# Worried about savings in Euro - should I be?



## RMCF

What with the last week or so and all the Greece debates on the radio, with talk of default, bringing Ireland then the Euro down with it, was wondering about savings I have in Euro's.

Ok, so in a *worst case scenario* and we end up defaulting too, or going back to the punt or whatever, is there a chance that the value of savings could fall sharply? 

I know this is all guessing at present, but might it be safer to convert the Euros into Sterling and lodge in a UK account, or is that not worth it?


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## horusd

I was listening to Peter Brown MD of Irish Institute of Financial Trading , on Pat Kenny yesterday saying the liklihood of the Euro going belly-up was increasing. He mentioned that switching out of the Euro involved considerable risks due to FX fluctuations. 


He also suggested that :


A solution was printing money (tried by the Yanks/Brits and failing/failed; vehemently opposed by the Germans).
Eurobonds. Again likely to be rejected by Germans etc.
Debt forgiveness. ( But the impact of this might be enormous).
Ultimately he suggested that the Germans would be forced into a rescue but the price of that rescue would be effectively German control of national budgets & taxes going forward so this never happens again. Personally, I don't know how politically acceptable this will be.

Reports in the Telegraph suggests UK contingency plans are being put in place if Greece goes bust and the Euro fails. See  here. The more I read about this, the more alarmed I am. I'm really not sure the Euro can survive all this or that savings are safe. Personally I am considering switching more savings into shares.


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## Chris

If Ireland were to leave the Euro and introduce the punt again, then all savings within the state would be converted to the new punt. As the political idea of the whole exercise would be to devalue the currency, any savings would also be devalued.
I agree with horusd, that printing money is not an option and Germany would never support a Eurobond. Debt forgiveness may be a nice way of saying that you "allow" a country to default, but I believe that for Greece and Ireland and possibly Portugal, default is the only option.

I also don't think that German taxpayers will see a benefit in bailing out other countries in return for a say in that countries fiscal policies. The Euro was never a very popular idea in Germany and increasing amounts of people are in favour of leaving it and revert back to the Deutsche Mark. Political pressure could become so large that the German government, regardless of its political leaning, would see its hand forced.

I've recommended a book on the Euro by Phillipp Bagus on other threads, I found it very eye opening to the utter flaws of the Euro: http://mises.org/resources/6045/The-Tragedy-of-the-Euro
I used to be an ardent proponent of the Euro, but that has completely changed now. This has also steered me towards reducing my cash holdings and increasing equity and commodity holdings.


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## Kev

horusd said:


> I was listening to a guy on Pat Kenny yesterday saying the liklihood of the Euro going belly-up was increasing. He mentioned that switching out of the Euro involved considerable risks due to FX fluctuations.
> 
> 
> He also suggested that :
> 
> 
> A solution was printing money (tried by the Yanks/Brits and failing/failed; vehemently opposed by the Germans).
> Eurobonds. Again likely to be rejected by Germans etc.
> Debt forgiveness. ( But the impact of this might be enormous).
> Ultimately he suggested that the Germans would be forced into a rescue but the price of that rescue would be effectively German control of national budgets & taxes going forward so this never happens again. Personally, I don't know how politically acceptable this will be.
> 
> Reports in the Telegraph suggests UK contingency plans are being put in place if Greece goes bust and the Euro fails. See  here. The more I read about this, the more alarmed I am. I'm really not sure the Euro can survive all this or that savings are safe. Personally I am considering switching more savings into shares.



 The biggest losers would be France, Germany and Britain see chart in link below, but I feel that Greece will not default and the president will get a vote of confidences today.  The Euro will be kept for  at least couple of years and then it may change.


  Jack Straw is the opposition and he is just making his voice being heard but he should have done it when he was in power for 13 years he was just like Blair out to line their own pockets. 

http://www.bbc.co.uk/news/business-13798000


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## Brendan Burgess

As Peter Browne pointed out on the Pat Kenny Show, if you had moved your money into US dollars in January, you would have lost around 10% as the euro has appreciated against the dollar since then. 

There is no risk free place for your money, so spread it around.


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## Troy McClure

Just wondering,
If you are self employed and are putting money aside for your tax bill should you be paying it ahead of time to revenue in case anything sudden happens?

secondly, would it not be good exposure to have savings in a strong European Euro bank in a big economy like France or Germany as surely these countries would not have to devalue in event of Euro breakup unlike Ireland ? 

What is a strong Euro bank. The biggest exposure to the Greek debt outside of Greece are German and French banks. 
Someone told me a couple of days ago that BNP Parisbank are strongest. Is there anyway of accessing these Euro banks balance sheets or their level of exposure? Even better is there a report thats already done this?


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## Sunny

Troy McClure said:


> Just wondering,
> If you are self employed and are putting money aside for your tax bill should you be paying it ahead of time to revenue in case anything sudden happens?
> 
> secondly, would it not be good exposure to have savings in a strong European Euro bank in a big economy like France or Germany as surely these countries would not have to devalue in event of Euro breakup unlike Ireland ?
> 
> What is a strong Euro bank. The biggest exposure to the Greek debt outside of Greece are German and French banks.
> Someone told me a couple of days ago that BNP Parisbank are strongest. Is there anyway of accessing these Euro banks balance sheets or their level of exposure? Even better is there a report thats already done this?


 
If the Euro breaks up (and it won't although there will be changes), there won't be any strong European banks. It's not just about exposure to Greece, Ireland and Portugal.


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## Shakespeare

What about Rabobank in the Netherlands - a strong economy, a AAA rated bank in a country where you would think that in the event of a breakup of the euro or similar event that the Dutch currency would be one of the "stronger" currencies ???
I'm planning a trip to open a Dutch euro savings account and would welcome any thoughts on considerations that I may have missed.....


