Hi there 
This is Felix writing. Welcome to my monthly "Felix Investment Pick"
publication for May of 2008. It is April 21st, 2008 as I am writing
this article.
Few days ago, a friend of mine visited me. Because this article is
going out to my list of tens of thousands of forex traders, I do not
want to use the guy's real name, so let's just call him Joe. The reason
Joe visited me was because he was gravely concerned about the
deprecation of US dollar, and he wanted to get my advice on what he
should do with his already beat up by depreciation savings.
Joe and I have common friend that visited me around September of 2007
with the same concern. As far as I remember, Joe's friend had savings
of around $15,000 USD, and he wanted to know what he could do to
preserve it. At that time I just told him to go to Gold coins, silver bullion, gold bullion, silver coins and PCGS Certified Coins at www.golddealer.com | America's Coin Dealer,
and buy some gold coins. He did that, and as far as I remember his cost
was around $730 per ounce or so. Long story short, back in the middle
of March gold peaked at over $1030. Even though gold has come down a
bit in April and is now trading at around $915 per ounce, the guy still
has 25% more money than he would've if he kept his savings in US
dollars. So Joe came to me, wanting to know my opinion on whether he
should buy gold or whether he should buy something else.
Now, you have to understand something. Joe works at a regular brick
& mortar job. He knows very little about investing. He knows
nothing about forex. His savings are much less than $50,000. He has
regular checking account in popular US bank. So I tried to put myself
in Joe's shoes, and by being in his shoes, I understood that I need to
tell Joe to buy something that he wouldn't have to think about or worry
about for at least 6 months.
I asked my partner Rob Grespi whether he had any suggestions for Joe.
Rob said that if he were Joe, he would call his Swiss banker and tell
them to buy gold and settle it in Swiss Francs. The only problem is
that Joe does not have a Swiss or European bank account, and US banks
are not designed for investing, and their currency conversion rates are
basically pure robbery.
Then Rob Grespi suggested that Joe goes to www.everbank.com
and looks into some investment options they offer. EverBank is US bank
that caters to small investors, and probably the most reputable FDIC
insured bank in the US that allows American customers to buy
Certificates of Deposits (CDs) in international currencies.
So I decided to go to everbank.com and looked into the investment
packages they offer. I must say that I was very impressed by this bank,
which has been operating since 1961. Obviously, they are many notches
down from a major Swiss Bank, but the problem with Swiss Banks is that
unless you are ready to transact in multiples of $250,000 per
investment, you might as well not even stick your nose there.
I found in everbank.com a 6-month mixed-currency CD, which I personally
would buy if I had very little money like Joe and if I had no time to
look at the market for 6 months. Minimum investment for the CD is only
$20,000, and I think the currencies that the bank picked for this
particular package have good potential for the next 6 months. Let me
tell you which CD it is, and the reasons why I am suggesting that Joe
puts his US dollars into it for the time being.
The CD that I am talking about is called New World Energy Index CD. Here is the link for it: EverBank | Foreign Currency - WorldCurrency New World Energy Index CD.
It’s basically a CD that combines AUD/CAD/NOK, 33.33% each. AUD is
Australian Dollar, CAD is Canadian Dollar, and NOK is Norwegian Krone.
Let me now briefly explain why I think combination of these currencies
makes a great investment for somebody who does not have the time or
expertise to be in the market on weekly basis.
Before I proceed with discussing these individual currencies, let me first tell you my longer term investing philosophy.
Step 1. Find a river with strong current
Step 2. Make sure there are no foreseeable obstacles to the current
Step 3. Start swimming along the current
Step 4. While swimming keep looking forward and around
Step 5. As soon as you find river with stronger current, switch immediately
Australian Dollar
Let's talk about the Australian Dollar first. Australian Dollar
has been very steadily going up in value against US dollar over the
last few years. Since 2006, it has gained 35% against US dollar, and I
see many reasons why it will continue to strengthen for the next 6
months and possibly much longer.
In the last few months we have seen "parity" phenomenon happening with
several different currencies. Canadian dollar reached parity with US
Dollar. Swiss Frank reached parity with US Dollar. Great British Pound
reached equal 2:1 ratio with US dollar. Gold reached $1000 per ounce.
USD/JPY hit 100. Current big topic among speculative traders is parity
between US Dollar and Australian Dollar. Right now the rate is 0.94,
and I think speculative traders can easily push it to 1:1 ratio in the
next 6 months, and perhaps even higher.
In addition to that, Australia has second highest interest rate among
major currencies at 7.25%, and obviously it makes it an attractive
currency for many investors to keep their money in. That's 5% higher
than US interest rate of 2.25%. Not only that, but Australian economy
is still doing very well and inflation is rather high, based on which
most economists speculate that Australia is not likely to cut their
interest rate in 2008 at all.
Let's also not forget that Australia is among the top 3 producers of
gold in the world, along with China and South Africa, and as gold
prices keep creeping up, it supports gold mining industry in Australia
and more companies are inspired to do more gold explorations, which
supports local economy. And of course just based on the fact that
Australian dollar has had very close positive correlation with gold,
chances are that correlation will continue, and as gold rises in price,
Australian dollar may do the same.
