I think I have read in five different places that Jimmy Rogers is moving all of his assets out of US dollars. He is said to favor Chinese yuan, Japanese yen and Swiss francs.No doubt you are also aware he favors a whole myriad of commodities too.
The argument that says the US is doomed is very popular is some circles and always sounds smart and plausible.
I think this theory is correct directionally but not correct in terms of magnitude.
I think the dollar will get weaker but not collapse in such a manner that life as we know it changes.
I think interest rates will be generally higher but not high like in 1981. Most of the current rates across the curve are very low by historical standards. I believe they will just head back up to normal or maybe a touch higher. This would crowd some people out of getting a mortgage and slow things down but again would not be ruinous.
I think US equities will return less than the average 10% we all read about. If the US market averages 6% per year a US based investor will either need to save more, invest abroad or both. This necessitates more research/learning not waiting in line at a soup kitchen.
I do believe the US is doomed argument is worth studying and understanding. First of all it could turn out to be right. If it turns out to be correct directionally regardless of magnitude I think it will be people like Jim Rogers that we can learn from about what the problems are and how to mitigate them.
I have tried to explore other countries and asset classes on this blog and utilize some of these locations/investment products in accounts that I manage. I would expect to go further down this road for clients as this decade starts to wind down. My weighting to foreign has been in the mid thirties for several years now, I have mentioned several time that I expect to get closer to 50% in the next few years.
A lot can happen between here and there but the idea is to look down the road and think a little bit about how the US markets might evolve, how that impacts you and what you might do if things deteriorate by some amount in the US.
32 comments:
Roger
I recently read "The Black Swan" by Nassim Taleb (highly recommended by the way). He makes interesting argument that we miss the point if think an event is unlikely. It's far more important to think that if it is possible at low probability, but impact is severe, we should act to protect ourselves, or better yet profit from it.
So for example the 87 crash, LTCM, or 9/11 were Black Swan events. Highly unlikely, but big impact. That sort of thing is generally mispriced since our minds simplistically equate highly unlikely with not going to happen. We blissfully ignore them (majority of book addresses why this is). But although unlikely ex-ante, not impossible.
Anyway, my point is that while I agree with you that dollar collapse and end of western civilization as we know it is highly unlikely, it certainly seems possible that things can get much worst than you or I may expect. Some thinking about how to protect/profit from a worst case scenario seems prudent.
Soros makes the point that we are all currency speculators. Most of us just do it without thinking, and concentrate all our wealth in US$. That's a big dollar long, everything else short bet. Nothing wrong with that if you've done intentionally, but most do it by default. It seems to me that moving 100% out of US$ is only slightly more aggressive than e.g. deciding to have no euro exposure in portfolio (slighly more since we Americans are likely to consume disproportionately in US$).
Just another way to think about it.
Michael
Roger,
I know you get this kind of question all the time, but I am stunned by the degree that the QID is out of whack with the NASDAQ as I type this.
The NASDAQ composite up 36 points (+1.4%) as I type this while QID (supposedly 2x the inverse of the NASDAQ 100) is down only 0.08 (-0.2%)
A 2.6% differential from the target price is a long way from being a rounding error...
Does it mean anything? I'm not sure, but I'd appreciate any thoughts you may have on the subject.
Cheers,
-Bill
Michael,
Taleb is obviously smarter than I am so it is possible there is something in what he writes that I am not getting.
I understand what you have cited from him but it just does not click for me. Two of the three events you cite snapped back in about a month and a half. The crash recovered in a couple of years or so. I don't see where it makes sense to game them.
Bill, First point is that the Nasdaq 100 is the benchmark no the composite but still your observation bears out and I am not sure why. I looked at the closing prices on several day to see this. What is weird is that if you look at a one year comparison chart, a 3 month and 1 month chart the fund comes close to double the inverse--which it is not trying to do.
Frankly I do not know. Is there an issue with managing the futures exposure precisely? Are the t-bills more volatile of late and does that effect the price? Things along these lines, if true, would have to count as unintended consequences.
sorry i don;t have more.
Thanks, Roger.
FWIW, I just posted a ratio chart of the NDX to the NASDAQ composite and it is fascinating to see how the NDX has pulled the broader indicator up since the 2/27 selloff.
