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Posted by Andrew Koenig on September 24, 2007, 3:49 pm
> While I'm not bullish on the dollar, anytime lots of people say "nowhere
> to go
> but down", I start thinking the trend has about run it's course. -- Doug
You sound like Mark Hulbert.
(As I like his stuff, you can take that as a compliment)
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Posted by Beliavsky on September 25, 2007, 9:31 am
> joetaxpayer wrote:
> > FDPIX is the falling dollar fund. ..and leaving the
> > speculating for one's, er, 'mad money'.
>
> I'd say it's a safe investment to park money in the falling dollar as USD has
nowhere
> to go but down. Even the former allies have abandoned USD and more to come
soon.
People who think markets are one-way bets are precisely those who
should not speculate. At its current levels the dollar buys more in
the U.S. than its foreign equivalents do in many other developed
countries. There have been articles in the press about Canadians and
Europeans (especially Brits) coming to the U.S. for bargains, while
American tourists suffer sticker shock in Europe. Hundreds of academic
papers have studied whether "purchasing power parity" (PPP) applies in
the currency markets, and I have read dozens of them. My reading of
the literature is that PPP does apply at long time horizons,
especially when deviations become extreme. At present they have become
large. Thus I forecast that the excess (over U.S. money market funds)
total return of currrencies such as the Euro, Pound, and Canadian
dollar will be negative over an intermediate horizon such as the next
5 years. I well understand that my forecast could be wrong.
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Posted by Will Trice on September 24, 2007, 11:29 am
joetaxpayer wrote:
> FDPIX is the falling dollar fund. I did say not to put it in the bear
> market fund, quoted above, because at least in a post tax account, you
> can sell and take the loss. In a Roth, you've just permanently damaged
> what should be long term savings. Even 'Madman' Jim Cramer talks about
> investing your retirement account conservatively, and leaving the
> speculating for one's, er, 'mad money'.
So what you're really saying is that you believe that any strategy using
a bear merket fund is doomed to failure (i.e. will lose money) and thus
should not be implemented via a Roth IRA? Or are you just saying that
Roth funds should be invested conservatively? If the former, then your
recommendation might better be, "don't invest in a bear market fund."
If the latter, I don't think I agree unless the OP's overall investment
strategy needs to be conservative (or needs some proportion of
conservative investments).
-Will
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Posted by Will Trice on September 24, 2007, 1:02 pm
joetaxpayer wrote:
> I repeat my question - when was the last time you saw (or recommended)
> an asset allocation that included such a fund?
I didn't see you ask this question, but I have never seen nor
recommended an asset allocation with a bear market fund, but then I
don't generally look at, or recommend, asset allocations (at least not
at this level of granularity).
> Would you not agree that,
> long term, such a fund has to offer a negative return?
Usually, depending on implementation. If this is a bear market fund
that shorts the market, yes. If it is a market neutral fund, maybe not.
If it is a fund that invests in companies that theoretically will
perform better in a bear market than the broad market, no.
> Lastly, if not a
> long term strategy, doesn't the purchase of this fund imply market
> timing, which we generally discourage as a group here.
Absolutely, but I think purchasing a falling dollar fund is also an
attempt at market timing, unless you think the dollar will continue its
decline against other currencies indefinitely. Even if you do believe
this, looking at a chart of FDPIX, it appears to have a very low long
term return (something like 1.6%) with considerable volatility. How
does that fit into your asset allocation?
Having sort of gotten lost in the weeds here, I'll go back to my
original point: If we (this group) believe that the OP is investing in a
losing investment, we should tell him so. If we believe the investment
is worthwhile, then a Roth is a perfectly valid place to have it,
depending on the rest of the OP's portfolio, which we know little about.
-Will
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Posted by joetaxpayer on September 24, 2007, 4:30 pm
> I think purchasing a falling dollar fund is also an
> attempt at market timing, unless you think the dollar will continue its
> decline against other currencies indefinitely. Even if you do believe
> this, looking at a chart of FDPIX, it appears to have a very low long
> term return (something like 1.6%) with considerable volatility. How
> does that fit into your asset allocation?
> -Will
I was writing my posts as though this was the equivelent of a money
market fund composed of foreign currencies, a diversified basket. If, in
fact that's what it is (the prospectus doesn't spell out the holdings,
rather stating,"Falling U.S. Dollar ProFund takes positions in financial
instruments that, in combination, should have similar daily return
characteristics as inverse of the US Dollar Index®. Falling U.S. Dollar
ProFund’s assets will have significant exposure to foreign (non-U.S.)
“hard currencies.”) then I'd think it could be part of diversifying same
as overseas stocks. It seems the low return excludes dividends, but the
fund is so new, it's tough to say. Either way, one can be very well
diversified and never need such a product. The foreign currency exposure
within the overseas funds is enough.
To close, if the fund is purely structured to be 100% inverse to the
dollar, I agree it should be avoided.
JOE
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