Ray Hendon

Tough Times for ETF and ETN Providers

Any ETF that is registered under The Investment Company Act of 1940 is free from any of the shenanigans that the banking industry and others used to fleece investors. These trusts are rigorously regulated and, as importantly, their monies held and securities purchased must be held by separate companies under highly controlled conditions. All of WisdomTree's currency assets are registered under the provision of this act, and, I believe, so are PowerShares. You might the prospectuses for more details on this provision.

ETNs are a different matter. With these instruments the safety is dependent entirely on the credit worthiness of the ETN provider at the time the fund matures. Personally, I do not like the ETN format. It has so many things wrong about it that I can't bring myself or any of my clients to risk a penny in their trust. Not everyone agrees with me harsh assessment, but I stand by it. Why take a credit risk that is added to the market risks you are already taking?

Best wishes,

Ray

After G-20: The Beginning of the End of the Old Order

Invest in A Farm: Thank you for your thorough exposition on Mr. Draghi. I confess I am not familiar with the history you describe, so I appreciate the information.

Best wishes,

Ray

After G-20: The Beginning of the End of the Old Order

gramps2
I see you are quite active in posting comments. I always appreciate thoughtful contributions. My preference would be more thought and less name calling and silly labeling. But to each his own.

You must take your views on yesterday's economics to all the world forums. Romanticism never dies. I guess that is its charm.

Best wishes,

Ray

After G-20: The Beginning of the End of the Old Order

I don't know what government actions you are referring to that have caused the existing turmoil in currency prices. Perhaps you could be more specific on what actions you mean.

As far as economic theories taught in textbooks, I am not aware of any theory that does not consider the effects of government actions. It would be a weird theory that ignores this important a factor. Even the most outdated classical microeconomic theory recognizes the importance of the public sector in influencing economic events.

As far as returning to a gold or other commodity standard, this subject has been adequately explored and tried over the centuries to know the actual effects. A modern economy would be hard pressed to function waiting on a new gold discovery to increase the supply of money.

There is something romatically appealing about "gold" that casts a spell on a lot of folk. But, as a tool of economic growth or even stability, it is like all romantic notions: great in conversation and dreams, but a nightmare in actual practice.

Best wishes,

Ray

The G-20 Sings a Song of Sixpence

I suggest you do a little more research on J.M. Keynes, including his role at the Bretton Woods Conference, and his place in establishing macro-economic theory. If you look at any elementary economic text book for the last forty years, Keynes' theories and policy recommendations have dominated about half the volume.

I also reject any bias because I use to teach economics and finance in college. No one deserves to be assigned either a liberal or conservative label just because they chose that profession. Economic theory does not come in flavors of liberal or conservative. It comes as a study in trade-offs between competing goals with limited resources.

If you want some current relevance of Keynes, study his liquidity trap theory, which thoroughly explains our current situation of trying to use monetary policy to get out of a serious economic downturn.

Lastly, I did not expect any great things from the meeting of this week. I suggest you re-read what I wrote. I think the next meeting, in 100 days or so will be the more meaty of the two. All participants need some tome to study their options, and there will be some fundamental differences about the role of regulation, size of stimulus and IMF participation.

I also disagree with your assessment of the IMF over the years. Check out the hundreds of countries what have borrowed from the IMF and taken their advice on how to straighten out their economies. I think once you are more familiar with the facts of the situation, you will draw a different conclusion.

Everyone of good will wants the situation to get better. I have no particular biases that cannot be broken if it would help. I am not sure you understand the seriousness of the crisis we face. The wheels have come of the world's economies. Major stuff is needed to put them back on. Clinging to ignorance and prejudice will not do the job.

Also, to assign to Keynes the problems the UK has had since WWII is rather simplistic and, simply, wrong. He was a private economist and currency trader. The British Empire was at the end of it life because of a host of factors, none of which were under the power of J.M Keynes.

Best wishes,

Ray

The G-20 Sings a Song of Sixpence

The major contributors to an expanded IMF fund would be Europe, America, Japan and Saudia Arabia. All these nations have good supplies of foreign reserves, and could make contributions in the hundreds of billions of dollars if needed.

I agree with you that the Bush Administration has used the IMF and the World Bank as dumping grounds for washed up hacks. But it hasn't always been that way, and it will not be in the future, at least is the G-20 members gave their way. Also, some of the past Administrations have actually put good people in these positions.

Best Wishes,

Ray

Opportunities for Currency Investors Amid Market Turmoil

I do not expect the dollar to weaken in a long-term sense. It has spent the last seven years doing that, and I believe it has weakened past the point where it was reasonably valued.

You seem to be taking a narrow point of view about the dollar, looking at it from your American perspective. But the demand for dollars is truely world wide, and all over the world, the dollar is still a sought after currency because it can be used to purchase what America sells or what other countries sell and will accept dollars for. America produces over 35% of the world's GDP, and people want what we sell, whether computers, software, airplances or stocks and bonds.

Nor is the bailout relevant to the dollar supply world wide. The bailout is a mere trading of assets. We sell debt and trade the proceeds of that debt for other debt. We may win or lose on the trade, but this is not the same as pumping raw money into the bankings system. We are buying assets that will, in the long run, be quite valuable. Even if there are mortgage defaults, the underlying property can be re-mortgaged to more qualified buyers.