Also, I probably just misread you, but for clarification purposes, the QID is the target 2x inverse of the NDX, while the PSQ is the target 'normal' 1x inverse of the NDX.
Cheers,
-Bill
Sweet Caroline! Cowboy Up, Idiots, and watch the Papajima show on this weekend!
Rog: what % are you holding in cash or cash equivalents?
And, what % in U.S. stocks?
Roger
I think Taleb would suggest that the previous recoveries make us prone to the round-trip fallacy - markets have always bounced back in the past ergo we can safely assume they will always bounce back in the future. Seemingly reasonable and utterly false.
Plenty of stock markets have been permanently wiped out i.e. gone to zero and stayed that way forever (ok, not ours ... yet) but even if they hadn't that doesn't prove it can't happen in the future.
Anyway, I'm basically agreeing with you that we would all be well served to look down road and contemplate how markets may evolve, but also believe the possibility of big step change is possible (albeit we can agree at very low probability) and since impact potentially so large prudent to buy insurance against.
As an aside, Taleb's preferred investment strategy is to barbell: a core of highly secure, liquid assets and small position in extremely risky bets. Blended risk is still manageable and exposure to a black swan event much lower.
Michael
Larry, when you were at my house did I not show you our whiskey and gunpowder stash? this is our cash proxy.
Michael,
round trip? yes? fallacy? not so sure. the debate is fascinating, but I just have trouble really getting a hold of it.
If you read all of Rogers comments (which they commonly do not print) or listen to his entire comments on Bloomberg or wherever. You will find he says he will switch to the other currencies in the next 6 months. He seems to believe the dollar may be over sold here and things will zig before they zag long term.
I kinda think he is right and it would be just like the markets to fool everybody before making a move. Other than that I agree we should all look to diversify out of the dollar more and more.
Roger, do you have any thoughts yet on the new commodity ETN's that have begun trading recently, that are commodity specific? I believe they are issued by iPath. Also, there are 4 others from a Swedish company. This group includes one, RJI, which tracks the Rogers index. These are all new, and usually you like to observe them for awhile...but I'm curious to know what you think.
i wrote a thing for TSCM ages ago that was positive on the Rogers indexes, i plan to to a write for TSCM on the new ETFs very soon. The iPath products, generally speaking, I say bring them on so that there is choice.
Nickel might be late but it is an important metal, grains and livestock play into the food theme ofcourse and if the US does flush then food and shot gun shell ETFs might offer some protection.
No doubt some will use these incorrectly but as tools in the potential quiver, I say yes.
I still need to think about the details and to be clear I own none and don't know if I will ever own any, I just applaud the choice.
Roger, please clarify what you mean by "foreign".
Is it: 1. A company domiciled abroad
2. A company whose currency is non-USD based
3. A company or fund whose assets are invested in non U.S. equities.
4. A U.S. company whose revenues are majorily received from sales to consumers in foreign countries. Many of our Dow components,
for example are becoming more multinational as the dollar cheapens.
5. Does Canada count as foreign? Hawaii?
Thanks, Scoot
This currency discussion is timely as I'm in the process of looking at the ETF currency funds.
http://www.currencyshares.com/home/CurrencyShares.rails
The highest yields are from Australia, Mexico and British Pound. However, The Yen has lowest yield but may offer highest return, is what I've heard. How would you invest? Of course, there are those who expect the US Dollar to strengthen.
Scoot, a foreign company is just that a foreign company. In choosing a foreign stock I am choosing what I think is a good proxy for a country that I am favorably disposed toward.
Canada counts as foreign, a US multi national, for me, is in no way shape or form foreign investing.
