How To Hedge Against $

[sleepyjohn]

Hi

I am not saying the US$ is good or bad at the moment I just diversify, but right now as a resident in Thailand I feel overexposed to $ at over 40%.

I would however like to make a considerable US$ investment as

1. The returns are very attractive.

2. It's easy to facilitate.

My question....

I have permission to trade futures and options at IB. What would be the best way to hedge against a future $ fall?

(The obvious question is: fall against what? Well I would like a proxy for Eastern currencies in general rather than the baht in particular, and a hedge effectively converting my $ investment into that, whilst still getting the $ returns, would suit. I've thought of the Sing$ but am aware it's not a major and I can't hedge using that.....or can I?)

In any case, can anyone suggest a good move?

thanks....

[Arjay]

Everbank Foreign Currency C.D. FDIC insured.

[sleepyjohn]

Everbank Foreign Currency C.D. FDIC insured.

Arjay perhaps I wasn't clear.

I don't want a diversified savings account.

I want to make a particular cash investment in US$, possibly for some years, at the same time hedging against any US$ drop....to be safe against overexposure to US$. I therefore require a leveraged mechanism for hedging. I know a bit about puts but have never used them and don't know the details or the costs or even if they're the best mechanism.

[PCA]

your question is just too confusing. Wanna hedge or speculate? If you want to hedge then you should do it against the currency that you are spending most when maintaining your life style and if you want to speculate then that's another story which you have to strictly keep at another book. Growing (with risks) or keeping that's what's not transparent here.

[tariq786]

Open a forex a/c. and sell USD against all majors and do include Gold

[sleepyjohn]

your question is just too confusing. Wanna hedge or speculate? If you want to hedge then you should do it against the currency that you are spending most when maintaining your life style and if you want to speculate then that's another story which you have to strictly keep at another book. Growing (with risks) or keeping that's what's not transparent here.

When i say

I want to make a particular cash investment in US$, possibly for some years, at the same time hedging against any US$ drop....to be safe against overexposure to US$. I therefore require a leveraged mechanism for hedging.

I'm talking about an investment asset that is paid for in US$ and is denominated in US$ and I will get returned in US$..... against whose potential fall, as I live here in the east, I wish to hedge.

Open a forex a/c. and sell USD against all majors and do include Gold

I have a forex account.

But doing as you say would simply get me out of $ right now regardless of any future fall or non-fall of the $. That is not fulfilling my purpose. I am willing to pay a small premium to hedge against a possible fall. I merely would like good information about the best way to do it.

As for gold, whilst I do hold a modest amount and have done well on it, I would never consider my lazy opinion better than that of the vast numbers who have effectively set the price where it is. I'm aware that if I had bought in 1980 I would have wasted a whole lot of money for a whole lot of years. If I did buy any more as a hedge against inflation it would probably be in the form of gold miners who at least are creating some value. The problem with gold is, it's completely non-productive.

Edited August 7, 2010 by sleepyjohn

[vont]

There are many fee-related currency consultants on tv.

If you keep asking and asking, one of them would bound to get excited enough to respond.

But to get good and valid advice, it won't be free.

Even if you pay for the good and valid advices, you can never be sure that it would be even profitable, when implemented!

Isn't that a sad fact.

Edited August 7, 2010 by vont

[bicwilkinson]

<P>Hi, what you need to do is open an account with a foriegn exchange broker. <A href="http://www.fxcm.uk.com">www.fxcm.uk.com</A> is a good one. You can then hedge your $us exposure easily. And yes SGD as well. The beauty is they give you 200:1 leverage. So for example if you had 1mill usd invested somewhere you could sell usd and buy SGD (or any currency) and due to the leverage 1mill/200=5000usd.So 5000usd is all that is required in your fx acc. you should probably have at least 50,000 in your acct to start because if you get it wrong and the market goes against you it will be game ove you will get a margin call and your broker will close your position. Leverage can be a double edged sword. Anyway do some reading on the above site it will explain far better than I can. There is one other beauty in your idea , usd has a very low interest rate at the moment, and will probably remain low for the forseeable future. So sell USD and buy say AUD (its called a carry trade) . AUD is about 5% pa and USD about 1% . So every day you make 1mill x(5%-1%)/360 days. and that amount will go directly to your acct each day. If you want to do THB you might have to go direct to someone like HSBC as fxcm doesn't offer dodgy currencys online. Hope this helps. <BR>Roddo</P>

[sleepyjohn]

<P>Hi, what you need to do is open an account with a foriegn exchange broker..........