Also, things may be bad here, but they are not as bad as elsewhere, at least for many places. Europe is further into a decline than we are, and all of developing Asia is hurting. With the decreasing supply of world dollars eminating from reduced foreign purchases by Americans, there is even more need for dollars to satisfy world liquidity needs. No other currency can take its place, at least for now. And, I don't think there will be a viable competitor for its place in world finance for some time to come.

In this sense, then, the dollar is not being over produced. It is now or will be soon, actually undersupplied as the world's clearing currency. I see the demand for it going up rather than falling, because all other currencies are now taking their turn being hammered.

You may be right. I confess I don't know what will happen. But I'm still long on the dollar and will be until the fundamental value gets out of line. It is still out of line on the down side for now. And it will probably take a long time for it to get into an overvalued position. At least that is my take on it.

Best wishes,

Ray

Opportunities for Currency Investors Amid Market Turmoil

Joe: This is a very real possibility. As of today, not only Japan but the G7 finance ministers also, are talking about selling yen in order to keep it from getting too higy. I put some references in my latest blog about this development it you'd care to check it out.

Best wishes,

Ray

Finding Your Comfort Zone with Currency Investing

Hi, Les,
I am not aware of much research on currency ETFs. They are probably too new to attract much attention from analysts. However, even if they were I would be skeptical of their opinions. I'm equally skeptical of my own. No one can do much of a reliable prediction in this type of market, in my opinion. Things can turn on a dime at the slightest quiver of a wind from any direction.

I have read a book on trading currencies, and I thought it was fairly good. Remember, all we have are opinions, and currency trading (vs. investing) is not necessairly a teachable subject. The book I read is : Getting Started in Currency Trading by Michael Duane Archer. It is probably out of print, but I found a copy at Amazon. Also, there are a couple of authors who contribute to Seeking Alpha. Chen and Lieu (if my spelling is correct) are two you might check on.

I would encourage you to approach this subject with the greatest caution, and consider, instead, currency investing--something like the carry trade. Trading is fast paced and will eat you up fast if you are not exceptionally able to cope with it. Few are!

Good luck.

Ray0

Finding Your Comfort Zone with Currency Investing

I haven't been following CNY, since I detest most ETNs, and your report reaffirms my view on this instrument. I believe CYN is one of the ETNs that doesn't pay dividends, so the interest income, if any (and the Chinese Yuan is the last place I would go to earn interest) you will see only to the extent their forward contracts include any such accumulation. Apparently they are not. The reason for this, I believe, is that China pays less than 1% on their foreign deposits, so that precludes leaving any money there. But, even worse,the yuan is mostly traded through forward contracts which the providers "hope" will include some interest earnings. But, you can't prove that by me--especially with most ETNs.

Also, even Wisdom Tree, whose yuan fund I like more than Van Eck's, only pays dividends on an annual basis--if I recall this correctly. China is not a good place to play the carry trade.

I thank you for your post. Our readers need to know how these differences will affect them and their investments.

Best wishes,

Ray

Finding Your Comfort Zone with Currency Investing

For ETFs the providers list their assets under management on a daily basis. For ETNs they list the indicative value, which is the last price per share times the number of shares outstanding.

Best wishes,

Ray

Currency Counter-Cyclicality

elobrate what?

The Burden of the Carry Trade

Hi, Mark

I don't know your situation, but as a general idea I like the ETFs of Rydex and Wisdom Tree. The specific ones to buy will depend on the strategy you wish to follow. The carry trade options are limited to about five, and a value strategy is even more limited. I have had good success with both the FXM and BZF funds, but I also like Australia (FXA) as a value play and as a carry trade prospect. China (CYB)) is probably the best value play, in my view, but CYB doesn't hold the yuan, it buys forward contracts, and the interest earnings are unattractive.

For strategy funds, I prefer DBV over ICI simply because I prefer the Deutsche Bank Index over the Morgan Stanley Index--but I have no way of knowing which would be better over the years. Right now, DBV has outperformed ICI by a small margin, but both are young funds.

I have also read of strong recommendations on the Swiss Franc (FXF), but I would encourage you to do some research on this currency--it has a long record of good stability and a haven in the storm type of play, but I don't know what to expect of it as a growth prospect.

I am a long term investor, so I don't look for fast turnover. You may be of a different temperment, so I can't give you advice or opinion of much value.

Good luck.

Ray

Strategies for Currency Investors

Thank you all for your generous comments. I'll have another post within a week or so on the details of executing a carry trade strategy. User 86999: I am not a tax expert, so be careful in placing too much credibility in my views on the K-1 issue. As far as I know, K-1s are used by Trusts, and is their way of passing on capital gains to their owners--you. While the Rydex fund (FXM) is a trust, they do not engage in futures transactions--they own mexican pesos outright. So, their exposure to capital gains is small. Those trusts that engage in forward contracts, however, do have a large exposure since they must turn over their contracts on a periodic basic.
ikkyu, thank you for the infor on OANDA. I was not aware of this broker, and what I have found so far is good.

Six Ways to Trade Foreign Currencies

My mistake. The symbol is BZF.