In an interview with Gary Shilling, Heesun Wee of Tech Ticker states that Shilling believes deflation is inevitable because of technological advances boosting productivity, globalization and weak demand for U.S. consumer goods.  He suggests these factors could lead to higher inventories and cut about 1.5% off real U.S. GDP growth each year.

If this is the case, you don’t have to run for the hills, as there are ways to hedge deflation with ETFs.  A common place to look is at high-dividend paying investments, such as utilities, which can be accessed through the Vanguard Utilities ETF (VPU), up 5.1% year-to-date (More reasons to look at utilities).

Another good sector to consider is health care. (More reasons health care is appealing).  This can be played through the iShares Dow Jones U.S. Healthcare Providers (NYSEArca: IHF), which is up 28.3% year-to-date.

For more stories on health care, visit our health care category.

Consumer staples are also an option to hedge deflation. The unemployment rate is at a 26-year high, which means that there are still millions of people feeling the pinch. When they shop, they’re looking for what they need, not what they want. Consumer Staples Select Sector SPDR (NYSEArca: XLP) is up 15.4% year-to-date.

If deflation does become a factor, the dollar should begin an uptrend. If this happens, a potential play could be the PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP), which is down 9.4% year-to-date.

Kevin Grewal contributed to this article.

The spike in investor interest in funds like United States Natural Gas (NYSEArca: UNG), PowerShares DB Commodity Index Fund (NYSEArca: DBC), PowerShares DB Agriculture Fund (NYSEArca: DBA) has resulted in creation halts and strategy reconstruction as the Commodity Futures Trading Commision (CFTC) scrutinizes the industry, writes Don Dion for TheStreet. (More on the CFTC’s commodity limits).

The iPath Dow Jones AIG Platinum TR Sub Index (NYSEArca: PGM) recently had to halt creation in order to remain within position limits. (Regulation hits platinum ETN). And most recently, PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) had to rush to get  approval to create new shares as trading volume suddenly picked up. (Bullish dollar ETF granted new shares).

Traditional ETFs track underlying indexes, which is made possible through the share creation and redemption process. When the creation process is halted, it creates premiums to an ETF’s underlying value. The result is an environment good for shareholders but bad for investors chasing the trend.

As an investor, you should be aware of when an ETF’s share creation has been suspended and understand that if a futures-based ETF runs out of shares, this could happen. If you’re already holding such an ETF, monitor your funds to be sure that all is running smoothly. The risk of holding a fund with suspended share creation is that when normal trading resumes, losses could be incurred as the premium disappears.

For more information on ETF trading, visit our ETF 101 category.

Max Chen contributed to this article.

PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP)

Last week, trading in PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) was halted after it ran out of available shares. Trading was resumed after a filing with the SEC for 100 million additional shares was made.

At the close on Thursday, the fund was trading at a 1.8% premium. As normal trading resumes, the premium should slowly start to dissipate, but it may not happen immediately.

Some funds have limits on how many shares can be created at a time. Heavy trading volume can deplete the supply, in which case the provider files an 8-K with the SEC for more shares. While existing shares of an ETF can be traded while approval is awaited, funds run the risk of trading at a premium to their net asset value (NAV) in the meantime. Approval can take days, weeks or months.

A similar situation was seen with United States Natural Gas (NYSEArca: UNG) when the fund ran out of shares. (What happened?)

For more stories on currency ETFs, visit our category.

The Labor Department reported that new claims for unemployment fell to the lowest number since Jan. 3. The figure was also below what economists had reported.

Wal-Mart (NYSE: WMT) reported that its profit were up 3.2%, although sales at stores open for at least one year were down slightly as economic conditions remained challenged. Wal-Mart has been a standout in the recession, thanks to being considered a low-price leader. The store attributed the drop in sales solely to falling prices, reports Stephanie Rosenbloom for The New York Times. Consumer Staples Select Sector SPDR (NYSEArca: XLP) was down slightly this morning; Wal-Mart is 10%. For more stories on consumer activity, visit our retail category.

Intel (Nasdaq: INTC) has been ordered to pay $1.25 billion as part of a settlement in an antritrust and patent case. Advanced Micro Devices had charged Intel with using strong-arm tactics to pressure PC and server makers to use its processors. In return for the settlement, AMD would withdraw its complaints, say Vindu Goel and James Kanter for The New York Times. iShares Dow Jones U.S. Technology (NYSEArca: IYW) is trading slightly lower this morning; Intel is 6%.

Treasury Secretary Timothy Geithner told Asian nations this morning that the Obama administration was committed to having a strong dollar. The dollar has recently hit a 15-month low on soaring budget deficits, reports Reuters.

