Sunday Morning Coffee

Barron’s had a lengthy article about currency ETFs, fundamental reasons to consider having more exposure to non-dollar denominated assets, how the dollar is becoming less relevant in the world economic order and that cash, like equities and fixed income, is an asset class that could be useful to diversify into foreign. This is somewhat amusing to me as I’ve been saying these things for years and obviously I was far from the first to make these observations. I’ve covered this ground many times so without repeating the entire thread I believe the loss of dollar hegemony will not be a disastrous train wreck but more of what we have seen; the dollar today is less important than it was five years ago. Many transactions between other countries that used to be conducted in US dollars are now being done directly. The fundamentals backing the US dollar have certainly changed which makes the dollar less attractive by some magnitude. You can decide for yourself what the magnitude is but I think it will be far more gradual of a thing because despite the state of the USD and economy the US is still a very wealthy country (wealth gaps notwithstanding) and many countries rely on us to buy stuff from them and while consumption and income numbers may still tweak at the margin we are still buying a lot of stuff. Even though this is not apocalyptic I do believe in investing extensively in foreign denominated assets. For the most part we own foreign stocks and short dated foreign sovereign debt. In the past we’ve done more with currency ETFs...

Sunday Morning Coffee

Barron’s had a lengthy article about currency ETFs, fundamental reasons to consider having more exposure to non-dollar denominated assets, how the dollar is becoming less relevant in the world economic order and that cash, like equities and fixed income, is an asset class that could be useful to diversify into foreign. This is somewhat amusing to me as I’ve been saying these things for years and obviously I was far from the first to make these observations. I’ve covered this ground many times so without repeating the entire thread I believe the loss of dollar hegemony will not be a disastrous train wreck but more of what we have seen; the dollar today is less important than it was five years ago. Many transactions between other countries that used to be conducted in US dollars are now being done directly. The fundamentals backing the US dollar have certainly changed which makes the dollar less attractive by some magnitude. You can decide for yourself what the magnitude is but I think it will be far more gradual of a thing because despite the state of the USD and economy the US is still a very wealthy country (wealth gaps notwithstanding) and many countries rely on us to buy stuff from them and while consumption and income numbers may still tweak at the margin we are still buying a lot of stuff. Even though this is not apocalyptic I do believe in investing extensively in foreign denominated assets. For the most part we own foreign stocks and short dated foreign sovereign debt. In the past we’ve done more with currency ETFs...

Thursday Tidbits

Charles Biderman has espoused an interesting, even if disturbing, theory about whether the Gubment (the Fed, the Treasury or both) have been buying equities (either SPX futures or actual individual stocks) as a form providing liquidity at a time of perceived need. You can read more complete versions of the story from Alphaville and Zero Hedge. Basically Biderman provides a list of data points subject to varying amounts of interpretation. Some numbers are straight forward like money coming in and out of mutual funds and some maybe less so like pension fund activity. I obviously have no idea whether there is anything to this or not. Biderman concludes that if true it “could trigger a major equities meltdown when the government stops buying and even worse, starts selling.” Obviously this sort of buying is done in the hope of stimulating natural buying. One part of this that sticks out as being particularly unhealthy (although there are many things) is that if successful it would stimulate natural buying at high prices. This ties in to the emotional response that causes people to buy in heavy after a big move up or sell out heavy after a big decline. Bruce Krasting has a very detailed breakdown of the latest Social Security data and it is not good. While you need to read the post in full the key take away, IMO, is that in 2009 income was less than outgo which wasn’t supposed to happen until 2016. The reason for this seems reasonably clear, there was a huge drop in the number of employed which results in a reduction in what...

Thursday Tidbits

Charles Biderman has espoused an interesting, even if disturbing, theory about whether the Gubment (the Fed, the Treasury or both) have been buying equities (either SPX futures or actual individual stocks) as a form providing liquidity at a time of perceived need. You can read more complete versions of the story from Alphaville and Zero Hedge. Basically Biderman provides a list of data points subject to varying amounts of interpretation. Some numbers are straight forward like money coming in and out of mutual funds and some maybe less so like pension fund activity. I obviously have no idea whether there is anything to this or not. Biderman concludes that if true it “could trigger a major equities meltdown when the government stops buying and even worse, starts selling.” Obviously this sort of buying is done in the hope of stimulating natural buying. One part of this that sticks out as being particularly unhealthy (although there are many things) is that if successful it would stimulate natural buying at high prices. This ties in to the emotional response that causes people to buy in heavy after a big move up or sell out heavy after a big decline. Bruce Krasting has a very detailed breakdown of the latest Social Security data and it is not good. While you need to read the post in full the key take away, IMO, is that in 2009 income was less than outgo which wasn’t supposed to happen until 2016. The reason for this seems reasonably clear, there was a huge drop in the number of employed which results in a reduction in what...

Risk Assets And Other Greenback Fun

Yves Smith from Naked Capitalism had a particularly meaty post earlier in the week about the current affairs of the US dollar. Of most interest was the following one-liner; But one difference this time is now the dollar, rather than the yen, looks like the best funding currency, and the dollar is a deeper market, so the scale of potential damage is much greater. The size of currencies has come up a couple of times during this event in terms of certain countries (like Iceland and Switzerland) simply not being big enough to bail out their banks if they needed to. This context though is new, to me, but of course also matters. There are greenbacks everywhere. Many countries use USD for all sorts of purposes and so the breadth or scale as Yves says stands to be much larger if things become disorderly with the dollar as compared to the yen or the euro for that matter. The word disorderly as a benchmark for concern gets used all the time but without definition. Perhaps we will “know it when we see it.” Ooof. Here is a link to the Hugh Hendry investor’s letter. John Mauldin posted in on Barry’s site and I saw a link to it on Seeking Alpha as well. I mentioned Hendry several years ago after seeing him on CNBC Europe. He is always a good read, but a better listen for the Scottish accent, because he tends to come at things with a unique viewpoint. I tend not to focus on whether he is right about something so much as trying to see what...

Risk Assets And Other Greenback Fun

Yves Smith from Naked Capitalism had a particularly meaty post earlier in the week about the current affairs of the US dollar. Of most interest was the following one-liner; But one difference this time is now the dollar, rather than the yen, looks like the best funding currency, and the dollar is a deeper market, so the scale of potential damage is much greater. The size of currencies has come up a couple of times during this event in terms of certain countries (like Iceland and Switzerland) simply not being big enough to bail out their banks if they needed to. This context though is new, to me, but of course also matters. There are greenbacks everywhere. Many countries use USD for all sorts of purposes and so the breadth or scale as Yves says stands to be much larger if things become disorderly with the dollar as compared to the yen or the euro for that matter. The word disorderly as a benchmark for concern gets used all the time but without definition. Perhaps we will “know it when we see it.” Ooof. Here is a link to the Hugh Hendry investor’s letter. John Mauldin posted in on Barry’s site and I saw a link to it on Seeking Alpha as well. I mentioned Hendry several years ago after seeing him on CNBC Europe. He is always a good read, but a better listen for the Scottish accent, because he tends to come at things with a unique viewpoint. I tend not to focus on whether he is right about something so much as trying to see what...