Again, I have said I have a forex account. You are like the previous poster suggesting I merely change money with gearing. That doesn't fulfil my purpose. (Though I'm interested that the SGD is on the list at your broker)

If you want to do THB you might have to go direct to someone like HSBC

As I said in my opening post I think I'd prefer a proxy for the Eastern currencies in general. I would appreciate input on this. So far the SGD seems a candidate.

(BTW you raise an interesting point about the AUD interest rate. I have considered moving my cash holding to take their interest rate recently. A friend who is pretty well informed immediately said of the AUD "Ah....it's highly overvalued."

[zaphodbeeblebrox]

Open a forex a/c. and sell USD against all majors and do include Gold

As for gold, whilst I do hold a modest amount and have done well on it, I would never consider my lazy opinion better than that of the vast numbers who have effectively set the price where it is. I'm aware that if I had bought in 1980 I would have wasted a whole lot of money for a whole lot of years. If I did buy any more as a hedge against inflation it would probably be in the form of gold miners who at least are creating some value. The problem with gold is, it's completely non-productive.

I'm not saying that gold would be a good investment now, but maybe you can learn from my situation.

In spring of 2007, all of my investment money was tied up in stocks. I had decided to move to Thailand. I saw that the US$ was about to take a big hit, because Bernanke had recklessly continued Greenspan's raising of the interest rates, despite the fact that when Bernanke took over the Fed, the housing bubble had already burst, and the housing/construction and related real estate service industries were already in a major recession. I could tell that there was going to be a long period where Bernanke was going to have to play "catch up" and dramatically lower interest rates for a significant amount of time. As I was moving to Thailand, I wanted to hedge against the falling dollar.

In July '07, I moved half my investment money into a gold ETF (FDIC insured) and half into fixed income investments. I was somewhat lucky, as few could foresee that the credit crunch was going to decimate the world economy for a couple of years. So, I now have about an 80% gain on my gold ETF investment whereas those left in the stock market suffered losses.

I'm not sure what you are looking for, but investing in commodities is one way of hedging against the falling US$.

Edited August 8, 2010 by zaphodbeeblebrox

[andytime]

It is easy to get a good bank rate of return on the AUD$ however even easier to lose your capital when measured against something else. The SING$ is super safe currency and likely one of the best and safest going, however Singapore and China are much smarter than America (and for that matter the rest of the world) when it comes to managing their currencies and economies. China appears to have adopted the Singapore approach trading against a basket of currencies and as such if the euro and pound decline the SGD and remimbi will both go along for the ride and be weaker against the dollar despite the underlying "strength" in both economies. If you believe the world's problems are over and we have inflation then go for the commodity currencies (CND or Aussie). If you believe we are in for stage 2 (and worse) then likely we end up with deflation of assets (us & western economies) based on reduced credit supply globally then possibly the USD's strength returns as many contracts written in $ and we will have an absurd situation where people are buying US$ to settle their debts. When you have worked out the right way to go.. remember that 50% will say the opposite prevails .

[PCA]

Open a forex a/c. and sell USD against all majors and do include Gold

As for gold, whilst I do hold a modest amount and have done well on it, I would never consider my lazy opinion better than that of the vast numbers who have effectively set the price where it is. I'm aware that if I had bought in 1980 I would have wasted a whole lot of money for a whole lot of years. If I did buy any more as a hedge against inflation it would probably be in the form of gold miners who at least are creating some value. The problem with gold is, it's completely non-productive.

I'm not saying that gold would be a good investment now, but maybe you can learn from my situation.

