Signal Type	Trade Date	Index	Return since issued
		Nasdaq 100
		Russell 2000
		S&P 500

Market Update

Stocks kept powering ahead this week, sending the Dow Jones Industrial Average, the S&P 500 and the Russell 2000 to new all-time highs. The S&P 500 finished the week above the 1,550 mark, eclipsing its previous high of March 2000. The main indexes started the week with mild gains, before declining sharply on Tuesday, as investors took profits after ongoing concerns about the subprime mortgage market sent several investment banks lower. Stocks were able to recoup some of their losses Wednesday, before vaulting higher the next day following the release of several bullish retail sales reports. The Dow Jones Industrial Average jumped 283 points higher on the day, posting its best percentage gain in almost four years. On Friday, the University of Michigan consumer confidence index came in at 92.4, its highest level in six months. The news helped stocks move higher again, capping a record-setting week for the markets.

The Nasdaq 100, S&P 500 and Russell 2000 respectively gained 2.21%, 1.44% and 0.41% on the week. All 3 indexes rest above both their 50-day exponential moving average (EMA) and 200-day EMA.

For its part, our World Index Ranking portfolio gained 2.21% this week, therefore matching the Nasdaq 100's performance. The current portfolio consists of the 5 top-ranked world indexes as of June 22, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

The end of the U.S. dollar era

This week's title might sound a bit dramatic and final, but it is rather tame and balanced compared to the many articles, books, DVDs and other expert publications such as "The dollar is dead" and "The last days of the dollar", not to mention the really opinionated ones! It seems like a well known "dirty little secret" (except maybe in Washington) that the dollar is in deeeep trouble. Yet, most people in the United States don't know about it, or assume that since it has been going on for so long, it is just the way it is. According to many of the Nation's and the World's top authorities, after more than half a century as dominant global reference currency, the U.S. dollar is well into the early phases of losing its dominant status. As investors, this is the stuff we should really know about and understand, even if it is not popular. Our future wealth depends on it!

The beauty about historic data is that it does not lie. You can debate how strong or weak the dollar is, has been or is going to be, and who is to blame, but the facts lay it all out very clearly:

• Since 1971, when the dollar's gold peg was broken by President Richard Nixon (R), the U.S. dollar has lost over two thirds of its value against "hard" currencies like the Swiss franc
• Since the beginning of 2002, a little over 5 years ago, the U.S. Dollar Index has lost 33% of its value (it takes a 50% gain to make that up)
• Just this week, the U.S. dollar marked major lows against several currencies (e.g. the British pound and New Zealand dollar hit 26 year highs and today, the euro traded at an all-time high over the $1.38 mark!)

The U.S. dollar long term health history is best depicted by a plot of the U.S. Dollar Index, commonly referred to as the USDX (see chart below). The USDX is the measure used most widely to gage how the U.S. dollar is doing against a basket of international currencies. The U.S. Federal Reserve Bank (Fed) began calculation of the USDX in 1973 to provide an external bilateral trade-weighted average. The six component currencies weighted against the U.S. dollar are: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

We know the U.S. currency has been in a secular bear market since 1971, interspersed with a succession of cyclical bull and bear markets of varying durations. The same patterns and cycles pretty much hold since then and provide nearly 40 years of observation, admittedly a short time span for World history. Nevertheless, it is ironic that it is the self proclaimed fiscal conservative Republicans who routinely trample the dollar to new lows, at odds with their strong dollar rhetoric.

U.S. Dollar Index history, 1985-2007



As Trend Timers we are not predictors, but we use technical analysis to determine market trends. Technically speaking, the USDX chart reads worse than atrocious, it looks terminal. With the VERY long term support line right around 80.5, we stand near a deep precipice (today's close at 80.58!). If the index now closes and stays below that level, it means that the dollar is going much lower.

As the U.S. dollar is freely floated against global currencies, its value is set in the foreign exchange markets, and is ultimately dictated by the collective perception of global investors. The U.S. dollar is the common stock of the United States and, sooner than later it seems, the perception of its fundamentals and the confidence in management will reflect on the true future value of its shares.

