As the dollar has been holding up relatively well recently, for those who are still in US equities and US denominated investments, you still have the opportunity to protect your hard earned savings. This post is designed to highlight possible investments that will hopefully fare well against a drop in the dollar.
If you feel uncomfortable investing on your own or lack the knowledge to evaluate these investments, I would suggest you head over to EuroPac.net ASAP and talk to them about handling your investments. Although I regard myself as being a decent investor in US stocks, I have very little experience with foreign investing. Given this, I encourage others to comment on any of the investments below -for the benefit of others and myself.
Given that, below are a few ways to start investing in gold/silver, foreign currencies, funds and stocks. I will note any investments that I have bought.
Investing in Foreign Currencies:
Everbank is a bank allowing purchase of various CDs in foreign currencies.
Merk Hard Currency Fund and Merk Asian Currency Fund: two mutal funds investing in foreign currencies, "Hard Currencies are currencies backed by sound monetary policy, including the euro, Swiss franc, Canadian dollar, Australian dollar, to name a few." I have invested in MERKX.
Investing in gold and other precious metals:
**Central Gold-Trust (GTU): Canadian closed end fund investing only in gold.
**Central Fund Of Canada (CEF): Canadian closed end fund (fixed number of shares) that holds gold and silver. I am currently looking into this fund more since there are many issues holding iShares which I've just recently learned about.
**Note: since these are closed ended funds these may trade at a premium or discount to the underlying gold and silver prices. As of 1/21/2009 GTU and CEF are trading 6% and 10% respectively above the spot prices of the underlying precious metals.
BullionVault.com allows you to purchase gold bars or fractions of them and hold them in your name. They have been very careful to protect their customers from many of the risks that are of concern to gold investors (confiscation, counter party risk due to company going out of business and more....). They also post daily public audits using anonymous account names so that you can verify that your gold is actually in the vault it is said to be in.
Bullion Coins, coins valued primarily for their gold content and weight, can be bought from the US mint or through local dealers. Numismatic coins are coins valued at a premium above their gold content due to their rarity, condition and beauty can be purchased online -these are typically not preferred for investing in gold due to the premium above the intrinsic value of gold. Below are a few coin dealers:
http://www.apmex.com
http://www.caminocompany.com
http://store.nwtmint.com/Bullion/
https://online.kitco.com/bullion/completelist.html
http://www.pandaamerica.com/index002d.asp
Article discussing investing in coins which recommends coin dealer Camino Coins run by Burt Blumert:
http://www.investmentu.com/IUEL/2004/20040920.html
The case against investing in gold derivatives/options:
http://www.gold-eagle.com/editorials_03/wallenwein052103.html
Note: before making investments, be sure you are aware of the counter-party risk that the investment carries. This is the possibility that the company/person on the other end of the deal does not live up to their contractual obligation (due to bankruptcy or other). For example, an ETF fund going bankrupt leaving you as creditor rather than an outright owner of the underlying funds/commodities. In a worst case scenario you may only get partial or no payment at all. If/when the dollar collapses, you can imagine this will become a very important concern if you have exposure to this type of risk.
Foreign stocks and funds:
Note that I have already looked at many country specific ETFs, however, many of these are heavily concentrated in the financial sector -since I have not had the time to investigate the exposure of these many holdings to the US mortgage debacle, I have steered away from these investments despite the possibility that some of these may actually be outstanding investments (e.g. iShares Singapore ETF - EWS).
One method I'm using to find investment candidates is to scour the holdings of country specific ETFs. As I find what I think are decent investments (I consider myself a value investor) I will post the results below. In general, I look for a net income that has been increasing for the past 5-10 years, a balance sheet showing low levels of debt as compared to the assets the company owns, a decent dividend yield, and a low P/E. With foreign stock markets having taken a beating recently, there are plenty of these out there. Here is what I have found so far.
