Hedging Against U.S. Dollar Losing Global Reserve Status

[Hal]

It's cold & wet, I'm bored, so I present to you.... BelangP vs PP

https://www.skylinewebcams.com/en/webca ... ourne.html

[stuper1]

I'm back with another question, hoping for more input from you good people who undoubtedly understand this stuff better than I do.

Yesterday I read a recommendation from a well-known investor (Marc Faber) who says that the way for a US investor to hedge against the US dollar losing global reserve status is to have a portion of his portfolio in gold (great!) and in foreign currencies. This reminded me of Hal's post up above where he recommended the Merk Hard Currency Fund.

I don't really understand the relationship between foreign currencies and foreign stocks. Aren't they somewhat at odds with each other? So when a country's currency gets stronger, its stock prices can be affected negatively? I feel like I'm hearing conflicting advice on this issue. Some people say to be in foreign currencies, and others say to be in foreign stocks. What are the tradeoffs involved here? If you put a portion into both of those things are you just fighting yourself?

[DogBreath]

I'm back with another question, hoping for more input from you good people who undoubtedly understand this stuff better than I do.

Yesterday I read a recommendation from a well-known investor (Marc Faber) who says that the way for a US investor to hedge against the US dollar losing global reserve status is to have a portion of his portfolio in gold (great!) and in foreign currencies. This reminded me of Hal's post up above where he recommended the Merk Hard Currency Fund.

I don't really understand the relationship between foreign currencies and foreign stocks. Aren't they somewhat at odds with each other? So when a country's currency gets stronger, its stock prices can be affected negatively? I feel like I'm hearing conflicting advice on this issue. Some people say to be in foreign currencies, and others say to be in foreign stocks. What are the tradeoffs involved here? If you put a portion into both of those things are you just fighting yourself?

Some foreign stock funds hedge against the currency, others don't. So you need to know what you want and make sure that is what you are getting.

FWIW, Marc Faber is a permabear, so IMO, anything he says should be taken with a grain of salt.

[boglerdude]

You own part of a company in Germany. The Mark doubles in value, company intakes Marks, you convert your dividend to twice as many dollars.

German consumers slowly catch on and buy more American stuff, raising the price of those products. Purchase Power Parity gets restored.

This isnt an investing forum, its a saving forum. You can save with bonds/cash, gold, and shares. Any big basket of stocks is good enough.

If you want to invest, start a business or buy a rental. I'm learning about plumbing, inspired by the $20,000 bill I got to rehab a bathroom. Financial news is doom-porn non-actionable information.

If you need gurus, Browne and Bogle

[Hal]

I don't really understand the relationship between foreign currencies and foreign stocks. Aren't they somewhat at odds with each other? So when a country's currency gets stronger, its stock prices can be affected negatively? I feel like I'm hearing conflicting advice on this issue. Some people say to be in foreign currencies, and others say to be in foreign stocks. What are the tradeoffs involved here? If you put a portion into both of those things are you just fighting yourself?

Here is a primer. Enjoy
https://corporate.vanguard.com/content/ ... Online.pdf

[boglerdude]

Its a wash, no free lunch. As Bogle points out, US Megacorps already have substantial foreign exposure. That said I tilt International because I live in the US, like how you might tilt out of tech if your salary comes from tech. I use https://www.morningstar.com/funds/xnas/vwigx/chart

[stuper1]

Thank you to those who responded to my very broad question. I've read your responses and the materials you pointed me to, and my thinking is clearing up a little bit. Let me ask maybe a simpler question:

Is there any general correlation between the strength of the US dollar and the returns that a US investor will get from a broad foreign stock index fund? I realize that question is still pretty broad, but I think it's a little less broad than my earlier question, and I also realize you could answer this question based on past performance or based on general principles which may apply in the future, but I'll take whatever you can offer. My hunch from what I've read so far is that the answer to my question is "No, there is no general correlation; the dollar can get stronger, and foreign stocks could go either up or down, or the dollar could get weaker, and foreign stocks could still go up or down, and obviously this is because there are a lot more factors at play than just the strength of the dollar." But again my followup would be to ask whether there is even a weak correlation, in other words if the dollar is strengthening is it more likely (even a little bit) that foreign stocks will go either up or down?

[Hal]

But again my followup would be to ask whether there is even a weak correlation, in other words if the dollar is strengthening is it more likely (even a little bit) that foreign stocks will go either up or down?

Hi Stuper,
Have a listen to this slightly dated talk. Makes me wonder if we should be looking at the yield rather than the price...
Will have to ponder on this.
https://monetary-metals.com/yield-purchasing-power/

[coasting]

Is there any general correlation between the strength of the US dollar and the returns that a US investor will get from a broad foreign stock index fund? ...
But again my followup would be to ask whether there is even a weak correlation, in other words if the dollar is strengthening is it more likely (even a little bit) that foreign stocks will go either up or down?

Observation from Vanguard comparing two recent decades indicates for US-based investor: weak dollar led to higher return on international assets, strong dollar led to lower return on international assets. In addition to foreign-exchange return, Vanguard also examined other factors: valuation change, earnings growth, dividend yield.

A tale of two decades for U.S. and non-U.S. equity: Past is rarely prologue
https://corporate.vanguard.com/content/ ... ne-003.pdf

See page 4:
Foreign currency returns
The past 20 years of U.S. dollar performance can best be described as two divergent decades. For the 10 years ended December 31, 2010, dollar depreciation contributed 3% to a U.S.-based investor’s return on non-U.S. assets. Over the next decade, on the other hand, dollar appreciation contributed a 1.5% loss to returns on international assets held by the same investor.

[boglerdude]

"Strong" is relative. Think of it as strengthening or weakening. eg China prints tons of yuan to prevent real wages from rising. Because wages are sticky. Few people ask for a raise when they see on the currency exchange that the dollar lost half its value relative to [gold, yen, etc]

Re: currency effect on stocks, if a currency gets too strong real wages (purchasing power of workers) goes up and that hurts the bottom line. If a currency gets too weak too fast, business incurs operating costs because they have to work to update prices. An economy wants stability, but certain voters & donors benefit from maximum money printing and other voters from deflation.

Currency is tokens to exchange for products made in US, China, Japan. Value depends on global demand for that countries stuff, and how much currency the country prints. We cant predict the future better than the market, unless you insider trade. But we also apparently cannot accept the simplicity of Browne and Bogle, so go ahead and tilt toward your favorite macro narrative. Feels good man.