Jump to content

strength of USD


Recommended Posts

My rule of thumb has been to focus on finding the right investment set up. Currency factors have not been a key driver (on their own). Now what is interesting is it is usually severe economic weakness that causes a currency to plunge. And severe economic weakness usually causes profits to plummet which causes lots of well run companies to plunge in value. In this situation, cheap currency + cheap stocks = wonderful opportunity. John Templeton would be licking his chops.

 

This was the exact situation existed in 2008-09 in the US. Currency got crushed. Stocks got crushed. In hindsight, non-US investors were given the buying opportunity of a life time (funny how these kind of mouth watering opportunities keep popping up every 5 or 10 years…). However, it did take a few years to play out (versus months). 

 

I got lucky. Back in 2013 i was backing up the truck with Apple. Being a Canadian investor my portfolio shifted mostly to US$ assets when the Cad$ was close to parity with the US$. By 2016 the Cad$ was back down to $0.75 so i picked up a nice 20-25% currency gain in addition to my gains in Apple over a couple of years. The currency gains were largely dumb luck…
 

I know a few Canadians who bought US real estate in 2012-13 and have since made out like bandits (getting big currency gains as well as big asset appreciation). My sons hockey coach actually backed up the truck with Apple in 2013 (i was managing the hockey team and we would talk about investing pre-game) and then took his big winnings on Apple and used it as a down payment on a nice property in Arizona (his retirement plan). Lucky. Smart. Opportunistic.

 

The Cad$ has also significantly appreciated in value versus the Euro and Yen over the past 18 months (yes, not as much as the US$). Given we are likely still in the early innings of the energy crisis in Europe my guess is the Euro could go lower and perhaps much lower; i have seen some estimates that the Euro could fall from parity today to the US$ to the 0.80 level. If that happens my guess is lots of well run European companies will also be dirt cheap - they might already be there… What about European real estate? Probably also getting dirt cheap (in US$ or Cad$ terms) but i am not sure the investment angle here for most people. 
 

But i am going to be patient. What drove the Cad$ in 2009-10 was a strong economy lead by a commodity boom (and quick rebound in housing). If we are in the early innings of another commodity super cycle then the Cad$ should perform reasonably well in the coming years (with housing perhaps being a drag this time).

Edited by Viking
Link to comment
Share on other sites

Well the other currencies suffer from inflation as well. Also, the USD is going strong in every crisis and especially now. Since the US in energy independent and Europe, Asia, Japan are not.

EM currencies are generally the real canaries in the coal mine.

Link to comment
Share on other sites

A key question an investor needs to answer is Europe in secular decline today? After its asset bubble popped in the late 1980’s Japan has fallen into a 45 year downward spiral. So Japanese assets have looked cheap for decades. The problem Japan has is the country never dealt with its core issues… because they did not want a severe recession/unemployment/businesses failing. That ‘model’ is not part of Japanese culture (employment for life etc). So we will see how Europe responds to its current energy crisis… do they double down on failed past strategies… or do they get rational and pivot energy policy at least in the near term to nuclear/hydrocarbons. 
 

What made the US so investable in 2010-11 is they dealt with their issues. 5% of the population (my guess) got financially wiped out in the housing crash. The economy tanked. Unemployment skyrocketed. Banks were forced to recapitalize. Investors lost billions. Everyone shouted ‘god bless America’ and the economy pivoted. Not perfect. But what i like about the US model is its capacity to change. Europe i am not so sure…

Link to comment
Share on other sites

4 hours ago, Gregmal said:

Strange. I keep hearing from the inflation crowd that it devalues the currency. 

I think currency deprecation is measured against real assets like real estate/gold not against other fiat currencies..

Europe seems to be entering stagflation period due to lack of energy hence the weak currency vs US.

Link to comment
Share on other sites

40 minutes ago, Viking said:

A key question an investor needs to answer is Europe in secular decline today? After its asset bubble popped in the late 1980’s Japan has fallen into a 45 year downward spiral. So Japanese assets have looked cheap for decades. The problem Japan has is the country never dealt with its core issues… because they did not want a severe recession/unemployment/businesses failing. That ‘model’ is not part of Japanese culture (employment for life etc). So we will see how Europe responds to its current energy crisis… do they double down on failed past strategies… or do they get rational and pivot energy policy at least in the near term to nuclear/hydrocarbons. 
 

What made the US so investable in 2010-11 is they dealt with their issues. 5% of the population (my guess) got financially wiped out in the housing crash. The economy tanked. Unemployment skyrocketed. Banks were forced to recapitalize. Investors lost billions. Everyone shouted ‘god bless America’ and the economy pivoted. Not perfect. But what i like about the US model is its capacity to change. Europe i am not so sure…

Most European companies make only a fraction of their business in Europe. The actually numbers depend, but the multinational companies in Europe are closer to a 1/3 Europe, 1/3 NA and 1/3 Asia/ EM business mix than 100% European. So, I think there are great opportunities out there to get a double whammy from both a lower valuation as well as a currency kicker eventually.

 

Likewise, a lot of US companies have significant revenues in Europe as well as in China (both secularly challenged).

Link to comment
Share on other sites

3 minutes ago, Spekulatius said:

Most European companies make only a fraction of their business in Europe. The actually numbers depend, but the multinational companies in Europe are closer to a 1/3 Europe, 1/3 NA and 1/3 Asia/ EM business mix than 100% European. So, I think there are great opportunities out there to get a double whammy from both a lower valuation as well as a currency kicker eventually.