In spring of 2007, all of my investment money was tied up in stocks. I had decided to move to Thailand. I saw that the US$ was about to take a big hit, because Bernanke had recklessly continued Greenspan's raising of the interest rates, despite the fact that when Bernanke took over the Fed, the housing bubble had already burst, and the housing/construction and related real estate service industries were already in a major recession. I could tell that there was going to be a long period where Bernanke was going to have to play "catch up" and dramatically lower interest rates for a significant amount of time. As I was moving to Thailand, I wanted to hedge against the falling dollar.

In July '07, I moved half my investment money into a gold ETF (FDIC insured) and half into fixed income investments. I was somewhat lucky, as few could foresee that the credit crunch was going to decimate the world economy for a couple of years. So, I now have about an 80% gain on my gold ETF investment whereas those left in the stock market suffered losses.

I'm not sure what you are looking for, but investing in commodities is one way of hedging against the falling US$.

I don't know how you could quote me for that post as I did never state that, moreover would it be the most stupid idea to do.

[wordchild]

Long term hedging of the sort you seem to think you need rarely works.It is seldom possible to tailor a hedge exactly to fit the time scale of your investment (and you dont seem to be sure of this anyway).So you either end up taking a view and it can then become speculation or you have to roll-over/trade your hedge on a regular basis which will be costly and will eat away rapidly at any returns you are making from your underlying investment . I have tried myself to look at this from a number of different angles over the years but in the end come to the conclusion its not worth it for long term positions , and the best thing is to look at potential currency losses/gains as an integral part of the investment decision in the first instance. If it does not stand up incl the currecy risk its probably not worth doing anyway. Then in thinking about your overall investments have an eye to what your main currency exposures are and try to effect some sort of balance/liability matching at that level. FWIW I have tried both simple and complex in the past and come to the conclusion simple is best..

Edited August 8, 2010 by wordchild

[vont]

Open a forex a/c. and sell USD against all majors and do include Gold

As for gold, whilst I do hold a modest amount and have done well on it, I would never consider my lazy opinion better than that of the vast numbers who have effectively set the price where it is. I'm aware that if I had bought in 1980 I would have wasted a whole lot of money for a whole lot of years. If I did buy any more as a hedge against inflation it would probably be in the form of gold miners who at least are creating some value. The problem with gold is, it's completely non-productive.

I'm not saying that gold would be a good investment now, but maybe you can learn from my situation.

In spring of 2007, all of my investment money was tied up in stocks. I had decided to move to Thailand. I saw that the US$ was about to take a big hit, because Bernanke had recklessly continued Greenspan's raising of the interest rates, despite the fact that when Bernanke took over the Fed, the housing bubble had already burst, and the housing/construction and related real estate service industries were already in a major recession. I could tell that there was going to be a long period where Bernanke was going to have to play "catch up" and dramatically lower interest rates for a significant amount of time. As I was moving to Thailand, I wanted to hedge against the falling dollar.

In July '07, I moved half my investment money into a gold ETF (FDIC insured) and half into fixed income investments. I was somewhat lucky, as few could foresee that the credit crunch was going to decimate the world economy for a couple of years. So, I now have about an 80% gain on my gold ETF investment whereas those left in the stock market suffered losses.

I'm not sure what you are looking for, but investing in commodities is one way of hedging against the falling US$.

As you foresee the falling of the interest rate, you could have just as easily move into bonds! Can you not?

Edited August 8, 2010 by vont

[sleepyjohn]

Thankyou all especially Andytime and Wordchild who really gave great advice.

It is easy to get a good bank rate of return on the AUD$ however even easier to lose your capital when measured against something else. The SING$ is super safe currency and likely one of the best and safest going, however Singapore and China are much smarter than America (and for that matter the rest of the world) when it comes to managing their currencies and economies. China appears to have adopted the Singapore approach trading against a basket of currencies and as such if the euro and pound decline the SGD and remimbi will both go along for the ride and be weaker against the dollar despite the underlying "strength" in both economies. If you believe the world's problems are over and we have inflation then go for the commodity currencies (CND or Aussie). If you believe we are in for stage 2 (and worse) then likely we end up with deflation of assets (us & western economies) based on reduced credit supply globally then possibly the USD's strength returns as many contracts written in $ and we will have an absurd situation where people are buying US$ to settle their debts. When you have worked out the right way to go.. remember that 50% will say the opposite prevails .