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## farmerette

horusd said:


> I was listening to Peter Brown MD of Irish Institute of Financial Trading , on Pat Kenny yesterday saying the liklihood of the Euro going belly-up was increasing. He mentioned that switching out of the Euro involved considerable risks due to FX fluctuations.
> 
> 
> He also suggested that :
> 
> 
> A solution was printing money (tried by the Yanks/Brits and failing/failed; vehemently opposed by the Germans).
> Eurobonds. Again likely to be rejected by Germans etc.
> Debt forgiveness. ( But the impact of this might be enormous).
> Ultimately he suggested that the Germans would be forced into a rescue but the price of that rescue would be effectively German control of national budgets & taxes going forward so this never happens again. Personally, I don't know how politically acceptable this will be.
> 
> Reports in the Telegraph suggests UK contingency plans are being put in place if Greece goes bust and the Euro fails. See here. The more I read about this, the more alarmed I am. I'm really not sure the Euro can survive all this or that savings are safe. Personally I am considering switching more savings into shares.


 

thier will be a stock market collapse if the euro dies


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## horusd

farmerette said:


> thier will be a stock market collapse if the euro dies


 
Maybe short-term. But I'd rather have my money in owning part of a company than solely owning a risky currency. If the Euro fails, good companies will survive and recover in whatever currency they operate in.


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## maloneysb@ei

I am seriously considering opening a non euro a/c.What are the procedures involved, and has anyone any opinions/advice?


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## Chris

maloneysb@ei said:


> I am seriously considering opening a non euro a/c.What are the procedures involved, and has anyone any opinions/advice?



Long discussion on it here: http://www.askaboutmoney.com/showthread.php?t=147521


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## Duke of Marmalade

There is no way the Euro will collapse. The more this crisis deepens the more the Euro appreciates. Playing tough with Greece (even to the point of default) is good for the Euro as it shows that the ECB/EU are not prepared to print themselves out of this crisis as the US/UK are attempting. 10 year, nay 30 year, German Euro bonds are amongst the lowest yielding assets in the world proving the utter confidence the market has in the currency _per se_.

Will Ireland withdraw from the Euro and what would be the consequences? A different question but it is impossible to see how this could ever be achieved on practical grounds. Before it was even discussed by the powers that be there would have to be an immediate and effective imposition of capital controls agreed with our 26 EU partners without anybody having an inkling that it was coming. Then, maybe, we could spend the next 6 months putting in place the logistics of the move to the new currency (took at least 3 years to introduce the Euro). During these 6 months Euros would be the functional currency, so now we have to, as well as imposing international capital controls, place controls on how much Euros people can take out of their domestic banks and store in suitcases. I repeat that there is simply no way that the apparatus of a new currency could be in place overnight without the dogs in the street having been aware of it for maybe three months. There would simply be no savings left in Ireland to convert to the new punt.

And what possible good would it all do? Most of Ireland's Euro denominated sovereign debt and nearly all the ECB funding of €150Bn would need to be repaid in Euros not punts. Leaving the Euro is not a soft route to default that would not be interpreted in international law as a default, so why not simply default? Meanwhile the punt collapses to 50c and with it our GDP until such times as maybe we get an export driven recovery and don't hold your breath for that as US MNCs take absolute fright at the devlopments. So overnight our debt/GDP ratio more or less doubles.

Ireland might restructure, Ireland might even default with EU agreement, Ireland will *never* unilaterally leave the Euro.

So what about Germany kicking us out of the currency? Conceptually, I'm sure most Germans would love to go back to the D-mark but the above Armageddon would hit Germany as much as the periphery. It is the Germans and the ECB who are owed all these Euros by the periphery, how silly it would be to precipitate a collapse in the earning power of the debtor nations and how silly to trigger a world depression which would make the 1930s look like boom time.

The fact is that the world has never, ever been here before. Comparisons with Argentina just don't stack up. Breaking the peg of the peso with the US dollar is logistical chicken feed compared with withdrawing from a currency union.


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## Jim2007

Duke of Marmalade said:


> The fact is that the world has never, ever been here before. Comparisons with Argentina just don't stack up. Breaking the peg of the peso with the US dollar is logistical chicken feed compared with withdrawing from a currency union.



I fully agree with you, back is not an option... but forward will also bring a lot of changes that no one ever expected.  The future will require much tighter coordination than I expect any of the politicians ever imagined and it is going to take some time and several more bumps along the road before it gets sorted out.  The Germans will eventually have to accept Euro Bonds weather they like it or not and for Ireland it will I expect mean bring the lines of credit into sync with the rest of the zone - so don't expect cheap credit any time soon.

Many of my work colleagues are middle aged Germans and French and one point they always make about the EU, is that whatever else it has at least prevented war in Europe for the past 60 years and this is very deeply engrained in their minds - most have heard stories for their parents about what war means.  So one should keep in mind that unlike us, it is not just about economics for them...

Jim.


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## RMCF

Would there be any sense in maybe moving 75% of my € savings into £ and lodging it in my NI bank account?


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## Marc

Switching to other currencies is a bad idea as The Duke and Brendan point out in an earlier post the Euro has been appreciating recently. 

A euro investor who held Sterling since 1999 would now be distinctly unhappy.

[broken link removed]

We have recently launched a safety first portfolio comprised of four funds invested in highly rated government and corporate bonds from four of the worlds largest fund managers who together manage more than $5 trillion.

[broken link removed]

[broken link removed]


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## Chris

Duke of Marmalade said:


> There is no way the Euro will collapse. The more this crisis deepens the more the Euro appreciates. Playing tough with Greece (even to the point of default) is good for the Euro as it shows that the ECB/EU are not prepared to print themselves out of this crisis as the US/UK are attempting.


I think your interpretation is a little off there. The Euro has weakened every time there was news about the crisis getting worse. Only when there was some sort of intervention that essentially kicked the can down the road did the Euro increase again. And it has only been increasing against other very bad currencies like Sterling and US$ in an ugly contest. Against currencies like the CHF, AUS and especially gold the Euro has been decreasing significantly.
I agree that forcing Greece into default would be very positive for the Euro, but the exact opposite is what is actually happening. It's like an alcoholic sitting at a bar saying "I'm serious bar man, I'm giving up drink tomorrow, and to prove it to you I will not have the whiskey chaser with my pints tonight."
While the ECB may not be printing money at the same level as the BoE or FED, they are still printing money. More importantly they are way ahead of other central banks in qualitative easing. It used to be the case that only investment grade bonds could be deposited with the ECB as collateral for loans. When Greece slipped into junk bond territory their bonds were first temporarily accepted and now Greece's bonds will be accepted no matter how bad their rating becomes. 



