Wednesday, November 19, 2008

Currencies

You can now buy almost all the major foreign currencies through a U.S. brokerage account:

FXE: Euro
FXC: Canadian dollar
FXF: Swiss franc
FXM: Mexican peso
FXY: Japanese yen
XRU: Russian ruble
BZF: Brazilian real
CYB, CNY: Chinese yuan
ICN, INR: Indian rupee

Although you can trade currencies, it doesn't mean you should. Personally, I own some FXC and FXF. I view the Canadian dollar as a diversification tool because it is indirectly linked to commodity prices. The U.S. imports most of its oil through Canada, Mexico, and Venezuela.

The Swiss franc should do relatively well, despite Swiss banking problems, because war is the #1 destroyer of economies, and the Swiss have historically avoided war. In contrast, the U.S. has Iraq; China has Taiwan; Russian has Georgia; India has Pakistan (over Kashmir); and Mexico has internal corruption so terrible, it may lead to civil war. Brazil's egregious income inequality makes it difficult for me to invest too much of my money in the country, despite its independence from OPEC and recent economic growth.

I have heard several Southeast Asians say that Malaysia is doing better than its neighbors Cambodia and Vietnam primarily because Malaysia avoided war and Cambodia and Vietnam did not. The general theory makes sense. Aggression and war destroy economies because they lead to a lack of stability, which drives away investment. Thus, peacenik Americans who crave stability are left with the Euro, which is going to be devalued because of future expected interest rate cuts; the Canadian dollar; the Japanese yen; and the Swiss franc.

If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy. -- James Madison

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