I wanted to follow up a little on yesterday's video to raise a point that there was not time for.There is tremendous long run utility in deconstructing different types of portfolios than what you currently have implemented.
For as long as we all have anything to manage we can count on every aspect of the industry evolving. The extent to which ETFs have proliferated makes the case.
Presumably whatever you are doing now is what you think is the best way to go for your situation. As time goes by you will learn more, your situation will change (some changes are predicable and some are not) and the investment industry will always create products--some of which will be very useful.
If all of that is true about you steering your own ship it must also be true of investors you think are smart and whom you listen to when they speak or write.
Changing subjects; Barron's had an article calling a bottom in the dollar, the article focused mainly on the euro.
This is a potentially very complex issue. I've been on the weaker dollar bandwagon for several years now but the magnitude has exceeded my expectations. Looking forward I expect the dollar will generally not be strong but I would expect there to be years like 2005 where the dollar does go up.
The reason to phrase it as the dollar won't be strong is because it is down a lot, can only go so far and what I think is missing is any fundamental catalyst for a higher dollar. Of course any tradeable thing can go up for no reason at all.
The Barron's piece tied in visibility for ECB rate cuts combined with a steady (after this week) Fed creating a closing of the interest rate differential. So people have been talking about this for a while, it's either priced in or it's not.
If the dollar does go up against the euro because of central bank action then it would probably make sense to diversify into currency products that do not have euro exposure. Besides the obvious ETFs and ETNs the PowerShares Dollar Down (UDN) would probably be a bad bet because it tracks the inverse of the dollar index which is 57% euro.
In a dollar up against the euro world I think currency diversification could still be had in surplus countries, countries still raising rates and emerging market currencies that will have huge growth regardless of what happens in the US (Egypt seems interesting, strong versus the dollar, one year t-bills in the sevens, GDP in the sixes, inflation is hot just above 10% no way to easily access the Egyptian pound that I am aware of).
We just completed a big (not that big) fenced in area off the deck we built last summer so the dogs would have a little more room to roam. The picture is of Roscoe on his first run through. We need to wait a few weeks for the wood to dry out before we can stain it.
10 comments:
Lucky dogs!
Odd thoughts
Ok you know I am not a big fan of the dollar. I am starting to think the euro will be headed for trouble as well.
The problem is euroland is not really one country. As time goes on I see Spain or Italy pulling out of the euro and bringing back their own currencies. These countries desperately need lower interest rates and a weaker currency so they will likely have to leave the euro.
This will not be good for the euro IMO. I actually think most of these countries will bring back their own currencies.
What will happen to a currency with no country backing it?
OK maybe you think I am out there. That is fine. This is certainly one prediction that might take several years to come true if I am correct.
Still I am no big fan of the euro. I guess all roads lead back to Asia for growth this century in my mind.
fred, lucky humans, well most of the time.
anon, I don't know enough about Italy to say whether they would pull out but if Spain does not pull out the deficit will be (i think I have these numbers right) 7% of GDP versus only 2% is they went back to the peseta.
Sorry i can't recall where I read that but it was just this past week.
That is obviously a shorter term thing than whatever the benefits (real or perceived) of being in the EMU.
When the euro first launched in 1999 there were quite a few people who said it could not last. I don't know obviosuly but there is visibility for trouble over the next few years but that contrasts with the notion if they can get/keep it together it could act as more of a world reserve currency. I think the barron's article linked to in the post said 26% of global treasury reserves are in the euro verus sixty something for the greenback.
To be a reserve currency for the world there has to be a lot of whatever is chosen. What Europe lacks in that regard is a central source of Euro bonds.
You can get bonds in Euros from Germany, or bonds in Euros from France, or bonds from some other fragment of Europe. What you can't get is the equivalent of U.S. bonds from the U.S. treasury. Want more? We'll make more! The ECB can't do that; They have a common currency, not a central currency.
I don't think Spain would leave the Euro unless there were political concerns, not financial. Spain is central to Western Europe in geography which gives her some inalienable benefits. In my opinion the Euro could lose (or not gain) some of the fringe, Eastern European and Western Asian (Turkey) countries and, probably, will be joined by the pound within the next decade.
Of course there is much to be gained by a single currency, just as there is much to be lost. Sometimes 'safety in numbers' outweighs flexibility. This could be more of a concern with the rising of the Yuan, Ruble and which ever currency the Middle East turns to.
Spain and Italy definitely are the two most likely to leave. Spain has the housing bust and Italy has a history of devaluing the Lira for decades to compete. Now they can no longer devalue and they have no growth.
BTW spain and italy are among my favorite places to visit so I am not down on these countries I just do not think one currency will continue to work for these countries. If I am correct and 26% of world reserve currencies are in euros what will happen if the countries start bailing out of the euro?
Interesting to say the least. I just would not like to have my money in euros if it happens.
I noticed that BWX took it on the chin last week. I wonder if that's in anticipation of a stronger dollar?
The British Pound looks rather weak vs. the $USD -- Britain's real estate bubble is even more seriously distended than the US if you can believe it -- and I expect the Pound to fall (relatively) as a result.
Intermediate term I am investing in anticipation the $USD will probably strengthen but long-term I still expect a major currency crisis as all the world reserve currencies run into trouble and a new currency regime is forged (or cobbled together out of the ashes if one prefers more apocalyptic analogies).
Interesting implications for oil and US large caps like KO that have been getting fatter on the weak $. Hmmm...
"Britain's real estate bubble is even more seriously distended than the US if you can believe it"
It should be, but will the trials of the US housing industry be transmitted and amplified within the British Isles? That's a very tricky question. The UK is much smaller and more crowded than the US but has many more fields than, say, Hong Kong or Japan. The UK economy is more dependent on the consumer than the US but has a greater percentage of income from it's financial services industry. The UK has a smaller deficit than the US but less scope for reducing debt and creating value. Here the amount of buyers who want to rent their properties has increased on a vast scale in the last 5 years, whilst their yields have reduced to around 5% - certainly not sustainable, surely?
I, as well as others, would like to see a rapid descent in the value of housing of round 20-30%, and an increase in the speed of building of new properties. In a sustainable and environmental way, Restrictions on immigration would not go amiss.
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