Duke of Marmalade said:


> 10 year, nay 30 year, German Euro bonds are amongst the lowest yielding assets in the world proving the utter confidence the market has in the currency _per se_.


The reason people are buying German Euro bonds has not so much to do with confidence in the Euro, but with confidence in the German economy and the fact that if the Euro failed the Deutsche Mark would once again be seen as one of the go to currencies.



Duke of Marmalade said:


> Ireland might restructure, Ireland might even default with EU agreement, Ireland will *never* unilaterally leave the Euro.


I agree with your arguments that led to this conclusion. I think that leaving the Euro would be pretty much impossible at present unless there is a significant default on debt.



Jim2007 said:


> Many of my work colleagues are middle aged Germans and French and one point they always make about the EU, is that whatever else it has at least prevented war in Europe for the past 60 years and this is very deeply engrained in their minds - most have heard stories for their parents about what war means.  So one should keep in mind that unlike us, it is not just about economics for them...


This is true, but remember that the Euro had nothing to do with providing that stability. If anything, you can argue that the EMU has made conflict, at least verbal and political, more likely.
The founders of EU project had specifically in mind to provide an environment in which war in Europe would not occur again. Their ideas were based on something French economist Bastiat said "If goods don’t cross borders, armies will". Thus the idea of free movement of people, goods, services and capital was born, and its success in fostering peace and incredible economic cooperation was immense.


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## Duke of Marmalade

_Chris_,

I think we agree that the Euro is better than the two major alternatives, the dollar and sterling.  The quadrupling of the Gold price over the last decade is frightening and does suggest that there is at least a fear of hyper inflation.  And yet index linked bonds tell us that the market expects very subdued inflation even over the very long term.  All very confusing.

Yes, everytime there is an EZ jitter the Euro sneezes, I guess that is out of fear that there might be come cave in on debt forgiveness by cranking up the printing presses.  Then it recovers as markets see that this is not going to happen, yet.

Hard to disagree with your analogy of the alcoholic, at least so far as Greece is concerned.

Now, those German 30 year Euro Bond yields.  You raise an interesting third option which I hadn't addressed, namely that Germany would unilaterally pull out of the Euro.  Of the three (1. Ireland leaves, 2. Ireland is kicked out, 3 Germany leaves) this one is the least unlikely but it would still be a very risky move by Germany more or less triggering the same consequences as kicking the periphery out of the club.   In any case, it would be a breach of international law to redenominate the currency of their international debt obligations, and why should they if they expected the D-mark to appreciate?  German Euro Bonds will be paid in Euros no matter if there is a new D-mark so I do think the low yields on these is a vote of confidence in the Euro.  When it comes to the elevated Irish Bond yields I think there are two fears, one of default of course, and the other of redenomination into Punt Nua.


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## MaxKolbe

In Nov 2010 I put about 17% of my (fairly modest) savings into gold  (physical bars which I hold). I did this after spending a lot of time  holding out against the advice of others - I felt it had to be a bad  move to buy gold in the teeth of the worst turmoil since WW2. But it  finally dawned on me that holding most of my savings in Euro was not a  default, safe, straightforward decision but that it was actually an  active investment in the strength of the Euro. I'm glad I bought some  gold now.

But I worry about the rest of my savings - mostly in Ulster Bank and  Credit Union. I am inclined to agree that the sterling/dollar  alternatives are not great. One way or another, it seems inevitable that  changes will come for the Euro and Ireland and Irish savers are unlikely to emerge well  out of it.

My question is - would I be safer if I held (at least some of) my Euro savings in  cash (Euro notes)?? Would this at least remove the risk that that portion of my  savings could be changed to a punt nua, etc. I understand it would not  help in the event of a depreciation, but at least, if Ireland leaves or  is kicked out of the Euro, I will still hold these physical Euros which  would be more valuable in my hand than being changed, magically, to punt  nuas in my bank account.


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## legend

hi guys,

i have been told that the canadian dollar might be a safe bet in terms of currencies? any thoughts ?


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## Marc

If you had bought Sterling, Canadian Dollars and Yen in Jan 2001 you  would have lost -3.10%pa in Sterling, -0.84%pa in Yen and only made  0.12%pa in Canadian Dollars against the Euro. The US$ would have lost  3.98%pa over this period against the Euro.

The worst one year return for the Canadian Dollar against the Euro since Jan 1999 was -16.33% for the 12 months ending Jan 2003.

Doesn't look like a safe haven to me.


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## Duke of Marmalade

MaxKolbe said:


> My question is - would I be safer if I held (at least some of) my Euro savings in cash (Euro notes)?? Would this at least remove the risk that that portion of my savings could be changed to a punt nua, etc. I understand it would not help in the event of a depreciation, but at least, if Ireland leaves or is kicked out of the Euro, I will still hold these physical Euros which would be more valuable in my hand than being changed, magically, to punt nuas in my bank account.


The answer to that is yes, clearly holding the notes will protect you against freezes and devaluations of Irish deposits.  But there is of course the opportunity cost of lost interest let's say 2% per annum after tax.  There is also the cost of a safe and I do believe there is a demand for safes at the moment for this very reason.  But, I hope I will have convinced you that the contingency you talk about is very unlikely and even in that very unlikley event you will get lots of warning - far too early to panic IMHO.

As to gold.  It has increased dramatically against not only fiat currencies but against other commodities, goods and services.  It cannot be that the intrinsic human appreciation of gold has so dramatically increased, there is clearly a large insurance premium against economic Armageddon.  I guess nuclear bunkers became very expensive during the Cuban missile crisis but now that the Cold War has ended I suppose you couldn't give away your nuclear bunker these days. In any case what use would your nuclear bunker be if we really had WWIII?  I ask myself the same question about gold should there be a complete economic meltdown.  I would find it very hard to buy gold at these prices.  If the crisis blows over it must surely fall back to more realistic levels and if the economic world does implode will your gold bullion be really that much of a saviour?


