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Looking eastward

The Big Picture Place
1nvest
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Looking eastward

#427978

Postby 1nvest » July 16th, 2021, 8:07 am

With Biden in effect having given the UK the middle finger, to favour jumping into bed with Germany, Ireland, (EU), I've been looking around at alternatives to the US$ and Russia pricks ears. Forward dividend yield of 7.5%, Price to Book of around 1.2, single digit PE.

Given the perceived Russian political risks the UK might be well placed to form a UK/Russian accounting/law/financials alliance with Russia. If so, then the dominance of the US$ on the American TINA assumption ('there is no alternative') might see the range of similar potential alternatives having one more commonly agreed as a accepted alternative. Presently there are a range of currency baskets or agreements, such as China/Russian acceptance of each others currencies as primaries and other baskets of currencies such as Arabian multiple-currencies. Not that far off seeing potential agreement of the merging of those being more broadly accepted as being a acceptable primary reserve 'currency'.

American dominance is fundamentally a consequence of breaking its promise to act responsibly, where others accepted the USD becoming the primary reserve currency instead of gold based on such promise. But where instead the USD printing presses facilitated paying for the likes of a large military capability. In the absence of unlimited print/spend (if no longer considered as being the commonly accepted primary reserve currency) then that likely would see a large scale flight out of USD's. Perhaps declines similar to what the UK endured when it lost the Pound being a primary reserve currency in the earlier 20th century or during the 1970's (high interest rates/inflation, considerably lower valuations ...etc.).

Lootman
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Re: Looking eastward

#427985

Postby Lootman » July 16th, 2021, 8:29 am

1nvest wrote:American dominance is fundamentally a consequence of breaking its promise to act responsibly, where others accepted the USD becoming the primary reserve currency instead of gold based on such promise. But where instead the USD printing presses facilitated paying for the likes of a large military capability. In the absence of unlimited print/spend (if no longer considered as being the commonly accepted primary reserve currency) then that likely would see a large scale flight out of USD's. Perhaps declines similar to what the UK endured when it lost the Pound being a primary reserve currency in the earlier 20th century or during the 1970's (high interest rates/inflation, considerably lower valuations ...etc.).

People have been predicting the decline of the US dollar for decades now, probably as long as they have been predicting the decline of the US itself. But the problem with betting against the USD in particular is that it has a nasty habit of doing very well in times of crisis. And since crises are never known in advance then you could be caught out even if your basic bearish thesis is sound.

Anyway most individual investors don't bet on currencies but rather on the underlying equities. In that case a country's equity market can do well precisely because its currency declines relative to others. It is bond investors who can get shafted by a double whammy of declining prices denominated in a declining currency.

That said the US equity market cap is now about 55% of the global equity market cap, which surely is an all-time high watermark for any single country outside of WW2 anyway. I think Japan only got to 40% or so in 1989 before declining for decades to about 10% now. Then again anyone betting against Apple etc. has not done well in living memory. You can bet on China, Russia and India (remember when BRIC was a fashion a decade or two ago?). But then there is more risk along with all the usual issues of government influence, control and corruption.

1nvest
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Re: Looking eastward

#427999

Postby 1nvest » July 16th, 2021, 9:10 am

Lootman wrote:Anyway most individual investors don't bet on currencies but rather on the underlying equities.

A investor who opted to hold US$ and gold, 50/50 yearly rebalanced, stuffed under a mattress, since 1792 when the US$ came into existence, would to recent in UK inflation terms have seen just -0.5% annualised loss of purchase power. Invest the US$ instead of holding hard currency stuffed under a mattress and that -0.5% was comfortably offset even if invested in just T-Bills.

The FX market massively dwarfs the equity market. Some of the biggest players focus first on currency and then what assets to hold in those currencies. Whilst some stocks have global business/currencies earnings, often that 'risk' is hedged into whatever currency/country their firm is domiciled.

the problem with betting against the USD in particular is that it has a nasty habit of doing very well in times of crisis.

Because its the primary reserve currency, same as investors flight to gold during times of trouble/fear. Not coincidental. Similarly when crises subside so capital can flight the US$ to alternatives that offer better value/prospects.

Very difficult to reliably predict relative fluctuations in currencies and FX is a market that is massively leveraged (tiny deviations scaled to more modest rewards), sometimes 100x leveraged. The simpler choice for average investors is to diversify across multiple currencies and rebalance once/year, which is a form of 'trading'. For instance UK gilts, US stocks, gold, a third each = three currencies, three assets (bonds, stocks, commodity).

Third each (yearly rebalanced) 10 year gilt ladder (not marked to market), US stock, gold, since 1939
Image
and more usually for other asset allocations/weightings the SWR is lower than the annualised gain, but in that case the two were the same i.e. the gains were relatively stable/consistent.

AWOL
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Re: Looking eastward

#437402

Postby AWOL » August 25th, 2021, 7:57 pm

I invested in Russia once upon a time thinking, this stuff cannot get much cheaper at a PE of 8 and it did. I waited a long time before crystallizing my loss and making money elsewhere.

Since then my knowledge of Russia through doing business there, from meeting another Brit there who acquired a Russian company got raided by FSB and learned that the Kremlin was the real owner of their business, and from reading things like Red Notice (https://read.amazon.co.uk/kp/embed?asin ... 05KQPZFT2S) has led me to conclude that foreign ownership of Russian assets is an illusion.

I don't think Russia is likely to be investible in my lifetime. It's your choice but please think hard first!

tjh290633
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Re: Looking eastward

#437454

Postby tjh290633 » August 25th, 2021, 11:39 pm

A long time ago I invested in the Johnson Fry Worst Performing Fund, which worked on the principle that the worst performing fund each year would recover the next year. The problem was that this coincided with the problems of the Japanese stock market, and it entered a permanent decline, leading to its reform.

TJH

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Re: Looking eastward

#437544

Postby odysseus2000 » August 26th, 2021, 10:50 am

tjh290633 wrote:A long time ago I invested in the Johnson Fry Worst Performing Fund, which worked on the principle that the worst performing fund each year would recover the next year. The problem was that this coincided with the problems of the Japanese stock market, and it entered a permanent decline, leading to its reform.

TJH


I think a better tactic might be to short the best performing funds as the top of table funds often attract too much money for the next year and managers get giddy and make some bad investments.

Regards,


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