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June 29, 2010
Alert 50-2
Dollar Diversification that Makes Sense
Two years ago, a friend of mine joked that the best investment he made all year was not exchanging the Euro coins and currency he had in his pocket after a trip to Europe. Their value had gone up by 12% or more – a lot better than his stocks and bonds that year.
Had he done the same thing in the past twelve months, though, it would have been one of the worst investments he could make, as the Euro fell 30% against the U.S. dollar.
So what’s the smart thing to do now -- bet the Euro will fall further? That the U.S. dollar will rise or fall? What about the Swiss franc and the Japanese yen? Or the Norwegian kroner, the Brazilian real, the Australian dollar, or the New Zealand kiwi? Or a dozen other currencies around the world?
If you want to invest in foreign currencies – and I think it’s a good idea – then here’s a suggestion to consider: Find some experts you can trust and let them make the decisions for you.
That’s why I’m delighted to tell you about a brand-new program that has just been launched by our friends at Jyske Global Asset Management. We’ve mentioned Thomas Fischer, the senior vice president of JGAM, before in these pages. His company is one of the very few European firms that’s gone through the registration process with the SEC so they can serve American clients. In fact, JGAM was created specifically to offer asset-management services to U.S. citizens.
After months of planning and preparation, Thomas proudly announced that JGAM is now prepared to accept investors in its Managed Foreign Exchange Portfolios. Why should you consider diversifying some of your dollars into other currencies? For two very important reasons.
First, sad as it is to say it, the U.S. dollar is not “as good as gold” anymore. With the federal government creating trillions of new dollars every year, the value of each of those dollars continues to drop. It seems to me inevitable that the more dollar-denominated investments you hold, the more purchasing power you will lose.
Two, some other currencies will fare even worse. At conferences where we appear, we promise that everyone who visits our booth will become a trillionaire. That’s because we bought a supply of $10 trillion dollar bills from Zimbabwe. While they look impressive, with all of those zeroes after the “1,” 10 trillion of them aren’t enough to buy a loaf of bread in Zimbabwe – if there were any bread in the stores there.
So how do you know which currencies to buy? And how do you buy them, once you’ve made that decision? Currency trading is one of those markets where it’s very hard to win consistently – and awfully easy to lose big time.
That’s where the Managed Foreign Exchange Portfolios at JGAM come in. I was relieved when Thomas told me its managers will not day-trade currencies. Rather, they will look for longer-term opportunities. “Each position will have an identified stop-loss when we take a position,” he explained. “And we will use trailing stops to lock in profits when the position moves in our favor.”
The managed FX portfolios may use leverage when investing in currencies. Clients with a “medium risk” profile may use up to one times leverage; that is, the administrators may augment returns by borrowing up to 100% in additional funds. Clients identified as “high risk” may use two times leverage. While those identified as “speculative” may use four times leverage. If your client profile indicates you are “low risk,” you will not be eligible for this program.
The minimum to open a managed FX account at JGAM is U.S. $100,000. JGAM wants every client to be aware that using leverage (borrowed funds) in a managed currency account must be considered a risky investment. As their literature states, “You risk losing all your own capital if assets you are invested in fall in price or loan currencies rise in value.”
But if there’s such a thing as a conservative strategy for trading a leveraged currency account, this new program from JGAM is it. Since currencies are an uncorrelated asset (that is, they move independently of stocks and bonds), Thomas believes there will always be profit opportunities somewhere.
If a managed account for trading currencies sounds like something you’d be interested in, let us get you more information about the JGAM program. Just click here and we’ll have Thomas rush a package to you. Or you may call him directly in Copenhagen at 011 45 89 89 59 03.
As I said, this program makes sense to us. I hope you’ll check it out.
LiveStrong,
Michael Checkan
If instead of trading currencies, you would rather exchange dollars for Swiss francs, Euros, or another currency, and just park the funds in an offshore bank, we can help you with that as well. If you’d like more information, please click here to send us an email, or call us at 1-800-831-0007.
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