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## MaxKolbe

Thanks Duke. And Thanks Marc for putting some figures on currency movements.

On Gold, Duke - I think your argument is correct in the two extreme cases you mention (i.e. a wonderful recovery or a complete and utter meltdown) but isn't it far more likely that we will have a result that is somewhere in the middle, far less clear-cut. Where, I would imagine (hope), gold would retain some of the use it has served for the last few thosand years as a store of value.
I imagine (please correct me if I'm wrong) that holding gold would have been a good idea in Argentina in recent times and know that it was so in 1930's Germany. 
This is a circular argument I think though.....gold is a question of faith really....you either have it or you don't


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## Duke of Marmalade

_MaxKolbe_

We value a brand new top of the range Merc these days the same as we would value a lump of gold the size of a Mars bar.  10 years ago the equivalence would have been 4 gold Mars bars.  That doesn't make sense to me.


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## Chris

Duke of Marmalade said:


> I think we agree that the Euro is better than the two major alternatives, the dollar and sterling.  The quadrupling of the Gold price over the last decade is frightening and does suggest that there is at least a fear of hyper inflation.  And yet index linked bonds tell us that the market expects very subdued inflation even over the very long term.  All very confusing.


Yes indeed, so far the ECB has been a poster child of prudent central banking when compared to the BoE and FED.



Duke of Marmalade said:


> If the crisis blows over it must surely fall back to more realistic levels and if the economic world does implode will your gold bullion be really that much of a saviour?


That's a very big if there. The world has never seen such levels of debt before, I for one, cannot see this crisis blowing over any time soon.



Duke of Marmalade said:


> We value a brand new top of the range Merc these days the same as we would value a lump of gold the size of a Mars bar.  10 years ago the equivalence would have been 4 gold Mars bars.  That doesn't make sense to me.


It makes perfect sense when you take into account that the ECB has increased base money supply by 260% over the same period, while also decreasing reserve requirements.



Marc said:


> If you had bought Sterling, Canadian Dollars and Yen in Jan 2001 you  would have lost -3.10%pa in Sterling, -0.84%pa in Yen and only made  0.12%pa in Canadian Dollars against the Euro. The US$ would have lost  3.98%pa over this period against the Euro.
> 
> The worst one year return for the Canadian Dollar against the Euro since Jan 1999 was -16.33% for the 12 months ending Jan 2003.
> 
> Doesn't look like a safe haven to me.


You are very conveniently cherry picking data there. You could just as well point out the following approximate fx rates (I don't have a charting tool at hand right now):
EURCHF: 1999: 158 current: 120 
EURCAD: 1999: 170 current: 140
EURJPY: 1999: 130 current: 114

You are right though to point out that currencies are volatile, and some people will simply not be able to handle that kind of volatility. But you cannot conclude that this doesn't make foreign currencies a safe haven.


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## farmerette

Chris said:


> I think your interpretation is a little off there. The Euro has weakened every time there was news about the crisis getting worse. Only when there was some sort of intervention that essentially kicked the can down the road did the Euro increase again. And it has only been increasing against other very bad currencies like Sterling and US$ in an ugly contest. Against currencies like the CHF, AUS and especially gold the Euro has been decreasing significantly.
> I agree that forcing Greece into default would be very positive for the Euro, but the exact opposite is what is actually happening. It's like an alcoholic sitting at a bar saying "I'm serious bar man, I'm giving up drink tomorrow, and to prove it to you I will not have the whiskey chaser with my pints tonight."
> While the ECB may not be printing money at the same level as the BoE or FED, they are still printing money. More importantly they are way ahead of other central banks in qualitative easing. It used to be the case that only investment grade bonds could be deposited with the ECB as collateral for loans. When Greece slipped into junk bond territory their bonds were first temporarily accepted and now Greece's bonds will be accepted no matter how bad their rating becomes.
> 
> 
> The reason people are buying German Euro bonds has not so much to do with confidence in the Euro, but with confidence in the German economy and the fact that if the Euro failed the Deutsche Mark would once again be seen as one of the go to currencies.
> 
> 
> I agree with your arguments that led to this conclusion. I think that leaving the Euro would be pretty much impossible at present unless there is a significant default on debt.
> 
> 
> This is true, but remember that the Euro had nothing to do with providing that stability. If anything, you can argue that the EMU has made conflict, at least verbal and political, more likely.
> The founders of EU project had specifically in mind to provide an environment in which war in Europe would not occur again. Their ideas were based on something French economist Bastiat said "If goods don’t cross borders, armies will". Thus the idea of free movement of people, goods, services and capital was born, and its success in fostering peace and incredible economic cooperation was immense.


 

despite the greek drama , the euro weakened ever so slightly towards the end of last week but is back at 89 pence sterling and 1.44 U.S dollars today


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## farmerette

legend said:


> hi guys,
> 
> i have been told that the canadian dollar might be a safe bet in terms of currencies? any thoughts ?


 
the canadian dollar more or less tracks the american dollar and has performed poorly against the euro this past year despite all the panic about the single currency , the swiss franc is the best bet , its about the only currency which has strengthened against the euro this year


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## Duke of Marmalade

Chris said:


> It makes perfect sense when you take into account that the ECB has increased base money supply by 260% over the same period, while also decreasing reserve requirements.


I was taking money out of the equation. A new Merc today is probably a more enjoyable experience than it was 10 years ago and yet it is now valued at one quarter of the amount of gold it would have fetched a decade ago. Go figure


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## dec1892

Marc said:


> Switching to other currencies is a bad idea as The Duke and Brendan point out in an earlier post the Euro has been appreciating recently.
> 
> A euro investor who held Sterling since 1999 would now be distinctly unhappy.
> 
> [broken link removed]
> 
> We have recently launched a safety first portfolio comprised of four funds invested in highly rated government and corporate bonds from four of the worlds largest fund managers who together manage more than $5 trillion.
> 
> [broken link removed]


 

Marc,

The following appeared in the link you attached: "The instruments purchased by the Fund will be denominated in Euros and mature in two years or less from the date of settlement." - so what happens if the euro collapses and is no more? How does the portfolio offer protection against such a scenario?


