Multi Currency Question – Recession


Here is a good multi currency question about the global recession.

Recessions create opportunity for multi currency investors, but not always in the short term. Good value oriented multi currency investors may even suffer more during downturns. Recessions improve value in multi currency portfolios but the profits from this value comes only when markets recover.

Value investors are not market timing investors. This is good because most market timers usually lose in the long term.

Well diversified multi currency portfolios reduce volatility but do not eradicate it totally as is explained in the answer to this good multi currency question.

Here is the multi currency question:

“HI Gary, First let me send my love to you and Merri from Israel and thank you for your sharing of info. The question I have is: With the credit problems and banks going under and reduced credit globally shouldn’t this bring down global valuations on stocks? Wouldn’t it be a risky time time to be invested in most stock markets? I read that it is the credit that is propping up the share value. I also read that it is possible for 150 banks to go under, that seems like it would be a huge ripple effect. It seems that it is not isolated to just the states, last week I read about the Danish bank in serious problems. I remember you recommending property, commodities and shares to fight inflation. Do you think the shares rewards outweigh the risk in times like these? Thanks for any insight without panic.”

Here is a reply about multi currency investing that you may find worth study.

Thanks for your question.

First, we are not advocates of market timing. Remember rule number seven of the Seven Rules of Global Investing. “Value is reflected long term. Equity markets are efficient in the long run but are not effective short term due to human behavior”.

Having said this, we do realign the weighting of our investing activity based on our beliefs of where the 30 year market cycle stands. To learn more about the thirty year cycle.

Longer term subscribers know that we began warning about equity markets in August 2007 (the 17th to be exact) when we wrote: “Such historical measures are so inexact that we cannot predict just from them what will happen in the short term. The numbers are close enough that we could be entering the fourth sub cycle down (similar to 1976 to 1978). If so expect a sustained drop in markets for two to three years.” See the entire warning here.

Our September 21, 2007, message said: “Equity markets dropped again violently last month. Now these markets have recovered again. Yet this may be a last gasp party. This drop of interest rates at a time when inflation is beginning to soar could lead to a rapidly falling US dollar. We can see from the chart here that the dollar has done almost nothing but drop for 40 years (that chart is below). Yet much more dollar dropping could be in store.”

The October 14, 2007 message stated: “Periods of high performance are followed by times of low returns. We never know for sure when an upwards cycle will stall. Fundamentals look good for a bright 2008 in emerging and equity markets, but this can change quickly so to give our readers a better perspective, this year we are reducing leverage and adding a sixth portfolio with no leverage to study”.

Oct. 15, 2007 we wrote: “Okay, it’s time to turn the burner down.”

We offered a “leverage dwindling” warning on Oct. 26 where I explained to readers that I had eliminated even my modest leverage and wrote: “There is a final reason I liquidated my leverage now…to lead by example. Too many readers are thinking that the dollar short or dollar neutral Portfolios are only up 38% or 48% for the year. When one thinks that way they could be headed for trouble, so I hope investors will follow my lead and take greater care with their leverage.”

The November 8, 2007 Black Friday interim message warned about all the points above and more. At that time I let readers know that I had reduced the equity portion of my personal portfolio to 6%.

My published portfolio at that time was.

Real Estate 43.0%
Euro 10.5%
Emerging markets 10.0%
Danish kroner 9.9%
US$ 8.2%
British pound 6.0%
Swedish kroner 4.0%
NZ$ 3.7%
Aust. $ 1.0%
Canadian $ 1.0%

The liquid portion of my portfolio was

Cash 9.7%
Equities 6.0%
Bonds 31.7%
Emerging Equities 1.5%
Emerging Bonds 8.5%

There is a chance that equities will fall further. Yesterday’s Multi Currency Portfolio update focused on why value investments tend to drop more in downturns than the norm.

However, this is the best way to make long term multi currency profits…buy good value shares on the downside. One can never predict when the market will turn and when it does turn most market timers get in too late.

I lean towards real estate rather than shares because this is fun for me.

The way each person should position the multi currency portfolio should be based on what they love, enjoy and know best…real estate, commodities or shares. All three asset classes offer more potential than any one person can capture in a lifetime. Why not go with what brings the greatest joy in your life?

Regards,

Gary

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