I have been a big believer in the weaker dollar theme (not sky is falling) for a while now. The selling seems to have intensified a little since the Fed cut on Tuesday. Tony Crescenzi from Miller Tabak was quoted saying the dollar's slide has been "rapid and disorderly."I have a lot of oars in the water on this theme so I removed one by selling the Swedish Krona ETF (FXS), yesterday morning at just a hair above $153. I first bought it a year ago July in the $138s and we also took in a monthly dividend.
I didn't use a stop order because it seems like it moves around $2-$3 at a time pretty easily.
I still have foreign bonds, a foreign bond fund and some folks own the Australian dollar ETF (FXA) and of course the gold ETF.
The idea here is one of reducing exposure to an area that has done very well.
This type of pairing back is something I have done quite a few times in the past. The idea here is maintaining exposure but reducing after a big run that creates a lot of excitement but my opinion about the theme has not changed.
One final point about currency ETFs. I view them more as aggressive cash as opposed to conservative equity. A return in the mid teens is pretty big.
There are schools of thought about selling into strength or weakness. I tend to do a little of both. Some folks swear by one or the other but it seems to me that along with most things in investing, there is no one strategy that can always be best for every situation.
13 comments:
Down and down it goes, where it stops, nobody knows: the dollar is of some concern. Regarding it, Bill Cara sees Bernanke and Paulson having gotten down to the issue yesterday: "unless the Fed drops the value of the US Dollar, the US capital markets (stock and bond prices) are done like dinner, awaiting the Three Bears. Goldilocks is a myth." John
Also from Cara: "And when the value of the USD drops, the Fed is inviting inflation and much higher interest rates in the future. So, it is a case of save a few home-owners today and push most of them off the cliff tomorrow. Bernanke, being a smart guy, knows this of course, so his actions of the day have a different motive.
The picture I’ll draw is that the Titanic has hit the iceberg, and the Captain is doing what he can to save the crew, expecting most the passengers are going to perish in any event." John
Roger,
I'd like to throw out a topic for you to address sometime whenever you get a chance. As ETFs are becoming more and more popular, I keep hearing talking heads and others use the sector type ETFs as a measurement of the sector (which is fine), but then they throw in "so if you buy the best and not the sector ETF, you'll do well". I think that phrase is thrown out there a little too matter of factly. Why don't we all just "buy the best" and forget about ETFs and indexes? What constitutes the "best"? You mention that you hold a lot of individual issues, are you holding what you feel is the best? Do you ever compare your sectors to the indexes to see how you perform? If you're underperforming do you reevaluate your criteria for picking something that is the best?
BillB, good question. i'll address it on sunday morning's post.
Foreign bonds. There's something I haven't researched enough. I wonder how much they'd reduce risk as part of the bond mix in a portfolio.
I also wonder if there are ETF options for foreign bonds yet.
no ETFs but the indexes from MSCI exist--PowerShares has one in registration that is not an MSCI index.
My take is not that they reduce risk a lot because the vast majority of the time currencies don't move as much as they are moving right now.
I own short dated Norwegian govt bonds. Look at the USDNOK chart. It hovered between 6.20 and 6.00 for months before making a really big move in the last few weeks or so.
I view them more as a just in case, expecting that most of the time there won't be a lot of difference.
one other thing on the Norwegian bonds. I chose Norway for its economic strength, it being a commodity based country and that the Norges bank was/is in a tightening cycle which helps NOK.
Stephen: EDD (which i own) is an emerging market debt fund. having the advantage of owning debt denominated in local currencies instead of USD.
I use PRPFX - Permanent Fund rather than something I don't really understand as a hedge on most anything. Am I wrong? I consider myself a conservative investor.
Being "conservative" is irrelevant, no offense. What I mean is that if the one thing you were a real expert in was the most volatile thing on the planet, but you knew that well, you would know how to use this radio active thing in a conservative manner.
The thing that is relevant is that you feel good or understand it. PRPFX, like all product has pros and cons. Pro is that it seems to do at least a decent job if not better.
The cons are it owns a lot of US paper, a lot of coins and some Swiss debt. Those three take up a lot of the fund so the fund doesn't seem to explore a lot of different themes.
Wrong? no. Are there better things? Probalby but that can always be said.
Roger,
Ever looked at DBV?
George,
I've written about DBV a few times and traded it personally once. I generally buy into it, not sure why I haven't bought in other than I just haven't.
I felt that I could've done a lot better investing in the beneficiaries of the weak dollar rather than messing with currency funds.
Example... in late 2005, with the $USD around 92.5, I bought RYWBX, the double short dollar fund, as an investment. I sold it earlier this year when the dollar bounced off 80.
The fund itself went from about 22 to about 28 in that timeframe, albeit without a lot of volatility. Still, the annualized return was nothing like what I would've had in the Dow.
I do, however, believe that one of the sure secular bets in all the world is that Japanese long rates go much higher.
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