Re: currency. I had disclosed for many months owning FXS and then my sale a few weeks ago. I recently bought the euro. The dollar could strenghten but I do not think it will. For now my use of forex ETFs is and has been as a hedge.
roger,
bill luby,
re QID....from a post at bill cara:
I am looking more at the "truth in advertising" aspect of QID. We all know the risk, but did QID owners know they mostly hold cash and derivatives piled on derivatives? Or did they think they were buying well managed put options on various QQQ componenets? How are you shorting the QQQ when all your assets are either in cash or in Nasdaq securities? Where's the "short" position? I saw some measley 4.6% in derivative swaps perhaps that is somehow "shorting" the QQQ under Wall Street rules? I guess you could say the only real "short" is the cash waiting for the NASDAQ to crash and then buy the bottom. What kind of "short" is that? WOW ... how much is George O Foster and Taeyoung Lee(managers)making for putting all the assets in cash? They should rename this ETF "QQQ - MCBSWS" "MOSTLY CASH BUT SOMEDAY WE'LL SHORT" ETF! What a proliferation of ETF CRAP the Wall Street casino owners put out these days! Yet people just lap it up like puppy dogs at a IAMS convention!
that the short and double short funds own mostly cash is widely known. my comment assumes that readers know this. the leverage of futures is such that you don't spend $100 to hedge $100 worth of stock. the double short funds are about 90% cash.
If that was Bill's comment he seems to make no mention of the disclosed mechanics of the fund. It would be more expensive to sell all 100 component stocks short.
The two managers he cites more correctly monitor the software than make stock market decisions.
This is a great post, and I've enjoyed reading all the comments.
Currently, I'm 50/50 domestic vs. intl. I'm mostly large cap across the board.
Roger, some intl managers think the Euro is overvalued vs. the US dollar, and that the pendulum will eventually swing back the other way, as it has done before. I hear arguments pro and con - but the best argument i've ever read was written a few years back by Warren Buffet. I wish I still had it, or knew where to find it. He used a simple story to describe what's going on when Americans import more than they export.
Thx for the great commentary. These are exactly the kinds of articles i like to read. Nothing against the red sox!
roger,
no, post not by Bill. the buzz is that if the mkts crash etfs like qid would be worthless
i'm a lay type who tries to get the big picture but get intrigued by some of the more interesting blogs like BC. As smart, really smart these guys are at the website, they seem to feed upon the sky is falling while many others are raking in big money. Every dog has its day, I suppose. Me, I'm a malcontent fence sitter.
the euro could be over valued. i also like AUD and NOK. I view these as ways to diversify, with EUR I think it will play a greater role as a reserve currency.
these are small positions for now.
the QID does NOT short anything. The QID is a managed futures fund. Like ALL managed futures fund it holds majority of cash, as Roger pointed out. This is no different than the USO holding a majority of cash while tracking the Oil prices.
that's why these funds pay dividends even when they are "losing" value. The dividends come from the interest on the cash that they hold in t-bills.
Regarding Black Swans as pointed out to me, it can also refer to POSITIVE events. I do plan to get that book. I'm still intrigued with the "Irrational Optimism" paper (I posted it here). Our crafting of our "stock market view" is really poorly supported by data.
It really speaks to the rather narrow factual basis on which we base our perceptions. By looking at real stock market performance globally, one would have a little trepidation that things will always be sweetness and light so long as we just held on. The Nikkei was 33K at one time. Talking about asset valuation plunges as just black swans is understating the issue. That issue being that asset values can take a long time to recover. Depending where you are in the time line of the run-up, crash and recovery, could have huge implications.
The dot.com bubble, for all of its angst-producing, performance-diminishing effects still was narrow. What we are currently wrangling with is a bit more pervasive than that, IMV.
But, I'll be happy enough if I'm wrong.
I submit that if the United States
ceases to be the dominant military and economic power of the world, there will not be a safe investment to be had anywhere on the planet. Look at our socialist and communist competition sucking up capitalistic expertise and then throwing the bringers of this expertise out of their countries. Look at the profound miltary buildup of China, Russia and their friends poised to exploit any weakness on our part.
Power politics and gunboat diplomacy will be much more active in the future. In direct proportion, I believe, to the lack of backbone the democracies will exhibit.
Jimmy Rogers will never find a safe haven to escape this wrath.
Roger,
I can't remember the exact figures, but a huge percentage of revenues for U.S. large caps come from international sources. After acknowledging that, I'm still perplexed as to your rationale for a 30% intl. Do you mean your equity exposure is 30/70 or your typical portfolio is 30% intl. - when you account for cash, bonds, commodities, etc.?
