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In light of the devaluing USD, what are the options for savings denominated in Euros, in any form, CD's, money market, or bonds? I have not come across any in my limited reading.

e
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In light of the devaluing USD, what are the options for savings denominated in Euros, in any form, CD's, money market, or bonds? I have not come across any in my limited reading.

check out http://www.everbank.com, they offer deposit accounts and CD's in many different currencies.
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BEGBX is a mutual fund with foreign bonds, many of them European...

-dr.nonlinear-
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It is not that hard to open an account with a non-US bank and pick a currency.

Are you trying to speculate on the currency movement or just looking for higher returns (interest rates being higher in some locations such as the UK)?

If you are actually speculating then you might want to use a different investment (futures contract or similar). Something that is more a pure investment in the FX movement and less overhead then managing a foreign savings account.

BTW - If you liabilities and future goals are all denominated in USD then the up or down movement does not impact you. Hence you assets and liabilities drop or rise at the same time and you remain relatively the same. So, other then extra returns (or losses) what is the motivation?

John

PS. I live in more then one place so commonly move across USD, Sterling and Euro.
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If one wants to simply have some low-overhead Euro-denominated fixed income assets, what should one know before calling his/her discount broker. Are there ways to buy them on-line? I plan to checkout everbank.com - but are there other suggestions? any thoughts welcome.



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If one wants to simply have some low-overhead Euro-denominated fixed income assets, what should one know before calling his/her discount broker. Are there ways to buy them on-line? I plan to checkout everbank.com - but are there other suggestions? any thoughts welcome.

I am confused by the question.

Do you really want regular income in Euros or are you saying you want to be invested in Euros as a way to hedge or speculate against the USD?

If it is the income are you expecting to take the income and spend it on a regular basis for something that is priced in Euros?

I travel a lot and bank across boards for normal expenses, etc. I was just wondering as to your intent as logistically moving small amounts around on a regulars basis can be complicated unless you expect to have a bank account, check book, debit card, etc. If that is really what you are thinking then you may need to think beyond a discount broker. Who you use can define the investment options open to you through them.

John
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The investment purpose is key and I left it out - this is a long-term play as part of a diversified retirment strategy. It's pure currency play but I don't want to have to actively manage it as with futures. I take the point about matching currency exposure to liabilities etc. But there's no short term income need at issue. I was just thinking of putting this years IRA lump (8k) into non-USD bonds (I'd, of course, consider rolling over enough to meet minimums).



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IIRC, Interactive Brokers allows you to tap into foreign markets and keep cash accounts in foreign currencies at reasonable cost.
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Thanks for the clarification. It definitely helps.

It also takes it beyond what I feel able to really advise on. The complexity of what you are suggesting leaves me wondering.

Here are some questions that come up in my mind.

1. You want to speculate on the FX rate. Buying Euro at what is closer to the top then 4 years ago is a risk.

2. Your options are somewhat limited unless you can open a brokerage account or similar in another country. Hence the returns for the products that are easy to invest in at a distance will be lower then you might like.

3. You may find that if you stick with USD and are expecting to retire to USD the gains you could make on USD investments will be just fine. You do not need the currency exposure to get much of the diversification that comes from holding non-US assets. ADRs is one example or a fund that invests in mostly non-US shares is another example.

4. If you really want to put cash overseas have you considered buying property? Maybe a holiday home or a small apartment in Paris? If you want to discuss this sort of strategy I can provide a perspective as I own property in more then one country (and have looked at even more countries then I have invested in).

To me it feels like an interest that sounds sexy but which will not work that well given the objective. If you are committed to investing cross boarder and want to set up the accounts (and file the extra paperwork with the IRS) then all the power to you. I am in that boat but I spend time outside the US for other reasons.

John
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3. You may find that if you stick with USD and are expecting to retire to USD the gains you could make on USD investments will be just fine.

That is questionable given most US asset classes are at or near historic highs.


You do not need the currency exposure to get much of the diversification that comes from holding non-US assets. ADRs is one example or a fund that invests in mostly non-US shares is another example.

While they're quoted in US$, ADRs in fact have the currency exposure built in. Same goes for funds investing abroad.
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You may find that if you stick with USD and are expecting to retire to USD the gains you could make on USD investments will be just fine.

That is questionable given most US asset classes are at or near historic highs.


Two comments.

If you think US assets are at historic highs then you must also believe that many assets in many countries are also at highs. The property market in many countries is an example. There is a lot of cash out there looking for a decent return and interest rates are at historic lows globally (some specific exceptions).

If all asset classes are at historic highs then you need to sit on the sidelines or find a better way to hedge the risk.

This discussion is mostly about why being in or out of the USD is a way to help produce better returns. I was taking the view that if the person's future liabilities are in USD then they may be able to do just fine with US investments while not taking on the FX risks. If you expect the USD to drop significantly while see very little appreciation then maybe non USD is good (some extra overheads need to be factored in).

Putting this on a firmer footing...

If you can produce 12% annual returns in the US market (locked in for the term of the investment) is there much added advantage to looking outside the US? No FX exposure, no foreign owner hassles. If you could get 12% locked in with a foreign investment then it might be a more interesting comparison. I only know how to lock in 12% in the US right now so my bias is there (BTW - I live outside the US and hold different currencies already).

John
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John

If you think US assets are at historic highs then you must also believe that many assets in many countries are also at highs.

