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.

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.

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.

There could be some big motivation for keeping the dollar weak.

A large portion of American companies do big business overseas, so profits will in large part come from the strength of foreign currency as the U.S. dollar withers. All of a sudden, these multi-national corporations are looking at emerging markets as a source of income instead of places where cheap labor can be had, explains Gary Gordon for ETF Expert.

Gordon poses the question: Are we purposely growing America by letting the U.S. dollar slip? (How to play a weak dollar).

Although the U.S government would never admit that, there are not  any actions or words to indicate urgency in reversing this trend. The biggest risk to this cycle continuing is that it could lead to a lack of interest in foreign investment.  (Why foreign countries want a strong dollar).

For now, the Federal Reserve doesn’t see importers passing along their higher costs to consumers in the current environment, which is one reason that traditional inflation may remain subdued. Market-based wealth is dependent upon a weaker dollar, the U.S. economy is relying on the stabilization of the U.S. dollar. Is there a happy medium?

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

• PowerShares DB U.S. Dollar Index Bullish (NYSEArca: UUP): down 9.2% year-to-date

• PowerShares DB U.S. Dollar Index Bearish (NYSEArca: UDN): up 8.4% year-to-date

The trade deficit unexpectedly narrowed in August as exports notched a slight gain and imports plummeted on declining demand for foreign oil. The deficit rose 3.5%, which surprised economists who expected that higher oil prices would raise the deficit, reports Martin Crutsinger for the Associated Press. Economists still expect the deficit to rise in coming months.

The U.S. dollar his risen to session highs this morning against the yen. The rally was set off by comments made by Federal Reserve Chairman Ben Bernanke, indicating that monetary policy would tighten as the recovery takes place. PowerShares DB US Dollar Bullish (NYSEArca: UUP) is up 0.6% this morning.

Corn and soybean crops are being forecast for record harvests, even though there were concerns earlier that a cold growing season would shrink the crops, the Associated Press reports. Corn production is predicted to be up 8% from 2008, and soybeans are forecast to be up 10% from 2008. PowerShares DB Agriculture (NYSEArca: DBA) is up about 0.6% this morning. The fund holds corn and soybean futures. (DBA is going through changes. Read about them here).

No major earnings are in the pipeline for today, but next week should be a busy one. Reports are scheduled from Intel (NasdaqGS: INTC), Johnson & Johnson (NYSE: JNJ), Citigroup (NYSE: C), Google (NasdaqGS: GOOG), Goldman Sachs (NYSE: GS) and General Electric (NYSE: GE).

Although there are bragging rights associated with a stronger currency, a weaker currency bodes well for exporting countries. The G-7 meeting in Istanbul talked about how currencies will impact the recovery of their own economies as well as the global economy, writes Bryan Rich for Money and Markets. Mostly, the G-7 wants to see a stronger U.S. dollar sooner rather than later.

Some currencies – the euro, the Canadian dollar, the British pound and the Japanese yen to name a few – appreciated on improvements in global economies, which means a weaker U.S. dollar. Global capital is moving out of the safety of the U.S. dollar and into the rest of the recovering world. (Read here to learn all about currencies).

Governments and central bankers have injected money to help their economies, but the appreciating currencies have counteracted the help. Export-dependent countries are seeing their domestic currencies rise against the world’s biggest consumer, the United States. Some countries are willing to take action to knock down the strength of their domestic currencies to ease their economic recoveries.

An interesting scenario that is occurring with the Japanese yen is the reversal of the carry trade. (What is it?) Investors are now favoring the carry trade with the dollar instead of the yen, and the dollar depreciated while the yen is appreciating.

• PowerShares DB U.S. Dollar Bullish Fund (NYSEArca: UUP): down 8.2% year-to-date

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

• iPath Optimized Currency Carry (NYSEArca: ICI): up 4.3% year-to-date
  

For more information on currencies, visit our currency category.

Max Chen contributed to this article.

Advocates want to want to shift oil trade to a basket of currencies as opposed to just the dollar because of the weakness of the greenback. They realize that this measure will take very broad backing, states David Lawer of Reuters. Oil-rich nations, such as Iran, have reaped billions of dollars of profits and averted losses by shifting reserves to the euro and other currencies from the dollar.

If the move where to happen, some believe that the delinking of the dollar and oil would actually stabilize crude prices, giving more currencies to bounce along beside each another, states Robert Fisk in a Public Radio interview.

But the move would be challenging. Opponents say it just doesn’t make sense, because it would be complicated and expensive task to coordinate a collective move to another currency basket for crude.  Additionally, there are political obstacles that will need to be overcome for the switch to happen.

Two ETFs that are being affected and will most likely to continue to be affected by this news are:

• The United States Oil Fund (NYSEArca: USO): up 10.4% year-to-date

• The PowerShares DB USD Index Bullish (NYSEArca: UUP): down 8.2% year-to-date

For more stories on the dollar, visit our dollar category.

Kevin Grewal contributed to this article.

The Federal Open Market Committee and G-20 industrialized and developing nations meeting has many investors adjusting their currency positions and evaluating their risk appetite for the near future.

Marc Gongloff for The Wall Street Journal reports that the major forces that could save the U.S. dollars’ worth include a U.S. economic recovery or another global financial meltdown accompanied by deflationary pressure. But who could gain if the dollar remains depressed?

• The carry trade. Many are taking advantage of 0% U.S. financing in order to borrow dollars and use them to purchase higher-yielding assets, including Australian dollars and emerging market stocks.
• Domestic tourism. A cheap currency could attract more foreign visitors to the United States.
• Commodities. Oil is priced in U.S. dollars, and some gold is priced in dollars, as well. When the dollar weakens, these commodities become cheaper for buyers.

Many investors are betting against the dollar, and the risk factor is edging up. The government debt is the highest it’s been since the 1950s (as a percentage of GDP, at least), which gives analysts all the more reason to believe the dollar could continue to fade.

Play both sides of the dollar with these two ETFs:

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



• PowerShares DB US  Dollar Index Bearish (NYSEArca: UDN): up 6.6% year-to-date

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