Date: March 23, 2013
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G&G Associates
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In one of my most recent swings overseas, I found myself talking with a gentleman who was COO of this multi-million dollar company in which I was doing research on. He wanted to know why I recommend to my clients that they own brokerage accounts around the world. When I told him one of my primary reasons is currency exposure, he furrowed his eyebrow, cocked his head to the side and stopped me mid-answer.
“Wait. That doesn’t make sense. Why don’t you just go to your bank and put your money into another currency, or just go to a currency kiosk where you live … and be safe about it?”
You see…that’s what savers do in different places around the world – and especially all over Asia and parts of Europe and certainly various parts of Latin America. It’s as common as going to the ATM for cash. Thus, he was equally perplexed when I told him, “In the U.S., you won’t find currency kiosks in most cities. And there aren’t many banks that will let you hold your cash in different currencies.”
And that means, as an American investor, you have to be more creative with your investing to reduce your exposure to the U.S. dollar.
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Since the announcement of QE3 until 2015 by the Fed Chairman and Japan’s outright start of the Currency wars, you need to really know how to protect and grow your financial portfolio … from the currency wars in process.
If you get paid in dollars and hold the majority of your assets in U.S. stocks or bonds, your wealth is in significant danger (401K’s, TSPs, 403Bs, Mutual funds, etc).
To become a member of the G&G Investment Society (GGIS) newsletter subscription to learn how to take advantage of some of our suggestions so you can protect your wealth and portfolio against a fallen dollar, send an e-mail to GGIS@gngassoc.com and/or visit our website at www.gngassociates.net and click on the “Products & Services” link and we’ll get you signed up right away.
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If you travel outside the U.S. much, you know that America is unique in its currency prejudice.
Everywhere I’ve traveled – from southwestern Asia to Europe and even east & west Africa – just about everyone is hyper-aware of multiple currencies, usually the local lucre, the U.S. dollar, the euro and maybe the currency of one or two countries in the nearby geographic neighborhood.
In the States … well, not so much. Most folks in the US are ignorant to currency diversification.
I challenge you to find me a currency kiosk in America anywhere outside of a major metropolitan city like Miami, New York and a small clot of others. Go ahead; drive or walk around town and I bet you won’t find a “currency exchange” sign hanging on any storefront. America simply is not a country with a multi-currency outlook….smh.
That’s partly the result of our geography (only two other countries touch our borders); it’s partly the result of Americans’ insularity (just 35% of the population has a passport, and you have to wonder how many of those are hyphenated-Americans who travel overseas to visit family); and it’s partly the result of the last 65 years, during which time the dollar emerged as the de-facto global currency.
But given the multi-decade decay in America’s finances, and the resulting multi-decade slide in the U.S. dollar, the need to bring currency diversity into your portfolio could not scream any louder. You don’t have to do this, though, through direct ownership of currencies. You could, as I do, simply own a basket of dividend-paying stocks on foreign stock exchanges, and you get the exact same currency exposure – plus the benefit of dividends and stock-market growth.
Investors don’t always think about stocks in currency terms. But when you own a company like, say, DBS Group, one of Singapore’s largest banks, you are, by definition, exposing your portfolio to a foreign currency – in this case, the Singapore dollar.
Any movement in the currency immediately reflects in the dollar value of your portfolio.
So, as your US dollar falls in value against the Singapore dollar, your portfolio grows larger in U.S. dollar terms. And that’s true even if DBS Group never moves in price.
Here’s how it works: When US$1 buys you S$1.25, DBS at S$15.60 a share is the equivalent of US$12.48.
If DBS remains locked at S$15.60, but our dollar falls by, say, 10% and only buys S$1.13, then your DBS shares in U.S. dollar terms are now worth US$13.80 – the same 10% gain the Singapore dollar picked up on the U.S. dollar. You have profits even though the stock never budged.
That’s only part of the fun, though.
Consider what happens when the U.S. dollar is falling even as the share price is rising for the stock you own. If the US dollar loses that same 10% and DBS gains 10% to S$17.16, the dollar value of your investment is suddenly US$15.19 – a cumulative gain of 21.5% in your portfolio.
Are the bells in your mind ringing yet? Do you want to know how you can do this within your investment portfolio? Hold tight …that’s coming in a minute.
When you’re an American investor and you own stocks denominated in U.S. dollars, then a falling stock price is, by definition, a loss.
Not so when you own stocks priced in other currencies. In that instance, currency gains can offset losses in the share price, giving your portfolio a certain degree of insurance.
Assume DBS falls 5% to S$14.82. If the dollar has lost 10% and buys just S$1.13 per US dollar, the overall impact on your portfolio is a gain of 5.1%. DBS tumbled, but the strengthening Singapore dollar helped you profit at the same time.
And then there’s the final sweetener: dividends!
You might start out owning a company that pays a dividend of 3% or 4%, but after accounting for currency movements, your effective yield in dollar terms could be well north of 5% or more.
To be fair, currency movements can have negative effects as well. If the dollar is rising against world currencies, then the value of your portfolio suffers. But given the state of the U.S. monetary system … the unmanageable size of U.S. deficits … the problems awaiting the nation with Social Security and Medicare … and the unimaginable volume of dollars the Federal Reserve is conjuring out of thin air to throw into the economy … well, betting on the dollar’s long-term decline seems quite the safe bet. You tell me … take a look at the dollar chart below… would you bet for or against the dollar based on the current state of the US economy?
Click here to view USD Chart
http://pricedingold.com/charts/USD-1997.pdf
Ultimately, to protect your wealth against the incessant destruction the dollar leaves in its path, you need broad currency diversification.
Based on my experiences owning scores of foreign currency and/or stocks is the best way to protect your portfolio. You get the currency exposure, and the kickers of stock-price appreciation and dividends that can turbo-charge those currency movements.
Now, how can you learn how to do this? By becoming a G&G Investment Society (GGIS) subscriber…It’s that simple!
AGAIN: To become a member of the G&G Investment Society (GGIS), send an e-mail to GGIS@gngassoc.com and/or visit our website at www.gngassociates.net and you can sign up there.
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Meda Ase p (Thank You Very Much),
Asar Maa Ra Gray
Tax & Financial Consultant, RFC
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LEGAL NOTICE: This work is based on what I’ve learned as a financial researcher and analyst based SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice.
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