I was concerned last week when I suggested the first leveraged currency speculation idea in a year and a half. See that suggestion at Borrow dollars to buy Brazilian bonds.
This was the first speculation suggested since my warning sent on August 17, 2007 that said: “Such historical measures are so inexact that we cannot predict just from them what will happen in the short term. The numbers are close enough that we could be entering the fourth sub cycle down (similar to 1976 to 1978). If so expect a sustained drop in markets for two to three years.”
My concern was that Jyske Bank, being conservative, would not agree and I hate it when my thinkng runs counter that of my advisers.
However today Jyske Global Asset Management sent me this note which suggests that their thinking is running along the same lines as mine.
Here are excerpts of their advisory. I emboldened parts of the excerpt for clarity sake.
Dear Advisory client, The market has become more stable with less volatility and the need for the USD as a safe haven currency has receded.
Commentators have begun focusing on fundamentals which are pretty bleak for the USD.
Bank Credit Analyst (BCA) expect the EUR/USD to test 145 and even perhaps 155/165.
Jyske Bank and Morgan Stanley (MS) have a 12 month target of 145.
With a general USD weakening we have divided our currency suggestions into 3 themes.
1. Continued positive trend. Markets keep improving and we begin to see a pick up in activity this will create a demand for commodities and the commodity currencies.
We suggest the following commodity currency plays:
USD/CAD 12 months target according to MS & BCA is 1.10
USD/NOK 12 months target according to Jyske bank is 5.62.
(Our Feb. 2009 lesson DKR Further Study explained why the kroner and Candain dollar are strong currencies)
JGAM’s excerpt continues:
BCA has also a buy recommendation but no defined target
AUD/USD 12 month target according to MS is 0.68 (negative outlook). BCA has a buy recommendation but prefer a lower entry level of 0.71/0.73
2. Hedge against deteriorating markets and increased volatility.
USD/JPY 12 months target according to MS & Jyske Bank is 95. BCA expect the JPY to strengthen to 90 if risk aversion increases.
3. Currency speculations. USD/SEK 12 months target according to Jyske Bank is 6.90 EUR/USD 12 months target according to MS 1.48 Jyske Bank 1.45 and BCA 1.45 but perhaps a test of 1.55/1.65
At our May Investment Committee meeting we decided to shorten the USD against the commodity currencies identified in theme number 1.
All our managed portfolios will thus have exposure to the commodity currencies but with different allocations and currency mix according to the risk profile.
For the last year and a half our goal was to hold on and lose as little as we could mainly with cash and safe bonds tat provided almost no returns.
Global governmental interference in the economic downturn during this time will most likely create inflation and a much weaker US dollar. This means that this hold- for-safety strategy is no longer valid.
Now it is time to start moving out of cash and adding risk in commodities, real estate, equities (especially non US dollar equities) and to develop your own business.
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