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## Chris

Duke of Marmalade said:


> I was taking money out of the equation. A new Merc today is probably a more enjoyable experience than it was 10 years ago and yet it is now valued at one quarter of the amount of gold it would have fetched a decade ago. Go figure



But is that not like trying to solve the problem of flight while ignoring gravity?
Inflation works in very unpredictable ways. When the fiat money supply is inflated this affects different goods in different ways and not to the same extent and at the same time. Producer and commodity prices (higher order goods) are affected first and only later are consumer prices affected.

Compared to fiat currencies the gold market is tiny so any small increase in demand has a big impact on the price. Cars on the other hand are pretty ubiquitous with their manufacturers in huge competition.

Give it a couple of years to observe the effects of recent inflationary policies to slowly move down the order of goods. The world's biggest retailer Walmart has already said that prices for food and clothing are going to go significantly up this year. It will be only a matter of time for this to happen all along high street.

NB: I'm not anticipating hyperinflation but price inflation in the high single to high teen figures is very likely in the years to come.


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## Duke of Marmalade

_Chris_,

I can see that there can be different paces of transmission of the price level for different commodites.  All the same, it seems to me that right now either new Mercs are "too" cheap or Gold is "too" dear.

To me the value of Gold is made up of two items:

1) Its intrinsic or utility value.  Every one likes the look and feel of gold and its chemical nobility makes it jolly good for dental work.

2) It retains these intrinsic values more or less indefinitely and so it has an almost unique store of value aspect.

Now, I suggest that the intrinsic value relative to new Mercs has not  changed much in the last 10 years maybe even declined as new Mercs get better and better.

So the quadrupling of its price relative to Mercs is due to a huge increase in its attractiveness as a store of value.  What has happened is that the supply and attraction of alternative stores of value has hugely decreased.  No one trusts any currency.  Property, the traditional store of value for many folk, has been completely discredited and the same goes for shares.  Where else can you "safely" store value but in precious metals or maybe oil paintings.

Some day, not immediately obvious today, property, shares and even currency will regain a confidence level as a store of value and surely then the supply and demand dynamics will unwind the relative dearness of gold which we currently observe.


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## Marc

How does this portfolio protect against problems with the euro?

This is a pertinent question. 

I did a quick calculation based on the most recent holdings in the funds.
Rough country weights excluding the vanguard fund

USA 14.2
Supranational 11.67
France 19.58
Canada 9.3
Netherlands 7.7
UK 15.77
Germany 8.5
Norway 2.96
Japan 2.87
Australia 2.69
Italy 3.65
Other 1.14

Supranational is organisations like European Investment bank

This would seem to me to be a fairly good hedge against problems in the euro.


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## rob67

Marc,  The expected return of the Safety First Portfolio is 0.5%. Is this  after the costs, 1% portfolio implementation, .204% management, .85% advisory and 0.05% custodian? If not, is it the case that someone who might consider investing for a year or less because of the present uncertainty can expect to pay 1.604%?


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## Godfather

The Euro will die and we'll go back to local currencies... Just bet into currencies of AAA rated countries in my opinion and you would play in the safest way...


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## Marc

The expected return on the bond portfolio is approx. 3.5%pa currently. This is 1% above comparable credit rated bank deposits AFTER annual fees. This isnt guaranteed but is a reasonable and conservative assumption based on 110 years of bond Market data.

The actual return of the portfolio after annual costs over the last 12 months was indeed 3.5% in line with expectation.

The expected return after annual costs is therefore approximately the same as the highest paying demand accounts but with considerably less default risk (AA+ compared to BBB+)

However our portfolios are not intended for short term investors and our fund managers actively discourage short term "hot money". Investors should not have a time horizon of one year or less.


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## Marc

Godfather 

The post at the top of this page reads 


If you had bought Sterling, Canadian Dollars and Yen in Jan 2001 you would have lost -3.10%pa in Sterling, -0.84%pa in Yen and only made 0.12%pa in Canadian Dollars against the Euro. The US$ would have lost 3.98%pa over this period against the Euro.

The worst one year return for the Canadian Dollar against the Euro since Jan 1999 was -16.33% for the 12 months ending Jan 2003.

How do you reconcile your certainty about the  collapse of the euro with the Market participants who a bidding UP the value of the Euro.

What do you know that everyone else clearly doesn't know to lead you to such a conclusion?


----------



## Duke of Marmalade

Godfather said:


> The Euro will die and we'll go back to local currencies... Just bet into currencies of AAA rated countries in my opinion and you would play in the safest way...


Like Germany...


----------



## Marc

Regarding the comments about gold and cars.

I did some research into this to test the hypothesis that gold maintains it's purchasing power over the long term. 

In the 1920s a model T ford cost $290 or about 14 ounces of gold at the then fixed price of $20.67 per ounce. Source Ford Motor company/London Bullion Market Association.

Fast forward to 2010 and the best selling car in america according to AOL Autos was the Ford F 150 pick up truck which has a manufacturers recommended selling price of $22,415 or at the then ruling gold price of $1520 around 14 ounces of gold.

So we may not be able to explain why this is the case but it certainly seems that gold has maintained it's purchasing power historically. What we can't infer from this is that it is guaranteed to do so in the future.


----------



## Godfather

Marc said:


> Godfather
> 
> The post at the top of this page reads
> 
> 
> If you had bought Sterling, Canadian Dollars and Yen in Jan 2001 you would have lost -3.10%pa in Sterling, -0.84%pa in Yen and only made 0.12%pa in Canadian Dollars against the Euro. The US$ would have lost 3.98%pa over this period against the Euro.



In 10 years? Can we see what happened on a yearly basis? The AUD lost 40% agaist the Euro in a matter of weeks and now it's at a very high against Euro... 



Marc said:


> The worst one year return for the Canadian Dollar against the Euro since Jan 1999 was -16.33% for the 12 months ending Jan 2003.



