Investor's wiki

Dollar Bear

Dollar Bear

What Is a Dollar Bear?

A dollar bear is an investor who is cynical, or "bearish," about the possibilities of the [U.S. dollar (USD)](/usd-US dollar). Dollar bears will commonly look to buy foreign currencies, guessing that their value will rise relative to the declining USD. Something contrary to a dollar bear is a dollar bull, who accepts that the USD will reinforce.

Understanding Dollar Bears

In its narrow sense, the term 'dollar bear' alludes to currency traders who accept the value of the USD will decline relative to different currencies. These traders might take a short position on the USD in a currency pair. To profit from such a trade, the exchange rate of the dollar must fall relative to the next currency picked. Be that as it may, the term can likewise be utilized all the more extensively to allude to investors who are bearish about the possibilities of the U.S. markets and economy all the more generally.

There are a wide range of justifications for why somebody could turn into a dollar bear. A portion of the reasons for concern that are frequently raised by dollar bears incorporate the developing size of the U.S. national debt, the risk that the U.S. might default upon or 'expand away' its debt obligations, the declining size of the U.S. economy as a percentage of world gross domestic product (GDP), and the Federal Reserve quantitative easing policies.

Investors who share these concerns could try to position their portfolios in a way that limits their exposure to the USD. Generally, dollar bears will do as such by hedging their exposure to the USD, either by straightforwardly buying foreign currencies or by utilizing derivatives to hedge their USD forex risk. They could additionally reduce their USD exposure by investing in foreign stocks or real estate, or by investing in commodities like gold or silver. Another famous approach is to purchase shares in companies whose value is closely linked to commodity production, for example, precious metals mining companies. For inflation-cognizant investors, potential inflation hedges like precious metals, commodities, and other non-financial assets may likewise be alluring.

Real-World Example of a Dollar Bear

Patrick is an American investor who is concerned that the USD will fall in value relative to different currencies. A self-depicted 'dollar bear,' he is searching for ways of decreasing his exposure to the USD and position his portfolio to rise in value as the USD falls. Patrick reasons that his biggest exposure to the USD comes from his USD-designated financial assets. He possesses a portfolio of American stocks and stresses that he is unnecessarily presented to an expected decline in the USD.

To have less of his wealth concentrated in the USD, he starts by reallocating 25% of his stock portfolio into foreign companies' shares, 12.5% into gold and silver mining stocks, and 12.5% into real estate investment trusts (REITs) that invest in properties outside the U.S. That's what patrick trusts assuming the USD deteriorates, the impact on him will be offset by the expected appreciation of these foreign and inflation-safe assets.

Features

  • A dollar bear is an investor who is cynical about the USD.
  • Dollar bears can try to hedge against this risk by investing in assets that they accept would rise assuming the USD falls, like certain foreign stocks and currency pairings.
  • There are numerous potential justifications for why an investor might be a dollar bear, one common model being the perceived threat of inflation.