As the bottom falls out of the dollar, and people’s cash goes up in a mushroom cloud of smoke, someone’s going to make a lot of money… from foreign currencies

I’m reading all the front pages this morning, and I’m seeing nothing but fear:

Bloodbath
Global Rout
Panic Selling
Roller Coaster

It’s enough to make seasoned brokers and pit traders jump out of windows, not to mention the folks who’ve watched their retirement funds lose $2 trillion (over the past year and a half). It is truly a global market meltdown.

And it would seem that there’s no safe place to run anymore. Even commodities are flopping like a fish out of water.

Gold, which I told Taipan Trader readers to use as a confidence hedge in order to stay invested in the markets, is down. Look at gold’s spot price today: $835 an ounce… down 5.76% on the day so far.

And this is absolutely stunning to see… Crude oil sunk below $80 a barrel today.

Way back in April, I was calling for oil prices to drop. Or, at least, I was saying that the rise in oil prices wasn’t due to supply and demand issues. In fact, I was lucky enough to appear on CNBC while on one of my trips.

I was in Singapore, and oil was just passing $100 a barrel, and everyone wanted to know if it would ever reach $120. 

I said that oil would be trading at around $80 a barrel if the dollar would find some strength. Against the euro, the dollar was hitting its lowest value in history.

Well, oil is back down to $80 a barrel, but it’s not because the U.S. dollar has gained strength… real strength. People are fleeing to the dollar because they don’t want their money in anyone else hands.

That’s created “false” demand, and the bottom could fall out at any time.

And when it does, it’ll be like a nuclear bomb going off in people’s pockets. Flash back to the Old Germany where Deutsche Marks were used as fire fuel as they were cheaper than firewood.

But as the bottom falls out of the dollar, and people’s cash goes up in a mushroom cloud of smoke, someone’s going to make a lot of money…

Take a look as some of these foreign currencies. They’d been performing well against the U.S. dollar up until this “reversal of fortune”.

Prior to July 2008, these currencies were on a roll: 

Hungarian Forint: up 55.9% in two years
Czech Koruna: up 56.7% in two years
Polish Zloty: up 58.2% in two years
Brazilian Real: up 105.3% in four and a half years
Chilean Peso: up 81.3% in four years 

And these are just a select few that had been performing well. The one thing they have in common? They are emerging markets… growing markets with little exposure to our subprime mortgage crisis, but many export connections the U.S. or the EU.

But all have been experiencing a great resurgence that has seen wages and GDP rising over the past five to ten years.

That means a growing middle class with growing expendable cash pool.

I can’t promise you that these currencies and economies will turn around anytime soon. As long as major financial centers are reeling from this credit crisis, nobody stands to benefit (except those shorting the markets).

But I can promise you that when the turnaround comes, we’ll be there to cash in on the prime opportunities this crisis created.

I’m working on an interesting way to play these currencies. I’ll post my results here once they’re available.

Stay tuned.

Tags: Foreign Currencies, global markets, gold, invest currencies, retirement funds, U.S. dollar

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