Exactly, good old early 2000s when Greece was masking cooking the books, when rating agencies were giving a AAA to Lehman Bros etc



Marc said:


> How do you reconcile your certainty about the  collapse of the euro with the Market participants who a bidding UP the value of the Euro.



Hi Marc, call it just an opinion pls but since I was at university my teachers were warning us about the Europe of many different speeds. And of the fact that a currency without sense of nation and harmonized tax system cannot exist, should not exist. Because devaluation of a currency is a fantastic method of getting rid of some of the internal issues...



Marc said:


> What do you know that everyone else clearly doesn't know to lead you to such a conclusion?



Sorry Marc, again just an opinion. I don't have any chrystal sphere and if I sounded rude in my previous post I am sorry then.



Duke of Marmalade said:


> Like Germany...



No, I didn't write that. And if Germany will lose their AAA rating one day I'll move part of my savings somewhere else if you are referring to another post of mine.

The rating agencies have enormous power in a world dominated by anxiety... I hope you agree on that...


----------



## Duke of Marmalade

Godfather said:


> No, I didn't write that. And if Germany will lose their AAA rating one day I'll move part of my savings somewhere else if you are referring to another post of mine.


You recommended to "bet into" the currency of a AAA rated country. Germany, France, Luxembourg, Netherlands and Finland are all AAA rated. Their currency? The Euro.


----------



## Godfather

Duke of Marmalade said:


> You recommended to "bet into" the currency of a AAA rated country. Germany, France, Luxembourg, Netherlands and Finland are all AAA rated. Their currency? The Euro.



Exactly, but not on one unique country... I would propose a proportion with the formula of GDP in weight of the AAA countries to spread the savings wisely... I wish I could do it but I can't fly so much to open accounts...

In my opinion as soon as we go the parity of currencies in Europe the AAA rated countries will gain versus other countries like Greece, Italy, Ireland, Portugal. Again just an opinion....


----------



## Chris

Marc said:


> Godfather
> 
> The post at the top of this page reads
> 
> 
> If you had bought Sterling, Canadian Dollars and Yen in Jan 2001 you would have lost -3.10%pa in Sterling, -0.84%pa in Yen and only made 0.12%pa in Canadian Dollars against the Euro. The US$ would have lost 3.98%pa over this period against the Euro.
> 
> The worst one year return for the Canadian Dollar against the Euro since Jan 1999 was -16.33% for the 12 months ending Jan 2003.
> 
> How do you reconcile your certainty about the  collapse of the euro with the Market participants who a bidding UP the value of the Euro.
> 
> What do you know that everyone else clearly doesn't know to lead you to such a conclusion?



Hi Marc,
I replied to that post before (http://www.askaboutmoney.com/showpost.php?p=1178022&postcount=25). You are basically cherry picking a time to achieve results that suits your argument. Just go 2 years earlier, which coincides with the actual introduction of the Euro, and the entire picture changes:
EURCHF: 1999: 158 current: 120
EURCAD: 1999: 170 current: 140
EURJPY: 1999: 130 current: 114


----------



## Marc

Chris,

I am not making the point that some currencies won't beat the Euro over some period of course some will win and some will lose.

I am making the point that "investing" in currencies is a bad idea per se.

They are not a safe haven since they are volatile and the relative performance of any currency against any other currency is just a random walk.

You don't know in advance if a currency is going to win/lose/or draw against the Euro and presenting data that shows the Swiss Franc has increased by 2.26%pa against the Euro is just as misleading as saying that the British pound has lost 1.66%pa between Jan 1999 and May 2011 against the Euro.

What we want to know is what are currencies going to do in the future? Of course nobody can answer that so all we can really say is that over a reasonable period of time (ie since Jan 1999) currencies have shown good and bad performance against the Euro but for a conservative investor worried about their savings betting on currencies is a very bad idea. 

I have frequently read comments on AAM and in the press suggesting currencies as a good way to protect against the Euro and a safe haven. This is extremely poor and should be addressed in a way which highlights the downside as well as the upside.

In my post I simply highlight the fact that despite all the talking heads claiming the safe haven status of this or that currency, investors could have lost considerably.

Lowest one year returns (Jan 1999 to May 2011) vs Euro
Aussie Dollar -18.52%
Sterling -23.86%
Canadian Dollar -16.33%
Swiss Franc -7.38%
US$ -20.56%


----------



## Godfather

Hi Marc,

my opinion: key factors as we don't have a christal sphere:
- diversification: a bit of gold, a bit of strong currencies etc
- the fact that S&P, Moody & Co. have incredible power in influencing decisions: for example AAA countries give a bit more reliability than junk-rated countries
- and in my opinion pls let's not look too much at the past to influence future decisions... Otherwise we would all win in the stock exchange...

All the best


----------



## Chris

Marc said:


> I am not making the point that some currencies won't beat the Euro over some period of course some will win and some will lose.
> 
> I am making the point that "investing" in currencies is a bad idea per se.
> 
> They are not a safe haven since they are volatile and the relative performance of any currency against any other currency is just a random walk.


But you selectively chose currencies and the period to show a negative return and used this to argue that investing in currencies is a bad idea. Now I don't disagree that currencies are not for everyone, especially given their volatility, but that doesn't mean they should be dismissed as a bad investment.




Marc said:


> You don't know in advance if a currency is going to win/lose/or draw against the Euro and presenting data that shows the Swiss Franc has increased by 2.26%pa against the Euro is just as misleading as saying that the British pound has lost 1.66%pa between Jan 1999 and May 2011 against the Euro.


Yes it is misleading, which is why I posted a different time frame for different currencies to make exactly that point. However, when you look at the central banks' behaviour of currencies that have gained vs. lost against the Euro you very quickly see that the strong currencies are less inflationary, and also have economies behind them that are less indebted and more productive. It is not random noise. Now of course it could all change, but I have more faith in the SNB to curtail monetary inflation than I do in the BoE or ECB.