WisdomTree International Basic Materials Sector ETF (DBN) : This fund invests in the basic materials sector outside the U.S.. Basic materials consist of metals & mining, chemicals, construction materials, and paper & forest products. DBN currently has a low P/E of less than 7 and a dividend yield of 1.45%.
Another similar ETF to DBN is iShares MXI. However, 25% of MXI's holdings are U.S. companies so I have decided not to go with MXI.
iShares S&P Developed ex-U.S. Property Index Fund (WPS) : Real estate managment, developement and REITs of non-U.S. companies. I own shares in this fund.
Arcelor Mittal (NYSE:MT): Worlds largest steel producer, with headquarters in Luxembourg. They have a PE of 2.25 with a dividend yield of 6.52%. Net income has been rising for the last 5 years. However, 2009 net income is projected to be down signifcantly. The 6.52% yield will produce some nice income while riding out the global recession over the next year or two. I own shares in this company.
New Zealand Telecom (NYSE:NZT): P/E of 3.8, and a great dividend of 10.2%. Net income has jumped around more than I would like but with a decent balance sheet and the fact that it appears to be so undervalued I have gone ahead and picked up some shares.
Other stocks which I have bought which I'll just briefly mention are as follows:
BASF SE (pink sheets BASFY), world leading chemical company based in Germany.
BHP Billiton Ltd (NYSE:BHP), producer of various metals, based in Australia.
Note: All of the ETF funds above are traded in the US. Most of the individual stocks mentioned above are large corporations and as such are traded on the NYSE with the ticker provided, yet others are only available through the pink sheets/OTC. These pink sheets/OTC companies can also be bought through U.S. brokerages although at a higher cost than you could have gotten if you were able to buy on their local exchange. The reason for this is that U.S. pink sheet dealers executing the trade will only do so if they can pocket a decent return from making the trade.
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!!Bad Investments!!
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These are investments which I had initially invested in but have since found out that they pose too much counter party risk due to the use of derivatives, credit risk or just loosely worded prospectuses that do not provide any guarantees of the type of investments that will made (i.e. use of derivatives instead of owning the currency or metal outright).
Regarding iShares below - after researching these more, I have come to the conclusion that their prospectuses are too loosely worded and one can not be guaranteed that they are holding physical gold and silver bullion as opposed to paper futures contracts. Also the banks that have created these are involved in a web of other investments. There are various other issues as well. Due to this, I have reduced my holdings in iShares in favor of the Canadian funds listed above (GTU, CEF). Here is the article detailing the flaws with iShares Silver trust SLV. And here article detailing the flaws with GLD, the largest gold ETF in existence.
iShares COMEX Gold Trust (IAU): Gold ETF with shares being backed by approximately 1/10 of an ounce of gold.
iShares Silver Trust (SLV): Silver ETF with shares being backed by approximately one ounce of silver.
E*Trade's Global Trading account gives you access to foreign exchanges and currencies. *Update - looks like E*Trade has some exposure to the mortgage crisis and is not in the best financial condition -therefore, investing with them poses some risk. Due to this, I am currently investing only a small amount with them.
***Update on CurrencyShares, here is an article detailing the credit risk these pose - if the Trust, JP Morgan Chase bank, goes bankrupt, you will be left as an unsecured creditor in Chase's London branch -for which your claim will be subordinate to British creditor's claims. i.e. you will be way down the list when trying to get your money back if there is even any left to begin with.
Foreign currency ETFs called CurrencyShares can be purchased through most brokerages. I have bought Swiss Francs (FXF) and Austriallian Dollar/Aussie (FXA) funds although I will not be holding this long term.
WisdomTree, another ETF fund company, has a slightly different set of currency ETFs which include the Chinese Yuan, South African Rand, New Zealand Dollar and Indian Rupie among others. This likely suffers from the same problem as CurrencyShares, although I have not yet looked into these funds in detail yet.
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!!End of Bad Investments!!
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