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International Investments



Best of the Web

International Investments In The Other Dollars

By Gary Scott

Our International Investment & Business Course last weekend looked at many reasons why the US dollar could fall.

One reason is the talk that Russia will make the ruble “internationally convertible” so that it could be used in oil and natural gas transactions. Presently, oil is denominated exclusively in dollars and sold through the New York Mercantile Exchange (NYMX) or the London Petroleum Exchange (LPE) both owned by American investors. If Russia proceeds with this plan, it will add to the many streams that are eroding the greenback.

More importantly the course reviewed options of where to invest for protection against a dollar collapse.

One positive alternative are the “other” dollars: Canadian, New Zealand and Australian.

The Canadian dollar (CAD) is very strong. We looked at why in a recent message. To see an update.

Jyske Bank just wrote: “CAD – hard to live without. At the moment, the appreciation of CAD, especially against USD, appears to be never ending. In addition to the already mentioned positive factors such as excellent economic indicators, the string of interest-rate hikes, Canada’s attractive status as a commodities nation, there is another new dimension, namely a general dollar aversion. An aversion which is threatening to turn into an actual dollar phobia. If that happens, CAD will be even more attractive for international investors who have initiated a hectic search for currencies which offer an economic scenario completely opposite of that of the US at the moment.

“And consequently, the love affair between the market participants and the Canadian dollar looks set to continue unabatedly. However, it is worth keeping an eye on the Canadian central bank with David Dodge at the helm. Recently, he has cautiously aired his concern about a speculative demand for CAD. Although in our view, the danger of a true dollar collapse is higher than the danger of intervention from the Canadian central bank.”

The downside in the Canadian dollar is that you have to pay a percent or so to hold Canadian bonds at this time due to the lowered interest rates. (See the bond list below.)

The New Zealand dollar has been through a crash. Now may be good to buy and hold the Kiwi.

There are still problems with the Kiwi currency - no doubt. The country has a huge current account imbalance, almost 9% of GDP. Traders are shy because they have been burned since the beginning of the year, and the economy is weak.

However because New Zealand has a small population and economy, deficits can easily reverse with only a small amount of international interest. The US on the other hand has a huge deficit that is not as easy to reverse. More and more readers tell me they moving to New Zealand. This interest in moving there by Americans and British, fed up with their own nations, could have a huge impact in reducing the current account deficit.

In addition New Zealand’s economy has slowed, almost to recession. In currency terms, right now this is good. The sluggish economy will slow inflation and reduce imports that feed NZ’s trade deficit.

Mainly the Kiwi is looking ready for a recovery because it has fallen so much.

These dollars are connected. History shows that when the US dollar falls so too do the Canadian, Australian and NZ dollar. The NZ dollar has taken its hit, perhaps too much and may turn around. Though it may still sag a little in the short term, this currency has potential to rise long term versus the greenback.

Jyske Bank agrees and says “In 2006, the NZD/USD ride has been a doubtful pleasure. First like a tornado, then a direct spin towards the ground. Nevertheless, we recommend investors to get in again or hold on to existing long positions and stay belted up.”

Finally, the Australian dollar is advancing against the U.S. dollar as well.

The Aussie's rise has coincided with a recovery in commodities and a decline in risk aversion. Recent reports show that the Australian trade deficit narrowed more than expected to A$1.09 billion in April.

Also inflation is near the top end of the 2-3 percent target band. This increases the odds of higher AUD interest rate which would protect the Aussie's yield advantage over other major currencies. Currently investors gain a slight interest lift in the Australian dollar versus the greenback. Here are some current yields on bonds denominated in the various dollars.

USD

20-05-2009 Ericsson LM Tel

5.58%
USD 13-02-2013 Hutch Wham Intl 6.16%
USD 22-07-2008 Deutsche Tel 5.50%
     
AUD 16-07-2010 BK Ned Gemeeten 6.05%
AUD 25-01-2011 CIE Fin Foncier 5.75%
AUD 01-03-2008 NSWTC-Intl-Regd 5.77%
     
CAD 18-07-2012 Eurofima 4.64%
CAD 22-05-2008 Gen Elec Cap Crp 4.19%
CAD 05-01-2009 Rabobank 4.46%
     
NZD

08-02-2008 ABN Amro Bnk

7.18%
NZD 15-07-2009 Europe Invt Bank 6.77%
NZD 20-07-2015 Instit Credt Ofcl 6.84%

Deciding to get out of the US dollar is quite easy compared to knowing where to go! Some emerging market investments make a great deal of sense.. European currencies offer some stability but pay much lower fixed returns right now. The other dollars (AUD, CAD and NZD) are in the middle…a bit riskier than Europe, but less volatile than emerging. They pay more than Europe but less than emerging. These dollars make sense be added to a diversification blend.

Enhance your profit potential with a diversified portfolio of emerging currencies through a MultiCurrency Sandwich. LEARN HOW

Learn about investing in emerging currencies, gold, silver, Ecuador, import-export, overseas markets and more. Join Merri and me at our September 15-16-17, 2006 International Business and Investing Made EZ course in North Carolina. Review where to invest and do business now and learn which markets and currencies may be strong in the year ahead. Our May course was overbooked and the September session is already filling up fast. Our free accommodations are reserved on a first come first served basis so do not delay! DETAILS

Gary

June, 2006

 

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