CNBC said in june of 2018, the wars of trading and rates are a big part of how a bull or bear trader views the USD value.
Dollar-bears may go long with EUR/USD pair since when the value of EUR increases, USD decreases. A dollar bear may fill it’s portfolio with assets like gold and base metals in order to secure themselves against the decreasing of USD.
Even though bull and bear investors are seen as opposites where bulls are optimistic and bears pessimistic, they just use investing strategies and may change their positions any time, taking into consideration how they sense the market. Since these traders consider the relative strenght of USD, they may also monitor the dollar index (USDX). This index allows traders monitor the value of USD against other chosen currencies.
Fiscal policy, interest rates and dollar-bears
On a period of fiscal narrowing when the USA Central Bank is increasing interest rates, USD may strenghten significantly which is good for dollar-bulls. In contrary, when interest rates are decreased, the dollar may weaken, just like happened during a big recession. By using the quantitative mitigation, USA Central Bank bought a big amount of treasuries and mortgage-backed securities. Securities market was increasing, which lowered USA’s interest rates significantly. When interest rates lowered, USD weakened and dollar-bears were benefited by that.
There have been many dollar-bears in history. In 2005 Forbes named Warren Buffet as one of the most well-known dollar-bear. In 2002-2005 when EUR/USD dropped 33%, Buffet was famously negative against dollar.
Like with many things, there are different viewpoints on the markets of bull vs. bear. In april of 2018 Byron Wien (Blackstone’s vice-chairman and a bull) predicted a 3% increase, low inflation and interest rates that only increase moderately. A bear David Tice (who lead Prudent Bear fund until year 2008) believes that the stock market will drop 20-25% by the end of 2018 since interest rates are increasing, decifit is increasing and there will be a overload of securities in the market.