Why is the U.S. dollar going lower? You take your pick:

• Global liquidity glut (see June 15, 2007 TTS article for details)
• Long interest rates have changed their megatrend, upwards (see June 8, 2007 TTS for details)
• The housing market (e.g. subprime mortgage delinquencies at historic highs, foreclosure filings jumped to a new record during the first half of 2007- 926,000)
• The fiscal and monetary policies of the U.S. Government is leading to enormous triple deficits (Trade, Budget, and Current Account). Just this week, the Commerce Department announced a widening U.S. trade deficit, despite record exports
• Lower foreign appetite for U.S. debt (the Fed announced that in recent weeks, foreign central banks have become net sellers)
• A rapidly growing number of countries announcing plans to diversify their foreign reserves out of the U.S. dollar (e.g. China, Qatar, Russia, Sweden and United Arab Emirates).
• A rapidly growing number of natural resource countries will no longer accept the U.S. dollar as payment
• The on-going war on terrorism and exploding energy costs

It is hard to tell which of these factors comes first, which has the biggest influence, and which will trigger the next slide, but taken together they are formidable. The downward spiral appears inevitable as the U.S. Government, as so many before it, will likely continue to choose flooding the market with liquidity (debasement of the currency) over responsible fiscal and monetary policy (and economic depression).

Ultimately, what is playing out is a giant transfer of wealth, financial power and control (can you hear the sucking sound? ). It took a long time to gather up this financial "perfect storm" and it will in all likelihood take years to run its course, yet the speed and breath of what will occur will stun many.

This article is our unequivocal warning about more falling dollar ahead, and it is important enough to stand on its own merit. We are of course interested in what happens to the U.S. dollar and the impact this will have on our investments, and undoubtedly we will have to explore the topic of "what to do about it" in future issues of the Trend Timing School.

FAQ of the Week

Question: Are the TimingCube and ETFTide services complementary?

With the announcement of ETFTide, the new intelligent ETF investing service by the TimingCube partners, there come the inevitable comparisons between the two services. The short evaluation below concludes that even with some similarities with the World Index Ranking portion of the service the systems are very different in strategy and market focus, which makes them highly complementary and favorable targets for strategy diversification.

We will not attempt to fully explain the new service here, for that you should take a tour of the www.etftide.com Web site, but we will contrast the key characteristics of the two systems using the table below.

Comparison of TimingCube and ETFTide services

	TimingCube	TimingCube w/ World Index Ranking	ETFTide
Market focus	Broad, diversified and correlated U.S. equity indexes	Broad, diversified and correlated U.S. and World equity indexes	None (All major markets, asset classes, industry sectors, types, and geographies)
Geography	U.S.	U.S./World	U.S./World/Regions
Strategy	Trend following	Trend following plus momentum	Momentum
Market side	Long/Short	Long/Short or Long only	Long only
Investment vehicles	Market idexes via ETFs, mutual funds, options	Market indexes via ETFs, mutual funds, options	ETFs
Trading frequency	3-5x per year	15-18x per year	12x per year
U.S. Dollar exposure	100%	Allocation dependent	Proportional to U.S. Dollar strength

As we know, the TimingCube system is based on timing the stock market as a whole with a trend following strategy. The market focus is on broad, diversified and correlated stock market indexes, and with the assistance of the World Index Ranking service, has expanded from strictly U.S to World indexes. In sharp contrast, the ETFTide system encompasses all major markets and asset classes (not just equities), industry sectors, types and geographies.

Yes, when World equity markets are in strong rallies and exhibit the strongest momentum of all ETF investments, some geographies can be flagged by both the World Index Ranking and ETFTide. Since ETFTide does not have some of the TimingCube restrictions on index correlation and length of publication, it does feature more diverse investment choices with more countries (e.g. China) and regional funds (e.g. Emerging Markets and Latin America). When other market segments are strongest, such as energy or utilities for example, ETFTide has the many specialized ETFs to turn to (it incorporates nearly 80 separate ETF categories versus 28 for the World Index Ranking).

The differences become even more acute during equity downturns, when TimingCube uses Short or Cash signals to exit equity markets (or bet against them), while ETFTide remains fully invested but, purely as a function of their respective strength, will tend to rotate to more defensive ETFs such as precious metals, bonds or currency funds.

Since the Trend Timing School article dealt with the continued demise of the U.S. dollar, it is worth mentioning that with TimingCube we control our dollar exposure by ratcheting up our World Index Ranking allocation, but the ETFTide momentum approach incorporates the relative effects of exchange rates, which means that U.S. dollar related ETFs will only percolate to the top if and when it is strong.

Warm wishes and until next week.

The TimingCube Staff