Thursday, December 27, 2007

Timely Tips From the Wall Street Journal, Currency Plays and Why this Doesn't Feel Like a Bear Market

This article is, er, wide-ranging. Here's one of the tips everyone should know about, not for this second, but a few months down the road.

From the WSJ:

Our Reporters Offer
Strategies for Saving
Time and Money

...The Problem: The anemic dollar is eroding the value of your investments and income.

The Fix: Open a foreign-currency account. Cathay General Bancorp, in Los Angeles, and Jacksonville, Fla.-based are two of a limited number of U.S. banks offering savings accounts in roughly a score of primary and secondary currencies, such as the British pound and the Czech koruna. Interest rates can range as high as 11.6% for a CD denominated in Icelandic krona at Everbank. Or consider a bet on the Chinese yuan's continuing its march higher against the dollar. Both Cathay and Everbank offer savings accounts tied to the movement of the yuan, since you can't own the currency directly yet. The accounts are FDIC-protected in the event of bank insolvency, though you can lose money if the dollar strengthens against your currency of choice.

For a minimum of $20,000, Everbank also provides access to high-quality foreign government bonds from countries as varied as Australia and Iceland. Yields range from 3.5% for a two-year euro note to nearly 7% for a two-year New Zealand bond.

Meanwhile, Entrust Group in Reno, Nev., is set to launch in the second quarter of 2008 a unique Individual Retirement Account that will allow savers to denominate their retirement savings in one of four major currencies, including the euro and the Danish kroner.

--Jeff D. Opdyke

Speaking of currencies, on Nov. 23 The WSJ's MarketBeat blog brought the BondDad blog to my attention with this Blogroll:
Blog Roll: Bear Market?

Hale Stewart, who writes the Bonddad column, lays out his argument that stocks are headed into a bear market. “The Russell 2000 and Transportation average are cause for serious concern. So is the lack of market breadth during the NASDAQ’s latest rally and the Treasury market rally,” he writes. “If only one of the preceding facts was occurring we could dismiss it. However, with all four occurring at the same time, it’s important to take a close look at the market to see if a rally can continue.”...
That link reminded me of my myopia (the only alliteration I'll use today, promise.) in 1987 when I quit paying attention to currencies- it was a rollicking bull market in equities- and almost missed a wonderful heads up into the events of Aug. 25-Oct. 19 of that year. Fool me once...

On Nov. 23, 2007 the USD/EUR was around $1.495. The DJIA around 12,980. The purpose of the comment was not to slam Bonddad, I've become a fan, but rather to use his post as a hook to get this thought out there:

I read Bonddad, not sure what he’s waffling on about.
Here’s something a bit more direct:
Five-six months after the intermediate bottom for the dollar, 1.51-1.53 USD/EUR; just after Ma & Pa decide to call that broker feller and my sophisticated European friends are comfy with the currency bonus on their equity trades, look out below.
At least that was the lesson of the Louvre Accords.
If correct, “Sell in May and go Away” might be too late

Comment by Climateer - November 23, 2007 at 1:02 pm
Yesterday the Euro cost $1.4491 and the DJIA closed at 13,551.
Where do we go from here?

I'm betting higher.

Until the complacency seduces us, the Buck makes a 3-4 month high and the Q1 numbers start being reported and the reality of how big a mess the financial world has made sinks in and tips Mr. Market into the depths of despond. That $1.495 print looks like it was the low for the dollar. Who knew?
Unfortunately, for our visually oriented fans, I don't have any charts- with nicely drawn trendlines- to back this babble up with. You've been caveated.