The FDIC has ordered banks to prepay $45 billion in order to rebuild its deposit fund. The enormous rate of bank failures this year has drained the coffers, says Alison Vekshin for Bloomberg. The failures have led to a deficit in the fund for the first time since 1991.

For more stories on banks, visit our financial category.

The U.S. dollar has hit a 15-month low against a basket of major currencies today on positive economic news from Asia. The feeling that the Fed won’t raise rates anytime soon and the fact that central banks will continue to provide liquidity could continue to pressure the dollar, reports Bradley Davis for The Wall Street Journal. PowerShares DB U.S. Dollar Index Bearish (NYSEArca: UDN) is down slightly this morning.

Treasury Secretary Timothy Geithner said today that he’s encouraged by the efforts Japan and China have made to increase internal demand instead of relying on Americans. It’s a shift, he said, that could contribute to more stable growth. iShares FTSE/Xinhua China (NYSEArca: FXI) is up about 0.25% this morning.

Homebuilder exchange traded funds (ETFs) are trading as high as 4.5% this morning on news that Toll Brothers (NYSE: TOL) new contracts are up 42%. The luxury homebuilder also expects fourth-quarter revenue to top expectations. SPDR S&P Homebuilders (NYSEArca: XHB) is up 3.2% this morning. For more stories about real estate, click here.

UPS (NYSE: UPS), the world’s largest package delivery service, said this morning that it expects volume to grow next year amid economic recovery. The company also said it may raise shipping rates next year, and the size will be announced in December, reports Harry Suhartono for Reuters. iShares Dow Jones Transportation Average (NYSEArca: IYT) is up about 1.5% today; UPS is 8.2%. For more stories on the transportation sector, click here.

Is the world finally losing its appetite for the U.S. dollar? Michael Schuman for Time asks the question. There are signs we should be concerned:

• The price of gold has catapulted to new highs and the International Monetary Fund (IMF) is selling 200 metric tons of gold to India’s central bank for $6.7 billion.
• Around the world, U.S. dollars accounted for 37% of new reserves in central banks.

The worst recession since the 1930s may almost be behind us and the beaten-down financial sector seems to be mending. Can the dollar rise from the ashes like a phoenix? Some say perhaps not. In a decade, says one historian, the world won’t be so dollar-denominated. But whether that spells doom is another question altogether.

The U.S. dollar is not going to disappear. But if the talk becomes reality, the greenback could take a hit. Central bankers are the currency market’s buyer of last resort, and thus the private sector’s view of the dollar’s value and stability can be heavily influenced by what they do. (How to play currency baskets).

• PowerShares DB US Dollar Up (NYSEArca: UUP): down 7.5% year-to-date

• PowerShares DB US Dollar Bearish (NYSEArca: UDN): up 8.2% year-to-date

• PowerShares Group 10 Carry Trade (NYSEArca: DBV): up 20.3% year-to-date (How DBV works)

After the fund ran out of available shares, trading in PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) was halted today at 1:23 p.m. ET until a filing with the SEC could be made.

An application for 100 million additional shares was filed and the fund began trading again at 1:51 p.m. ET. As long as no new creation baskets can be issued, UUP runs the risk of trading at a premium to its net asset value (NAV). Investors who want to monitor the intraday indicative value of the fund can visit the ticker page on Yahoo Finance.

UUP is trading at four or five times normal volume today, and until new shares are granted, the fund could continue to trade at a premium. Investors who aren’t comfortable with the premiums should wait until new shares are issued if they plan to buy the fund. Today, UUP is trading at roughly a 1.7% premium.

UUP has been seeing trading volume with moves valued at hundreds of thousands of dollars. Hours before the Federal Reserve announced plans to keep the federal fund target lending rate at current levels, options traders poured into UUP, reports Tennille Tracy for The Wall Street Journal. (ETFs to play the Fed’s move).

UUP tracks the moves of the U.S. dollar against other major currencies. The bulk of the action in the PowerShares fund appears to have been driven by professional investors who emerged to buy options in batches of 10,000 or more, and many of the transactions cost $150,000 and up.

Nguyen Ahn Thu, Darcy Crowe, and Will Conners for The Wall Street Journal report that although the U.S. dollar has lost value, it’s still king on the black market in foreign countries. It’s estimated that as much as 75% of U.S. notes in circulation are held outside the United States, and most of that is in the underground economy.

Residents of poorer countries, such as Venezuela, prize the dollar for its inflation-protection ability against weaker local currencies. (Other reasons foreign countries like a strong U.S. dollar).

For more stories about the U.S. dollar, visit our U.S. dollar category.

The Central Bank will keep rates unchanged, but the widening yield spreads between mortgage-backed securities (MBS) and federal agency debt against Treasuries may be an essential factor in determining the Fed’s stance on the direction of interest rates, reports Julie Haviv for Reuters. The Fed will buy $1.25 trillion allotted for its MBS program by the end of the first quarter of 2010. (ETFs to shelter against a weak dollar).

