Posted on 08/14/2005 6:17:50 PM PDT by Uncle Joe Cannon
Dollar rebound delivers costly shock to investors
By Steve Johnson in London Sun Aug 14, 3:45 PM ET
Pension funds, trend-following hedge funds and private investors are all believed to have been hit this year because of the US dollar's unexpected strength. ADVERTISEMENT
But more nimble investors, including many hedge funds, are now believed to have recouped most of their losses.
The dollar fell by 38.7 per cent against the euro in the three years to 2004 as worries over the twin US external and budget deficits intensified. The sell-off was particularly acute in last year's fourth quarter, leading many in the markets to anticipate more losses this year and thus build big short-dollar positions.
But the dollar has proved robust, rallying from $1.356 against the euro to $1.188 in July, before slipping back recently to $1.243.
"The whole world expected the dollar to go down [in January], but there was no one left to sell the dollar," said James Binny, director of FX analytics and risk advisory at ABN Amro.
Berkshire Hathaway, the investment group run by Warren Buffett, has been a high-profile victim of the dollar's fightback.
Berkshire's $21.5bn of short-dollar forward contracts produced a pre-tax loss of $926m in the first half of 2005, eating into the $2bn gains made from shorting the dollar in the previous three years. Hedge funds also made sharp initial losses. BNP Paribas's FX Funds Index, which tracks the performance of hedge funds and commodity trading advisers, suggests the sector lost 4.4 per cent in January.
However, data from the US Commodity Futures Trading Commission indicates that short-term speculators swung to being long on dollars by the spring, although these positions are now being liquidated. Consequently, BNP's index indicates that by June hedge funds had cut year-to-date losses to 1.7 per cent.
Yet many funds still face significant losses. Dummy portfolios run by ABN's Mr Binny, designed to imitate popular hedge fund trading styles, suggest that trend-following hedge funds typically lost 7.4 per cent in the year to July, while short volatility funds which suffer when currencies break out of their trading ranges lost 6.4 per cent. Yield and value-seeking funds are likely to have made small gains.
Avinash Persaud has been another victim, with the currency hedge fund he managed for Global Asset Management closing in April after losses. He thinks this year's losers were "clever" investors who anticipated fresh dollar weakness, with "dumb" investors largely "non-profit maximisers" who stick with the dollar through thick and thin making the gains.
Ammo and medications might be a better long term investment
If you feel that way look at OLN...winchester ammo division is going nuts..and gub contracts on the horizon.
I was thinking more along the lines of physical ammo and meds :)
Right now I'm in gold stocks heavily along with commodities.
I'm investing in shotgun shells and canned goods!
Mark
Long term, lower risk savings trends at all levels would be more conservative and smart for our economy and our defense. The big bull and lurking bear can really bite.
OLN and CAR...should do it.
Yep, and isn't it funny how the article didn't mention that? Currency policy is set by the White House, and last December GWB signaled the end of his weak dollar policy when he said "Greenspan knows what to do."
Reagan was the best, but he whipsawed the dollar as much as any president, maybe more than any other. I would have to say that quote was from early in his presidency or even before.
mark to read tomorrow
But aren't short contracts for a specific period?
Yep, and isn't it funny how the article didn't mention that?
No, higher interest rates do not mean a stronger dollar. Check and you will find that the gold price was below $380/ounce in April, 2004, before the Fed began trumpeting its intent to raise short rates. Now the gold price is about $450. That's a loss of 18%+.
Currency policy is set by the White House, and last December GWB signaled the end of his weak dollar policy when he said "Greenspan knows what to do."
Again, not true. After the Treasury Secretary of Bush 41 jawboned Greenspan so doggedly to lower rates, without success, and Greenspan brought on a recession right at election time, Clinton made a deal that Treasury would let the Fed manage the dollar without second-guessing from Treasury. That hasn't changed under Bush 43, which is why we see no criticism of the Fed from the WH or even so much as a comment about whether they are doing a good or bad job.
How do you explain the interventions Rubin did in 1995 and 1998?
His "whipsawing" certainly put the economy on a gainful track though didn't it?
After all "Reaganomics" is STILL a divisive term used by the left.
Lest we forget the "tearing down of a wall" to boot.
Med's to maintain and ammo in case the med's don't work?
In spite of those things Reagan's economic leadership was incredible, and brought about a recovery that didn't seem possible before he took office.
There was a third person that was shorting the dollar but I just can't remember who.
They were touting the euro, which they said would replace
the dollar in international finance.
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