 

Likewise, a lot of US companies have significant revenues in Europe as well as in China (both secularly challenged).


@Spekulatius if a North American investor wanted to get exposure to Europe in the future do you think it is better to try and pick a basket of stocks or keep it simple and buy an ETF? My problem is i do not follow European companies closely enough to  go the company route. Do you have a short list of European companies you think are world class and very well positioned for the next decade? 

Link to comment
Share on other sites

20 minutes ago, Viking said:


@Spekulatius if a North American investor wanted to get exposure to Europe in the future do you think it is better to try and pick a basket of stocks or keep it simple and buy an ETF? My problem is i do not follow European companies closely enough to  go the company route. Do you have a short list of European companies you think are world class and very well positioned for the next decade? 

I think companies worth owning are Deutsche Post, Porsche Holding (POAHY) and Exor Holding for example. For exposure to the German market, I would get an MDAX ETF , which gives you more exposure to Midcap German companies for example.

 

I don’t know French business all that much, but I think choosing the Midcap route may be the way to go. FWIW, most European Midcaps have an international business focus, so they are not necessarily limited to doing business in Europe only. 

Edited by Spekulatius
Link to comment
Share on other sites

9 hours ago, Spekulatius said:

I think companies worth owning are Deutsche Post, Porsche Holding (POAHY) and Exor Holding for example. For exposure to the German market, I would get an MDAX ETF , which gives you more exposure to Midcap German companies for example.

 

I don’t know French business all that much, but I think choosing the Midcap route may be the way to go. FWIW, most European Midcaps have an international business focus, so they are not necessarily limited to doing business in Europe only. 


@Spekulatius thanks 👍

Link to comment
Share on other sites

"I think companies worth owning are Deutsche Post, Porsche Holding (POAHY) and Exor Holding for example. For exposure to the German market, I would get an MDAX ETF , which gives you more exposure to Midcap German companies for example."

 

I would buy the german companies Buffett bought: BASF, Allianz and Munich Re. 

He said he invested $5 billion in these together.

 

A lot of german companies are very capital-intensive and that´s a big disadvantage.

Link to comment
Share on other sites

2 hours ago, Charlie said:

"I think companies worth owning are Deutsche Post, Porsche Holding (POAHY) and Exor Holding for example. For exposure to the German market, I would get an MDAX ETF , which gives you more exposure to Midcap German companies for example."

 

I would buy the german companies Buffett bought: BASF, Allianz and Munich Re. 

He said he invested $5 billion in these together.

 

A lot of german companies are very capital-intensive and that´s a big disadvantage.

I do not like the companies that Buffet bought.

BASF is at the heart of Europes energy problem and deeply affect by the NG shortage. They can switch inputs to some extend (to oil), but if their allocation of NG is reduced by 50%, they have to curtail production in Ludwigshafen (their largest money maker). Even before that, the higher NG cost hurt quite a bit. This is a problem that does not go away. It may be priced in at this point and BASF has production in other geographies ( US/ Texas and Asia though ). However, why not buy CE or similar stocks?

 

Allianz and Munich Ruck are insurance, that have been traditionally connect to each other. Allianz is pretty mediocre in my opinion. I feel there are better choices out there.

 

You are correct that many German companies operate in sectors that are capital intensive, but so is insurance.

Link to comment
Share on other sites

I think BASF is very cheap and I see not much downside here and good upside. It´s a blue chip with a cigar butt valuation.

Allianz and Munich Re are probably pretty mediocre, but they know their circle of competence and that´s terrible important.

 

Some years ago the Sequoia Fund invested in Porsche and got burnt badly.

I don´t trust the capital allocation decisions at Porsche. 

I don´t think Deutsche Post is a great business. 

The MDax outperformed the Dax, but not much: https://www.comdirect.de/inf/indizes/detail/chart.html?timeSpan=1D&ID_NOTATION=323547#timeSpan=SE&benchmarkNotations=20735&benchmarkColors=147de6&selectedBenchmarks=true&e&

 

The conclusion of this post: Don´t buy anything, because of currency. It´s the business that counts.

Just buy Berkshire Hathaway. 🤣

https://www.comdirect.de/inf/aktien/detail/chart.html?timeSpan=SE&ID_NOTATION=32989299&#benchmarkNotations=20735&benchmarkNotations=323547&benchmarkColors=147de6&benchmarkColors=0c9c2e&selectedBenchmarks=true&selectedBenchmarks=true&e&

 

 

Edited by Charlie
Link to comment
Share on other sites

Maybe currency is the tail on the dog. Nintendo's costs are in yen but their sales are largely international so the weak yen may benefit them. It is a lumpy but great business imo.  They have high quality under monetized IP.  I keep buying that. Sony may be in a similar position but is more spread out with a solid but less fanatical fan base. If anyone has any thoughts on Nintendo or Sony, please speak up.

Link to comment
Share on other sites

23 minutes ago, Cod Liver Oil said:

Maybe currency is the tail on the dog. Nintendo's costs are in yen but their sales are largely international so the weak yen may benefit them. It is a lumpy but great business imo.  They have high quality under monetized IP.  I keep buying that. Sony may be in a similar position but is more spread out with a solid but less fanatical fan base. If anyone has any thoughts on Nintendo or Sony, please speak up.

I agree on Nintendo. Sony also benefits from currency effects, but I am a but less sure about their valuation. Sony has some great business franchises like Movies (Spiderman franchise) and Music and PS as well as a leading position in Image sensors. They also have a great track record in capital allocation, where Nintendo is lacking a bit.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...