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TMFMmbop (34.10)

OMG...The Dollar!

Recs

13

May 26, 2010 – Comments (5)

I get questions from time to time emailed to me and while most are inane (no, I'm not going to help any Nigerian heiresses get money out of the country), I got a good one last night and thought I'd share my response in case others have the same question.

The Q
I have a question for you. As you know, many people are worried about the value of the dollar falling. The response to that is, “Relative to what?” The euro and the yen have similar issues, and the yuan is pegged to the dollar. What’s your response to investors who are worried about the dollar falling?

The A
Generally speaking, we've pointing folks towards a basket of emerging market and commodity market currency exposure (RMB, BRL, IDR, INR, CHP, ZAR, AUD, CAD). The theory behind this is that the dollar will weaken relative to emerging markets and relative to things that have stuff (you're right that the EUR and the JPY are both troubled as well). After all, since currencies only move relatively there have to be winners if the dollar is to fall.

But since these countries are also generally politically volatile (see: Canada...kidding!), we also think some commodity-based investments (miners, oil, etc.) are a smart move. This is because these commodities tend to be priced in dollars, but should hold their value on a relative basis (ie., increase in price) if the dollar devalues.

Obviously no one can escape the major currencies at present, but this is generally why we recommend much more emerging markets exposure that most frameworks for even conservative investors. Our theory is that its not Europe and Japan that will usurp the US position, but rather places like Brazil, Chile, India, Indonesia, and China will nibble away at it.

Avoid Russia though -- rampant, rampant corruption.

5 Comments – Post Your Own

#1) On May 26, 2010 at 11:28 AM, imobillc (< 20) wrote:

Nice, yes Brazil.... I like it!

+1 REC 

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#2) On May 26, 2010 at 11:30 AM, imobillc (< 20) wrote:

Your theory is my theory too...

*rather places like Brazil, Chile, India, Indonesia....

will nibble away at it.

 

Mars 

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#3) On May 26, 2010 at 12:30 PM, XMFSinchiruna (27.47) wrote:

"After all, since currencies only move relatively there have to be winners if the dollar is to fall."

Hmmm ... most major fiat currencies looking increasingly impaired ... if only there were a currency that's materially different in nature from the ones under pressure ... a currency that by its very nature can not be impaired by debt nor fiscal malfeasance. :)

If such a currency existed, surely that would provide a safe haven from the deteriorating purchasing power of the world's two main reserve currencies.

Food for thought.

 

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#4) On May 26, 2010 at 2:08 PM, TMFMmbop (34.10) wrote:

@Sinchi

I know whar you're alluding to but that "currency" is tricky expensive right now IMO -- though certainly has its place in a long-term diversification strategy.

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#5) On May 26, 2010 at 7:38 PM, Fliujniligui (23.14) wrote:

Look at BSBR. 

 24 % Bis capital ratio

Market cap near shareholders' equity for now, but if BRL appreciates by 10-15%,  just that, and not considering fatty earnings, will suffice for shareholders' equity to exceed market cap based on the price you pay for the stock.

This is going to be a growth engine.  It is flying under the radar. 

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