Marc said:


> In my post I simply highlight the fact that despite all the talking heads claiming the safe haven status of this or that currency, investors could have lost considerably.
> 
> Lowest one year returns (Jan 1999 to May 2011) vs Euro
> Aussie Dollar -18.52%
> Sterling -23.86%
> Canadian Dollar -16.33%
> Swiss Franc -7.38%
> US$ -20.56%


For someone that has repeatedly referenced a policy of long term investment this is a very surprising post. All this post does is highlight volatility. If people had lost out in these instances then they would not have been investors but traders. Investors in strong currencies (low monetary inflation, low level of debt, highly productive export economy) like AUD, CAD and CHF would still have been good investments despite significant volatility.


----------



## Marc

Chris, 

I am highlighting the volatility since this is all you have from a currency. They are not an investment. An investment has a positive expected return.

I have put some more data on this subject on my website. 

[broken link removed]

In a sample of 20 currencies against the Euro from Jan 1999 to May 2011 the best performing was the Malaysian Ringgit!. How many of us predicted that back in 1999?

Again, I repeat. There will be some currencies that will win relative to other currencies. But the challenge here from an investor's point of view is attempting to identify which will be the winning currency in the future. In an efficient market, all of the examples you put forward (low inflation, low debt etc) are known in the market. This is not inside information that offers you a free investing lunch.  
[FONT=&quot]
[/FONT]*Do fiscal deficits lead to currency depreciation?
*No. It is commonly believed that large fiscal deficits and high   debt cause a currency to depreciate as the government borrows more from   foreign sources, and investors who are concerned about inflation and   default risk flee the currency. Although recent developments in the US   would seem to support this relationship, there is less convincing   long-term evidence that deficits affect currency rates. During the 1970s   and 1980s, the dollar strengthened while the government increased   deficit spending. This observation is consistent with academic studies   concluding that exchange rates appear to move randomly, and there are  no  models to date that can reliably forecast currency returns.

*Do higher deficits hamper economic growth?*
 It depends on a country’s debt level. Using World Bank data from 1991   to 2008, we compared current deficits to future GDP growth in   sixty-seven countries and found an increasing interactive effect between   deficits, debt, and economic growth. High-debt countries that run   deficits are more likely to experience lower economic growth over the   next three years. But numerous forces may affect a country’s economic   direction, and deficits explain only a small fraction of the variation   in future GDP growth. The combination of high debt and deficits can   create headwinds for economic expansion, but slower growth is not   guaranteed. 

You can't infer that a low debt, low inflation country will lead to a good investment from a currency perspective simply because the currency follows a random walk based on FUTURE news events which by definition are not predictable.

What the data shows is that you are exposed to additional volatility from currency risk, and that you are rarely rewarded for this additional risk compared to an investment in short-term money market accounts.

Investing in currencies carries risk, investors are not rewarded for this risk, since they can diversify it away (or hedge it with a forward contract).


----------



## Duke of Marmalade

_Marc_, I'm with you all the way. 

Though I do know a professional currency trader who is adamant that there are arbitrages out there due to some players simply not being too concerned about small variations. I think the example is some Airline needs 500M dollars to buy an airplane, they don't really care if they miss 10bps. 

I remain skeptical, but in any event for the retail investor there is no way that there is a good choice of currency (other than the one their expenses and liabilities are denominated in) and anyone who recommends people to go into this or that currency is a spoof merchant.


----------



## Chris

Marc said:


> Again, I repeat. There will be some currencies that will win relative to other currencies. But the challenge here from an investor's point of view is attempting to identify which will be the winning currency in the future. In an efficient market, all of the examples you put forward (low inflation, low debt etc) are known in the market. This is not inside information that offers you a free investing lunch.



Well, we do disagree on the efficient market hypothesis, which would explain a large part of our disagreement on the topic of currencies, and I don't think there is anything gainful to this thread from discussing it further. But I do believe that fundamental investment analysis can be applied to currencies, just as it can be to equities.


----------



## Marc

Chris 

You are correct in the sense that fundamental analysis can be applied to currencies the key though surely is can an average retail investor profit from it?

Many people will be aware of the concept of the carry trade which seems to quarrel with the concept of market efficiency in currency markets. But the reality of this is like NassimTaleb describes options trading; "you eat like chickens and go to the bathroom like elephants".

I don't believe that the "average" retail investor has a sophisticated enough algorithm, and/or the trading capacity, and/or the volumes to obtain sufficiently competitive trades in order to profit from any arbitrage opportunies in the FX market.

A recent article in the Wall Street Journal lends some weight to this view.

Not only are would-be currency speculators playing against a "stronger opponent", they are playing at a disadvantage.

The brokers on whom individuals rely to conduct their foreign exchange trades typically trade against them. Unlike stock trades, there is no requirement of “best execution” on currency trades. Typically, a retail foreign-exchange dealer is usually on the other side of the trade and this same party quotes the price. Although the conflict of interest is disclosed in the contract signed by individual currency traders (who now account for about $315 billion of daily trading volume), the overwhelming majority of them are simply not aware of it. One typical disclosure cited in the article reads as follows:

*"Your dealer is your trading partner, which is a direct conflict of interest. The dealer may offer any price it wishes, may show different prices to different customers, and the prices shown might not reflect prices available elsewhere."
*
So, the foreign exchange market may be inefficient, if one means that it is inefficient for you to attempt to profitably trade in it!

This is a good paper on the subject by Pasquale Della Corte * Lucio Sarno * Ilias Tsiakas 18 January 2008 

The forward premium, the difference between the forward exchange rate and the spot exchange rate, contains economically valuable information about the future of exchange rates. Here is the evidence that it can help predict short-run rates and that investors who ignore it and use random walk models may be leaving money on the table.

Exchange rates are important to innumerable economic activities. Tourists care about the value of their home currency abroad. Investors care about the effect of exchange rate fluctuations on their international portfolios. Central banks care about the value of their international reserves and open positions in foreign currency as well as about the impact of exchange rate fluctuations on their inflation objectives. Governments care about the prices of exports and imports and the domestic currency value of debt payments. Markets care both directly - the market for foreign exchange is by far the largest market in the world – and indirectly, since exchange-rate shifts can affect all sorts of other asset prices.

