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As the Czech Koruna Shows, Currency Allocation Makes Sense [view article]
I'm always amazed at how people pooh-pooh self-directed currency investment, and nonetheless have major exposure to their home currency. My portfolio consists mostly of currency funds (FXA, FXC, FXE, FXF, FXY, CYB, MERKX, MEAFX, PSAFX) to fully offset my USD exposure. Sure, it would be better to hold lots of currencies as real deposits, but not being wealthy enough for that kind of service from an international bank, I consider this the next best thing. These funds have their expenses and market/management risks, but in terms of currency risk I feel I'm on a better wealth preservation track than people living mostly in the USD universe. ReplyEditors
General Discussion on GCF
Is this a buy or a sell? ReplyChoosing A Currency ETF: Why We Went With DBV [view article]
Sorry for the delay. Would love to comment! In the short term currency trading is very speculative (i.e. betting on one currency to move up or down). However, over the long term the strategy employeed by (DBV) seems to be working. The tendancy for currencies attached to high rates to move up and those with low rates to move down. Given the divesification of currencies in (DBV), I believe this aids in lowering your exposure to a quick unwind in a "carry trade" for a particular currency. Is it possible that all three currencies could unwind at once, sure. Is it possible for the stock market to experience a 20% to 30% correction, yes. However, these events are rare. Accordingly, I believe this to be more of a long term strategy. If you look at the annual returns attached to a specific year in (DBV), you will see there where some real underperformance for long durations. I don't see this particular vehicle as a trading vehicle, but more of a strategy to grind out superior return over the long term. On a broader portflio perspective it fits the bill for diversification via both correlation and volitility to S&P 500. The ladder further lending weight to mute concerns of a quick carry trade unwind. Keeping in mind that past performance is no sure ticket for future performance. Also, I added the above piece of the quote, since I think it is important to be aware of the risk. I think for the average guy or a manager, who manages asset classes for particular portflio startegies, this is a good fit. Does this add a bit more clarity to my thinking process? ReplyChoosing A Currency ETF: Why We Went With DBV [view article]
Keith, not sure of the logic here. You quote the WSJ as saying "Carry trades can be particularly risky because they can unwind rapidly under certain circumstances", but then you go on to specifically adopt a carry-trade fund. Can you elaborate on why you're not concerned by the risks? ReplyChoosing A Currency ETF: Why We Went With DBV [view article]
According to the New York Times, the firm reversed a second quarter loss and gained $412 million between July and September, after increasing its share of foreign currency contracts from $12 billion at the close of 2003 to $20 billion now.MDCigan....Thanks for keeping my nose clean on this. I will work to keep the facts right!!!!!!! Keith Reply
Choosing A Currency ETF: Why We Went With DBV [view article]
"Case in point: the bearish bet Warren Buffet made against the dollar ***only to unwind the position with a loss***. "Huh? Ughhh. Buffett did not unwind the position with a loss. In fact, his bet against the dollar was extremely profitable. It is disappointing when an article can't even get basic facts correct that are easily checked. From the 2006 annual report:
We’ve come close to eliminating our direct foreign-exchange position, from which we realized
about $186 million in pre-tax profits in 2006 (earnings that were included in the Finance and Financial
Products table shown earlier). **************That brought our total gain since inception of this position in 2002 to $2.2
billion.**************... Here’s a breakdown by currency:
Total Gain (Loss) in Millions
Australian dollar $247.1 Mexican peso $106.1
British pound 287.2 New Zealand dollar 102.6
Canadian dollar 398.3 Singapore dollar (2.6)
Chinese yuan (12.7) South Korean won 261.3
Euro 839.2 Swiss franc 9.6
Hong Kong dollar (2.5) Taiwan dollar (45.3)
Japanese yen 1.9 Miscellaneous options 22.9 Reply