It's to the point that I think that the margins (in terms of return on investment, ROI) betting against the dollar and running deposits in euros might pay. Actually, Mig this might be a possibility for you since you've got a BOA account. I'm not sure I can stomach the risk.
Actually, Mig this might be a possibility for you since you've got a BOA account. I'm not sure I can stomach the risk.
However, a number of ETers have income and/or assets in dollars and expenses in Euros. They are exposed to exchange rate risk already - what they need is a currency swap which, taken today at par, would be favourable if the dollar keeps losing value.
Others have said they intend to move from the US to the EU shortly. They need a hedge against their dollar assets losing a lot of value by the time they are actually ready to make the move.
Yet others have expressed a desire to speculatively bet against the dollar.
Chris has been talking about "borrow dollars to buy energy assets" for a while. His Bulgarian brewery example just has the brewery play the role of what in other comment threads has been energy assets.
So the idea would be to pool the dollar assets of willing ETers in the situations mentioned above (the economies of scale in terms of commissions and financing costs are substantial!) and use those dollar assets as (dollar) margin to buy a portfolio of energy and/or euro assets with the combined income, return and liquidity requirements of the various people involved.
For regulatory reasons, the only viable way to do this is a partnership including both the investors and the advisers as partners. An adviser/client model has untenable regulatory overheads.
Chris spilled the beans so there you have it. We have met the enemy, and he is us — Pogo
See Stiglitz (2003)for a fuller explantion of the racket. I should note that Soros did this sort of thing against the Pound and other Euro currencies in 1993(94?) and nearly bankrupted the Bank of England. There was serious talk that he might be arrested for it. A cautionary tale. Explosive margins when a currency is in free fall though.
I've got a colleague that just moved here from Norway, and has made significant gains off the rise in the Kroner against the Dollar. He seems to think that the dollar's free fall is nearing it's end. I think that there's a good 30-50% further to fall before we hit bottom. Remember, although the economic fundamentals suggest that a much greater decline is possible, there's a 50/50 chance we'll invade Europe to stop that. And I'm only partially joking. There are an array of coercive measures available to the US to enforce European "cooperation."
Now there I've gone and used academic citation in a post. Too much test for me today.
Stiglitz, Joseph.(2003) Globalization and its Discontents. W. W. Norton & Company:New York. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
As Migeru so lucidly explained, there are different techniques available to allow people to take on or offload risk, as they see fit.
Certainly, "geared" investment is not for the faint hearted, and yet millions are daily exposed to gearing in respect of their properties in the blithe, and to date, self-fulfilling, expectation that property (ie land) prices can only go up.
The fundamental "strategy" behind my thinking, at least - and I believe many on this site may well agree with it - is based upon two fundamental propositions:
(a) Peak Oil - that we either will shortly reach, or have already reached, a "peak" level of crude oil production;
(b) Secular Dollar decline - the ongoing collapse of the property backed US financial bubble economy, and the end of "dollar hegemony" that will result.
If we combine the two, then we see that to be "short" of the dollar and "long" of energy assets - or of the currency or securities of countries which have them - is a pretty logical, and possibly optimal, strategy for "asset allocation" right now.
Assuming of course that one has any assets other than between the ears.
Migeru and I agree that there is probably the potential for consenting adults among our number to "pool" intellectual and financial capital to take advantage of what is, IMHO, an opportunity unlikely to come along again.
What I add to the pot, based upon a career in financial regulation, is a simple new "disintermediated" form of cross-border investment framework/vehicle.
Anyone interested should contact Migeru, who is to blame for all this ;-) "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