It also helps that Australia has a very well diversified economy with
strong services based sector, like many other Western economies, but in
addition to that, they also have strong agricultural sector and strong
mining sector, which allows them not only feed many sectors of their
own country but also it allows them to export food, metals, and
energy-producing commodities and since prices for both food and other
commodities are steadily going up globally, it sure supports Australian
economy and therefore makes investors more confident to buy up
Australian dollars and continue creating its climb up. Oh yes, very few
people know this, but Australia has one of the largest deposits of
Uranium in the world. Currently France gets most of its electricity
from nuclear power. Russia has hired French experts to build quite a
few nuclear power plants, and China is building nuclear power plants. I
think that uranium will soon become as important or more important than
oil.
Canadian Dollar
Let's now talk about the Canadian dollar. This currency
definitely has very strong current going against the US dollar. Since
2002, it gained over 60% against the US dollar. Last year alone, it
gained 25%, and I believe there are reasons to believe that Canadian
dollar will continue gaining strength against the US dollar for the
following reasons.
Well, first of all, for many decades Canadian economy has heavily
depended on US economy, so as US economy started performing badly,
investors were afraid to invest into Canadian dollar, because they
thought that US economy would drag down Canadian economy as well, but
2007 and 2008 has proved that paradigm wrong. As US economy was rapidly
slowing down with GDP and employment readings at historic lows,
Canadian GDP and employment were soaring. As US was discussing cutting
interest rates in order to give heat to cooling economy, Canada was
discussing raising interest rates in order to cool down heating
economy. So as we are entering US recession and possibly even
depression, Canadian economy is doing well, and possibly for the first
time in the history of these two countries, investors are seeing that
globalization has made Canadian economy very independent from US
economy, and has taken many fears from investing into Canadian stocks
and therefore Canadian dollar.
As world population is growing and Asian countries are becoming more
and more civilized and more and more rich, the demand for energy
products is soaring and therefore the prices are soaring too. You
probably already know that the most "popular" energy product over the
last century has been oil. Canada happens to have 2nd biggest oil
deposits in the world, after Saudi Arabia. But in addition to that,
Canada also has vast natural gas resources and vast uranium resources.
As world is becoming more stable, it's becoming more and more difficult
for US to conquer other countries and rape them of their natural
resources for pennies on a dollar, which by the way is the only reason
US still has twice cheaper gasoline than Europe, and since the US is
major global consumer for energy products, I can see in very near
future US being forced to buy a lot of their energy products for fair
market prices, and Canada will probably become #1 provider, which will
tremendously boost Canadian economy and continue creating much demand
for Canadian dollars as more global investors invest into their
economy.
Norwegian Krone
Let's now talk about the Norwegian Krone. In the beginning of
2002, you could buy $1 US dollar for 9 Norwegian Krones. In the
beginning of 2007, you could buy $1 US dollar for 6 Norwegian Krones.
Today, you can buy $1 US dollar for 5 Norwegian Krones. This means that
since 2002, the value of Norwegian Krone (NOK) has almost doubled, and
just in the last year, NOK has appreciated by over 20% against US
dollar. I believe the trend will continue for at least 6 months and
probably much longer. Let's talk about it.
Over the last few years, Norway has proved to have one of the best
economic models in the world. From 2001 to 2006, Norway was considered
the best country in the world to live in, based on Human Development
Index. In 2007, Iceland took 1st place, and Norway got 2nd place. Human
Development Index is basically an index that measures life expectancy,
GDP per capita, education, literacy, health, and general standard of
living of people in any particular country. Based on that, we know that
Norwegians got their **** together so to speak. Let's face it, people
are what make countries great, and historically countries that have the
best human resources have always done well economically.
But in addition to very strong human capital, Norway has oil and gas.
Many people know that Russia exports a lot of oil and gas. Many people
know that Saudi Arabia exports a lot of oil, but very few people know
that Norway has the 3rd place in the world by exports of oil and gas.
Many people have heard of gas and oil from North Sea from which UK has
exclusively been living off of. Some people may have heard that North
Sea oil output has been dropping every year, but still, Norway
currently owns around 54% of all remaining oil in the North Sea, and
around 45% of all remaining gas in the North Sea.
In addition to all of this, Norway puts a lot of emphasis on savings
and being well capitalized, which gives a sense of stability to
potential investors. In fact, as of today, Norway has 1st place in
terms of the largest per capita capital reserve of any nation.
Currently Norway's savings exceed the amount of Norway's GDP, and the
country has assets that equal to approximately $70,000 US Dollars for
every Norwegian resident. US, on the other hand, is 65th in the world
by per capita reserve. In fact instead of capital reserve, US has
approximately -$32,000 of debt for every US resident.
That's all I have to say for this month .
I hope you found this article useful. I believe that diversification of
your cash between Australian Dollars, Canadian Dollars, and Norwegian
Krones is a great move in capital preservation. Having a CD of these
three currencies would certainly make me sleep better at night than
having US dollars.
But hey, what do I know, I am just a guy, perhaps you'll be better off
listening to your local banker that earns $35,000 per year and has no
savings. Perhaps you should follow his advice and buy US government
bonds or put it into US CD, that will earn you 2% annual interest, and
maybe your dollars will even outperform Mongolian tugriks.
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