Agreed. As we know, even Buffet has great difficulties finding value investments. So do many corporations that are currently sitting on huge piles of cash...


If all asset classes are at historic highs then you need to sit on the sidelines or find a better way to hedge the risk.

Perhaps not the worst option, although there are SOME pockets of assets left that are not overvalued.


If you expect the USD to drop significantly while see very little appreciation then maybe non USD is good (some extra overheads need to be factored in).

Given the attitude of Bush & Co vis-a-vis budget deficits I indeed see the $ on further shaky grounds. However, extended technical rallies are possible any time. All that said, I consider currency and regional diversification a must for any portfolio.


If you can produce 12% annual returns in the US market (locked in for the term of the investment) is there much added advantage to looking outside the US?

I (and probably the rest of this board) would appreciate your advise on how to lock in 12% while even LT $ treasuries are paying sub-5%?


SB
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although there are SOME pockets of assets left that are not overvalued.


Do you believe in pockets of assets that are still an opportunity?

Some assumptions here.

To be a 'pocket' means smaller in size, maybe limited exposure to the investing public and likely to require arcane investing skills that match the asset type.

Would this be an acceptable set of assumptions?

I (and probably the rest of this board) would appreciate your advise on how to lock in 12% while even LT $ treasuries are paying sub-5%?


The boards is not really interested. This is not good or bad, just a valid characterization based on the exhibited behavior.

The boards is mainly focused on mainstream alternatives that have broad exposure and which many people understand.

As soon as we go into exotic options (things that are not vanilla or things that are not broadly followed), the board assumes a high degree of risk must come with returns that are greater the CDs or US government issued debt.

While is has to be true that something paying a good bit more will have some added risks over US government securities, the premium is bid up when you look at 'pockets of assets'

Two examples that have historically paid above the norm while not exhibiting any form of 'high risk'

Loans secured by residential properties
Tax liens issued by county governments and secured by residential property.

In both case you do need to understand how the investment works.

You will also find that there is not a sales commission model that applies so very few folks out there trying to sell such investments. Hence there is not much reason for a stock broker or Financial Planner for recommending such alternatives.

I have posted some details on both investments (more on the loans then on the tax liens). I do not mind discussing further but it is not likely to be helpful to just repeat the same info in a different thread.

John

PS. Popping up a level.

The conversation tends to split into two buckets.

Those who are focused on preserving capital (no loss of principle and returns that are above inflation by 1%)

Those who want significant growth (high growth stock investors are such a breed). They are looking for returns that produce +5% over inflation and can take downturns over shorter time horizons.

I want high returns over the rate of inflation and no down turns in the short run. Hence I can not focus on bonds or stocks.

John
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John,

To be a 'pocket' means smaller in size, maybe limited exposure to the investing public and likely to require arcane investing skills that match the asset type.

Would this be an acceptable set of assumptions?



For the ones I had in mind, that would come close, plus add in rather high volatiliy ;-)


Loans secured by residential properties
Tax liens issued by county governments and secured by residential property


Out of interest, how "safe" would those be if we had a serious downturn in the RE prices?


SB
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SB,

Out of interest, how "safe" would those be if we had a serious downturn in the RE prices?


Define serious?

If I gave you a property worth today $100,000 and prices dropped by 10% you are still in the money. If they dropped by 90% you are still in the money. There might be blood in the streets and people jumping out of windows but if you get the deal low enough you are still right side up.

So, define "serious downturn" so that we have a common definition for this discussion.

Side note: There has not been a down tern (year on year negative returns) in the US housing market for approximately 50 years. There certainly have been regions, states, cities or markets that have seen negative years. On the national level this is not the case. So, downturn could mean something that is more specific to a subsection of the market or specific to a single transaction.

John
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Define serious?

Take a 30%+ drop in the underlying collateral (since you mention counties I assume the collateral is usually not broadly spread across the country).
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Define serious?

Take a 30%+ drop in the underlying collateral


30% is extreme. I think most people recognize that it is rare for such a correction in the residential sector. I am only talking about 1-4 unit residential properties for discounted notes.

Most lenders who provide mortgages base their models on a much more 'aggressive' view. Otherwise 20% would not be the point at which PMI is considered unnecessary for a lender to write the loan. They depend on other factors such as the borrower, etc but we are only talking about the value of the collateral here. Discounted notes come with a payment history.

For the point I was making about earning higher returns I will not consider deals that go above 65% LTV (some being closer to 50% LTV). Hence, if we have a 'serious' correction I would either be still protected or close to it. I should make more money from a default then is the person pays on time in almost all situations.

Others can make the case that if we get a 30+% correction in the US residential housing marketplace stocks and other investment will find the waters very choppy.

If people need to sell assets (stocks, bonds, MF, cars, CDs) or lose their house...
If housing fell that much then interest rates likely shifted up a fair amount...;
If there was mass unemployment to trigger such a correct we have bigger issues...

I agree there are risks. I am not sure that risks with this type of investment are actually greater then the risks for other sectors. Remember, for finance offered the general public, RE loans are generally the cheapest which is the banking system and the bond holders all saying that the default risks are minor compared to alternatives. Not zero. Just low compared to the alternatives. Otherwise the financing would cost more when you apply for a loan.

Yes, some advantages from the pooling of the mortgages to offset the risks of any one loan being in default.

John
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