As a side note, I wanted to mention that there are several asset classes that are beginning to fit classic contrarian opportunities. Mebane Faber has written about this in the past. Asset class that have been over/under-achievers over the past 3-5 years tend to revert to their long term mean. If you believe in historical precedent, you would:
Underweight/Short gold
Underweight/Short Emerging
Underweight/Short International
Underweight/Short Energy
Underweight/Short Industrial Materials
Overweight/Long U.S. Dollar
Overweight/Long Autos
Overweight/Long Airlines
Overweight/Long Pharma
Overweight/Long Home construction
Currency predictions are not helpful investment advice for average investors, even hearsay such as this. Roger, your advice ranks as PURE SPECULATION, with zero hard facts.
Moreover, anyone who buys/sells dollars, euros, and yuan on such silly input as, "I think interest rates will be generally higher but not high like in 1981" deserves to have very volatile and unpredictable results.
TomK, not sure what US multinationals have to do with your question.
I have closer to 35% in foreign. Mostly individual stocks and also a couple of ETFs that own foreign stocks--a lot of these names I've disclosed in past posts.
I have some cash raised so there is less than 65% in domestic equities.
Anon 6:26, the blog does not give advice. I am sharing process as it says above not suggesting anyone do any trades.
In this post I cite some issues, give some opinion and the only suggestion I make is to think about what to do if the US is doomed scenario plays out.
If you think I suggest people buy yuan, yen and francs your are adding 1+1 and getting eleven, it is pretty clear I am relaying someone else's comments. The catalyst for the post is some comments from Jimmy Rogers.
Let's assume U.S. GDP represents only 27% of the world GDP.
http://tinyurl.com/9rz4x
Let's also assume an investor wanted to have an equal-weight exposure to equities globally.
What factors should one take into account to determine "equal weight"?
In my reference to the growing number of U.S. multinationals, I was wondering if you believe this compensates for what some(Paul Merriman) would believe to be under-allocation to global equities (30%).
TomK,
I have never done something along these lines.
One obvious way would be to look at the MSCI All World Index--there might be other global indexes that would be better. I would take equalweight to be the country and sector weightings of that index, if MSCI even makes that available.
If you use the GDP list that you linked to determine the country weightings, not saying that is invalid, how far down the list do you go? While Kiribati may not make the cut what about Pakistan. It is pretty high on the list but as I understand there are only GDRs to trade which means retail has no access, I have no access either (we would need to register differently).
The question asked is more complex than where I am, so what I think about, on benchmarking.
am i totally missing the point? sorry
No, you are not missing the point at all. The U.S. to Intl. equity allocation question is incredibly complex and I haven't heard anyone offer up a solid rationale as to what represents "equal weight".
The equity portion of my buy and hold portfolio is 50/50 U.S./Intl and has served me well over the past few years - BUT I would have a difficult time providing rationale for this allocation.
Keep in mind I'm not betting Intl. will out-perform U.S. equities over the next 20-30 years. I'm just trying to find equilibrium in my B&H portfolio.
According to this page - http://tinyurl.com/2e7sbb - US exposure for these indices equal:
Salomon World Equity Index = 59.4%
MSCI World Index = 59.1%
FTSE All World Index = 58.4%
Dow Jones Global Index = 59.9%
so you get good country info but it does not appear to have sector info. I would think sector info would be just as crucial but maybe not.
Anon,
I think the Buffett story is the one where the wealthy farmer (that's the US) essentially decides to start selling the farm off piece by piece to fund his excess consumption (that's the import/export allegory) to the point that he ends up as a tenant farmer in the end.
Jay Walker
The Confused Capitalist
Roger
2 things
video.google.com search
Amero
North American Union
put those two bits of info together and BAM!
2010 is the year of the end of the dollar as we know it, period, end of story, that is if the powers that be complete their plans.
that is 3 years from now
Jim is doing the prudent thing given the subtle warnings that our own government has put out there, you just have to look for it.
peace
i have heard about the amero, first heard about it a couple of years ago. didn't it take the euro 20 years to come about? there is no way all of the ducks can be lined up by 2010 to switch currency ala the euro.
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