Personal Inflation Fighting Portfolio


This and the next several lessons will examine my personal inflation fighting portfolio. I am leaning towards inflation but as you will see am hedged in case the forces of deflation are stronger than I see.

Multi currency investing now requires more than just investing in various currencies.

I am on the Board of Advisers for the Liberty Street Letter which launches February 11 and occasionally am asked a question.  Here is an interesting one received.

Question: What currency do you think will become the “currency of choice” when the current economic situation subsides?

The answer ties in with our lesson today:  This is a million dollar question and I do not see any clear winner because every option has a potential problem.

Currently the yen is winning this role having already reached an almost high versus the dollar ever.  This strength has come at a time when the euro has weakened considerably.

The only practical choices are the yen and the euro… These are the two economies big enough to handle this role.

Each has their own set of problems. The euro is strained due to internal difficulties between the various EC nations.  Japan’s debt is high also. Both Europe and Japan have aging populations that will also pressure the currencies.

The Swiss franc would be a choice except Switzerland is too small an economy to provide the world with a reserve currency.  The last time investors flooded into the Swiss franc Switzerland created a negative interest of 12% per quarter on all non resident Swiss franc deposits over 100,000 SFR.  We have warned about the Swiss franc for at least a decade. See why here.

The British pound is popular still since it was the reserve currency of the world before the dollar…but Britain’s debt is high also.

The Chinese yuan would be a good bet if China’s production per person were a bit higher.

So the US dollar is likely to remain the contender for awhile.

I do not see any clear fundamental currency winner and expect some degree of currency turmoil.

In the “good old days” (1970s-80s) choosing a stronger currency was easy. The US government was conducting a “Guns and Butter” policy that cost more than the government’s income. The political idea was great…spend now…let the next government worry about the payback…if you are a short term thinker.

Good or not politically it was bad economically and the deficit spending caused the US dollar to fall versus industrialized currencies where governments (especially Germany and Japan) were more fiscally prudent.

Then the prudent governments learned deficit spending as well…Germany to finance the buy back of East Germany….Japan to bail out an economic meltdown.

Other (most in fact) governments hopped on the deficit spending band wagon as well.

So today, one great social economic problem everyone faces is the destruction of purchasing power of many currencies, all over the world, all at the same time.

Investing in the play ground of currencies now is like trying to choose the rising end of the tetter totter, when all all the teeter totters are going downhill on a slide.

Since the yen is so up and the euro low, in the medium term I am betting on European currency gains. Our tactic has been and remains to invest mainly in European currencies but not much the euro.

I am currently not leveraged but am looking at borrowing yen to invest in higher yield European bonds.

Our current currency breakdown in my personal liquid portfolio is:

Cash Accounts 36%
Bonds 64%

This would make one wonder…why all cash and bonds if I believe in inflation?

Wait until you see my pension and property. This is my deflation hedge and it really paid off in 2008.

I also always keep the investments with the lowest potential profit in my personal account since profits here attract higher tax than in my pension account.

The currency distribution of these personal liquid  investments are:

CAD 9%
EUR 18%
GBP 3%
HUF 19%
NOK 9%
NZD 9%
SEK 26%
USD 8%

We’ll look at the pension position…then property and then pull this all together in upcoming updates.

Until then good multi currency investing

Gary

To learn more about current loan and bond rates US investors should contact JGAM Thomas Fischer at fischer@jgam.com

Non US investors contact Jyske Bank Rene Mathys at  mathys@jbpb.dk

Ask me questions!   Be sure to add MCI in the subject line of your email so I will know that you have sent a question.  I get over 100 emails a day so this helps me be more responsive to you.

I will not answer you directly but will include as many answers as I can in the next portion of this primer update and I will not identify you in the question and answer…so send your questions at me…no question is too minor, silly, politically incorrect  or small.  Fire away and have good global investing!

Join Merri, me and Peter Laub of Jyske Global Asset Management at OUR INTERNATIONAL INVESTING & BUSINESS COURSE IN ECUADOR. We review economic conditions, Ecuador real estate, my entire portfolio plus investing and business ideas for the months ahead.

Feb. 9-11 Beyond Logic.

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