“Until now forex reserves have been largely invested in government paper (US and Europe mainly).owning more than half all US Government paper. This was great for the US and other debtor country consumers but hardly sound investment management for the emerging economies since this policy is guaranteed to lose real value over time. The benign period in which the US and others could just parcel out their paper willy-nilly to the emerging economies is over. The pigeons are wising up!
As reserves are projected to keep expanding, a growing number of countries have established stand alone sovereign wealth funds (SWFs) in which their excess reserves can be invested more aggressively into equities, public and private, property and commodities. It is these funds that are likely to make a huge splash in the markets in coming years.
Whilst SWFs have been around in some relatively minor form since the 1950s with Kuwait’s fund, they have mushroomed in the last two years. They already manage an estimated USD 2.5 trillion in assets – greater than the total assets controlled by hedge funds – and their assets are expected by Morgan Stanley and others to grow 5 or 6 times in the next few years.
As they will become important players, potentially controlling politically sensitive assets, their investment policies are likely to become hot political issues with the potential to generate a momentum towards financial protectionism. There are straws in the wind in this direction in countries such as the United States and Germany already.
SWFs funds fall into one of two major categories: commodity funds (such as the OPEC or Russian oil funds) or non-commodity funds funded from current account surpluses. Market estimates currently attribute approximately two-thirds of SWFs assets to commodity funds and the remaining one-third to non-commodity funds.”
The question I have is how can a normal US middle-class taxpayer likewise protect himself by getting his retirement money into one of these SWF’s? When Alan Greenspan was promoting his latest book, he did mention that he has investments in various foreign currencies, but would not say which. I wish I could figure out how to spread my widow’s mite around a bit into a number of fiat, rapidly depreciating currencies, rather than being stuck with the sinking ship I was born on.
I think direct trading in forex is best left to someone prepared to obsess about it night and day.
But there are other things. For instance, there are real estate funds in Japan that might work. You could invest in them rather than speculating on a possible unwinding of the carry trade directly, which if you had been betting on for the past couple of years, you would have been sorely disappointed.
But there too — you have to be careful, because by the time an “investment tip” reaches your ears quite a lot of the profit has already been siphoned off.
So REITS in foreign countries might be a way to go, but you also have to recognize that the property market is hugely inflated and even in relatively undervalued areas, there could be a negative effect in a general deflation of asset values.
Then again, you have to distinguish between commercial reits and others..
Direct purchase of rural land in undervalued areas is advised by some, including my co-author – who did just that, buying a large tract of land in a remote and infertile area of Argentina.
But investing in foreign countries directly like that is something you need to investigate very carefully. You can get the same protection probably by exploring undervalued areas here.
But everything is very individual. As a broad class, commodities are in an upswing, but that doesn’t mean you can jump in and out anytime.
The franc may not be as secure as it was once, but it is the traditional safe haven for rumors of war. The euro profits from the former socialist bloc/Islamic boycott of the dollar, but being a political animal might be subject to ferocious corrections. I don’t know. I called it wrong on that. I was sure the euro had gone as far as it could, but apparently not.
Some would avoid the US stock market altogether but it seems to me that there are some great undervalued stocks right now, but I think everyone would agree that exposure to foreign markets is absolutely necessary.
Myself – I dont follow any of this advice and still sit on my sinking dollars, principally, because I try to follow the dictum, when in doubt, do less. But I am set up so I can move out in a day or two. You are never out of investing. You’re always in or out. If you are a saver, then what you have done is invested in the US dollar.
19476 – good site. PeterPan