Media Alert: Hyperinflation Is Big Risk for U.S. Economy in 2010 -- But That Could Be Good News for Investors, Says Forex Expert, Wayne McDonell

Hyperinflation, the scenario in which prices skyrocket while the value of currency falls, could be the next in a series of risks to the U.S. economy -- but it would create opportunities for traders, says a forex expert. It would give these traders the opportunity to profit by selling the U.S. Dollar (USD) and the Japanese Yen (JPY) -- the two currencies most likely to be devalued.

"If the stock market recovers in the second half of 2009 -- ahead of an economic recovery -- the rise in share prices in a low interest-rate environment could spark hyperinflation," says Wayne McDonell , Chief Currency Coach of FX Bootcamp ( www.fxbootcamp.com ), a live Forex training organization, and author of "The FX Bootcamp Guide to Strategic and Tactical Forex Trading" (Wiley Trading, September 2008).
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If hyperinflation emerges, investors should consider responding by selling the U.S. Dollar (USD) and Japanese Yen (JPY), Mr. McDonell says, because rising U.S. share prices in a slow growth environment will create an oversupply of USD and drive down its value. The Japanese economy will follow a similar profile.

According to Mr. McDonell, the Federal Reserve is unlikely to raise interest rates until an economic recovery is farther along. The Bank of Japan has raised interest rates too quickly during their economic recovery and thus put Japan back into a recession. The Federal Reserve is aware of this and will lag even more. "The Fed doesn't react to the market and only adjusts interest rates based on economic data. That means there will be at least a 6-month lag between the two," he says.

Mr. McDonell warns traders to watch for a scenario in which the following happens simultaneously:

The stock market recovers and share prices surge. The Fed continues to hold interest rates at or near zero while it waits for evidence of an upturn in the general economy. Inflation skyrockets as higher share prices put more money into circulation -- but it loses value instantly because of low interest rates and a slow economy. U.S. Treasuries fall and gold prices spike as investors seek stock-market returns and inflation hedges. The USD and the JPY plunge as investors move back into stocks. Currency traders should be ready to sell early, as first signs of hyperinflation appear, Mr. McDonell says.

If these events occur, investors can profit by selling USD and JPY and buying gold. To not miss the boat, traders should be disciplined about watching for signs of hyperinflation -- such as an upward move in share prices while economic activity and interest rates remain low -- and be ready to act.

"The good news is that investors can profit on bad economic news," Mr. McDonell says. "Currency trading is affected by the economy but doesn't depend on it. That means bad economic news can be good news for traders -- provided they anticipate possible developments and have strategies in place so they're prepared to act."

Wayne McDonell is available for interviews. For more information, or to schedule an interview, contact Itay Engelman of Sommerfield Communications at (212) 255-8386 or itay@sommerfield.com .

About Wayne McDonell

Wayne McDonell is the Chief Currency Coach of FX Bootcamp, a live forex training organization, which has an audience comprised of members from over 50 countries. He is also the author of "The FX Bootcamp Guide to Strategic and Tactical Forex Trading" (Wiley Trading, September 2008), a top seller in the Foreign Exchange category. Mr. McDonell is a regular speaker at major investing conferences, including the upcoming Traders Expo in New York. He provides his weekly trading outlook on FOREX Television and his training videos are syndicated around the world on outlets including FXstreet.com, MoneyShow, DailyFX, Yahoo! Finance, MSN and others. As a professional forex trader, Mr. McDonell is a member of the National Futures Association and a registered Commodities Trading Advisor.