Seems to me the best way to sleep well is diversification whilst perhaps somewhat leaning towards a currency or region one favours.

My own best guess is not for the inflation that "monetisation" would suggest, (not yet anyways), nor deflation.....though both are possible. I am thinking of an investment in a mortgage REIT which would certainly not do well in high inflation. It would do well in a period of world underperformance and lowish interest rates.

Wordchild thanks for your intelligent comments on hedging.

I shall take your advice and achieve my caution vis a vis the USD by only making an investment in it within the %age of my portfolio I think should reasonably be in USD.

Which begs the question for all of us:

What is a good spread of currencies to own assets in?

Starting with 100% GBP on moving here then moving to 1/3rd GBP 1/3rd USD 1/3rd THB has seemed reasonable until now. I have done well buying my USD at 1.90 (to GBP) some time ago and my baht average buy has been at a much better rate then now.

It's good to be largely in the currency where one lives, but there really is a danger, even if modest, of real problems in Thailand. I feel 1/3rd THB is enough but because I am looking at raising my exposure to the East is why I am looking for a non-THB proxy.

What would others consider a good %age allocation of currencies to invest in and why?

cheers

Edited August 9, 2010 by sleepyjohn

[wordchild]

Thankyou all especially Andytime and Wordchild who really gave great advice.

It is easy to get a good bank rate of return on the AUD$ however even easier to lose your capital when measured against something else. The SING$ is super safe currency and likely one of the best and safest going, however Singapore and China are much smarter than America (and for that matter the rest of the world) when it comes to managing their currencies and economies. China appears to have adopted the Singapore approach trading against a basket of currencies and as such if the euro and pound decline the SGD and remimbi will both go along for the ride and be weaker against the dollar despite the underlying "strength" in both economies. If you believe the world's problems are over and we have inflation then go for the commodity currencies (CND or Aussie). If you believe we are in for stage 2 (and worse) then likely we end up with deflation of assets (us & western economies) based on reduced credit supply globally then possibly the USD's strength returns as many contracts written in $ and we will have an absurd situation where people are buying US$ to settle their debts. When you have worked out the right way to go.. remember that 50% will say the opposite prevails .

Seems to me the best way to sleep well is diversification whilst perhaps somewhat leaning towards a currency or region one favours.

My own best guess is not for the inflation that "monetisation" would suggest, (not yet anyways), nor deflation.....though both are possible. I am thinking of an investment in a mortgage REIT which would certainly not do well in high inflation. It would do well in a period of world underperformance and lowish interest rates.

Wordchild thanks for your intelligent comments on hedging.

I shall take your advice and achieve my caution vis a vis the USD by only making an investment in it within the %age of my portfolio I think should reasonably be in USD.

Which begs the question for all of us:

What is a good spread of currencies to own assets in?

Starting with 100% GBP on moving here then moving to 1/3rd GBP 1/3rd USD 1/3rd THB has seemed reasonable until now. I have done well buying my USD at 1.90 (to GBP) some time ago and my baht average buy has been at a much better rate then now.

It's good to be largely in the currency where one lives, but there really is a danger, even if modest, of real problems in Thailand. I feel 1/3rd THB is enough but because I am looking at raising my exposure to the East is why I am looking for a non-THB proxy.

What would others consider a good %age allocation of currencies to invest in and why?

cheers

While i would share many of the concerns about the US economy there is an argument for always having a significant proportion of your assets in US dollars or at least dollar proxies.It is the premier reserve currency for a reason;pretty much everything that matters in the world is traded in dollars and will still be for decades to come. The base price of anything is arguably a dollar price ,then you add on local labour, transportation and taxation. All currencies trade mainly against the dollar, many incl in Asia overtly track or are pegged against it. In fact you could argue that in holding anything other than dollars (and some of your local currency) you are taking a view, with the risk that the worlds price setter moves against you.