Purchase programs have inflated some securities to the point that investors are beginning to turn to the risk/reward of alternative spread products like corporate bonds. For instance, the yield spread on the 30-year Fannie Mae 4.5% current coupon stood at 1.47% over the 5- and 10-year Treasury blend, says Arthur Frank, director and head of MBS research at Deutsche Bank Securities.

The Fed’s decision ultimately could keep the dollar weak for the time being. To capitalize on continued weakness in our currency, consider some of the following ETFs:

• PowerShares DB U.S. Dollar Bearish (NYSEArca: UDN). UDN is up 7.2% year-to-date. This ETF seeks to reflect the performance of the short side of U.S. dollar – basically, the dollar goes down the fund goes up. (More on UDN and a weaker dollar).

• CurrencyShares Euro Trust (NYSEArca: FXE). FXE is up 5.4% year-to-date. A straight forex play on the appreciating euro. As the dollar depreciates against the euro, the euro gains in strength. FXE tries to reflect those gains. (More on FXE and the euro)

• iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM). EEM is up 54.1 % year-to-date. By holding non-dollar-denominated assets, such as emerging market equities, investors  can hedge against weakness. Emerging market investments get the benefit of the “dollar kicker” since assets denominated in foreign currencies are eventually converted back to weaker U.S. dollars. (More on EEM and emerging markets).

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG). GSG is up 12.5% for the year. This fund, like other commodity funds, can be a weak dollar hedge. GSG owns futures for 24 different commodities. (More on GSG and commodities).

• SPDR Gold Shares (NYSEArca: GLD). GLD is up 23.1% year-to-date. Gold is another weak dollar hedge because it’s considered a store of value. The current high supply of the dollar in the economy can result in high inflation and many investors have turned to gold as a way to protect against inflation. (More on GLD and gold).

For full disclosure, Tom Lydon’s clients own shares of EEM and GLD.

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

Max Chen contributed to this article.

Copper started the week with a new year high and brokers are uncertain as to the cause, reports Andrea Hotter for The Wall Street Journal. Market fundamentals aren’t supporting any strong price gains at the moment. Copper did receive a boost yesterday after the factory orders report. (Where’s copper going?)

• iPath DJ AIG Copper TR Sub-Idx ETN (NYSEArca: JJC): up 107.8% year-to-date

The U.S. Commodity Futures Trading Commission Commitments of Traders report revealed that speculative long positions have hit a high last seen in the beginning of 2006, which means downside risk is accumulating, and the current commodities market is still bullish. Experts and analysts are divided as to how prices will pan out.

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG): up 10% year-to-date

China is the largest holder of U.S. debt, with around $1 trillion, and experts are urging China to diversify its currency holdings unless the country enjoys watching its dollar holdings depreciate in value, remarks Andrew Snyder for Today’s Finance News. Another option for China is to exchange some dollars for commodity holdings as a better way to hold value – also, better for commodities investors gazing at those price upticks.

• PowerShares DB U.S. Dollar Index Bearish (NYSEArca: UDN): up 7.4% year-to-date

Natural gas inventories are almost topped off  with a little more than 3.7 trillion cubic feet – the total country storage space is 3.9 trillion cubic feet. Snyder believes the natural gas market has ridden the commodities bubble and a correction may soon take place as the spot market corrects for the excess inventory. (How to avoid a bubble).

• United States Natural Gas (NYSEArca: UNG): down 57% year-to-date

Keep in mind that these are just predictions. Watch the markets for what really happens, and act accordingly. When investing in commodities, it’s wise to have an exit strategy that involves a stop-loss points that you can execute when the time comes. (How to protect yourself with a trend-following plan).

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

Oil had been above $80 a barrel for much of the morning, but dropped back below that mark as the dollar continued to gain against the euro, report Donna Kardos Yesalavish and Geoffrey Rogow for The Wall Street Journal. PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) is up about 0.5% this morning. (Read our currency report for more on currencies and ETFs).

The market’s dip is also being attributed to analyst downgrades of banks and concerns that Bank of America (NYSE: BAC) will have to sell shares in order to payback bailout money it received from the government, reports Rita Nazareth for Bloomberg. The Financial Select Sector SPDR (NYSEArca: XLF) is down more than 2% this morning.

Verizon Communication (NYSE: VZ) reported this morning that its third-quarter profit fell less than expected, by 9%. Gains in the company’s wireless division helped offset slower-than-expected growth in its FiOS television service, says Sinead Carew for Reuters. Vanguard Telecom Services (NYSEArca: VOX) is down more than 2.5% this morning; Verizon is 20.3%.

For more stories on telecommunications, visit our telecommunications page.