Ray Hendon

Carrying the Dollar Upstream

Brian, thanks for the comments. Your idea may have merit, but I can see one downside. As long as interest rates go down with the currency, your plan would be great. But, if interest rates are going up while the currency is depreciating, then you have the worst of both worlds. Remember that the price change in a bond is equal to its average duration times the negative of the price change. So, 3% rise in interest rates would be 60% drop in value of the bond if it was a twenty year average duration. This would devastate investors of the currency.

But, there may be some optimal mix of short and intermediate term bonds that could be held that would cut the worst losses and still make a good positive in the cases when interest rates were falling.

I hope Mr. El-Asner reads your commets--maybe it will give him a good idea.

Best Wishes,

Ray