No surprise then that forecasting exchange rates has long been at the top of the research agenda in international finance. Still, most of this literature is characterised by empirical failure. Starting with the seminal contribution of Meese and Rogoff (1983), a vast body of empirical research finds that models which are based on economic fundamentals cannot outperform a naive random walk model (i.e. the exchange rate is, at any moment of time, as likely to rise as it is to fall). Therefore, the prevailing view in the international finance profession – shared in academic and policy circles as well as in a large fraction of the practitioner community – is that exchange rates are not predictable, especially at short horizons. In academic jargon, exchange rates are thought to follow a random walk.
*
A Random Walk?*
At first glance, the random walk model makes a lot of sense. The person on the street knows that movements in exchange rates are often hard to explain and is reluctant to believe that fundamental forces are at play. Exchange rates often swing wildly on a daily basis for reasons that apparently have little connection to economic and financial variables. Even worse, they often move in the opposite direction of differences in short-term interest rates across countries. Despite its simplicity, therefore, the random walk model remains appealing because it leads to smaller forecasting errors than most other exchange rate models.

*The horse race*
This conclusion is based on a ‘horse race’ between the random walk and theory-based predictions. In this race, the random walk always wins. Our recent research argues that this is not the end of the story, but explaining our point requires something of a detour – an explanation of the ‘horse’ that classic exchange rate theory says should be winning the race every time.
The cornerstone condition for efficiency in the foreign exchange market is ‘uncovered interest parity’, i.e. the exchange rate jumps to the point where risk-neutral investors are indifferent between holding any two currencies. As a matter of accounting, the difference between the rates of return on the two currencies is the interest rate gap plus the expected appreciation; if the 12-month dollar interest rate is 5% while the 12-month yen interest rate is 1%, then, according to the theory, markets must expect the yen to appreciate 4%. If this isn’t true, why would investors hold yen?

As logical as this seems, the relationship does not hold in the data, as the famous “Fama regression” (Fama, 1984) showed. One relationship that does hold in the data is the so-called covered interest parity, which states that the interest rate gap equals the premium on forward contracts. That is to say, if the dollar-yen interest rate gap is 4% as in the example, the forward contract for dollar-yen will imply a 4% premium over today’s exchange rate for yen. Indeed, that is basically how banks set forward rates. The Fama regressions put together the uncovered and covered interest parities to check whether the actual exchange rate follows the forward premium. In the example, the question would be whether the actual appreciation of the yen over the next 12 months was 4% (plus or minus some white noise randomness due to unforeseeable events). Decades of research on masses of data by dozens of scholars show that the actual appreciation does not follow the forward rate. Indeed, it is the currency with the high interest rate that tends to appreciate, not the one with the low interest rate.1

This is stylised fact that is so well known that it has a name, the “forward bias puzzle,” namely high-interest currencies tend to appreciate when uncovered parity predicts depreciation. While troublesome for economic theory, this puzzling behaviour may be valuable to investors.2
As mentioned, the horse race between pure randomness and uncovered interest parity always goes to randomness. But what happens if we let a new horse enter the race? What happens if we assume that investors ignore the pure theory and instead work off the empirical fact, i.e. the forward bias?

*Valuable Predictions*
In recent research, we examine whether exchange rate predictability could translate into economic gains for investors using an asset allocation strategy that exploits this predictability (Della Corte, Sarno and Tsiakas, 2007). In particular, we assess the economic value of the predictive ability of empirical exchange rate models that condition on the forward premium in the context of dynamic asset allocation strategies.3
We focus on predicting short-horizon exchange rate returns when conditioning on the lagged forward premium. But statistical evidence of exchange rate predictability in itself does not guarantee that an investor can profit by exploiting this predictability. We therefore evaluate the impact of predictable changes in the conditional FX returns and volatility on the performance of dynamic allocation strategies. Ultimately, we measure how much a risk-averse investor is willing to pay for switching from a dynamic portfolio strategy based on the random walk model to one which conditions on monetary fundamentals, the forward premium or a broader set of variables, including the money supply and income differentials across countries.

Our work suggests that these exchange rate predictions are valuable. There is strong economic evidence against the naïve random walk benchmark with constant variance innovations. In particular, the predictive ability of forward exchange rate premia has substantial economic value in a dynamic allocation strategy. In addition, conditioning on a forecast of future volatility given current information, rather than assuming that volatility in the foreign exchange market is constant, further enhances the predictability of exchange rates and increases risk-adjusted profits.

*Conclusions*
There’s money to be made in the world’s biggest market. Our evidence suggests that investors using sophisticated models could make informative exchange rate predictions and considerably outperform the random walk benchmark. Those trading currencies may find it worthwhile investing in a model using the forward premium and dynamic volatility. Policy makers can also find some comfort in these results since predictability in the exchange rate would allow them to better gauge the value of their international reserves, their debt positions, and their competitiveness in international goods markets.

References
Della Corte, P., L. Sarno, and I. Tsiakas (2007). “An Economic Evaluation of Empirical Exchange Rate Models,” CEPR Discussion Paper 6598. [broken link removed] Forthcoming in Review of Financial Studies.
Fama, E.F. (1984) “Forward and Spot Exchange Rates,” Journal of Monetary Economics 14, 319-338.
Meese, R.A., and K. Rogoff (1983). “Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?” Journal of International Economics 14, 3-24.

Footnotes
1 More technically, the future k-period change in the exchange rate is regressed on the current k-period forward premium. If the market is efficient, the intercept of this regression should be zero, the slope (beta) in this regression should be 1, so that the forward premium today is an optimal predictor of the future exchange rate change. Also, the error term should be white noise, i.e. uncorrelated with information available today or in the past.
2 This fact is what drives much of the so-called carry trade where funds borrow in low-interest rate currencies to invest in higher-return assets in other currencies. Due to the forward premium puzzle, they can, on average, buy enough of the original currency to pay off the loan and still pocket a bundle.
3 This means a portfolio whose shares shift according to current information, especially the forward rate


----------



## Newera

Hey guys,

This is my first post here. After reading this and other threads on forums I must admit that I am very concerned about the euro collapsing or Ireland getting kicked out and to me, it seems wise to transfer any savings out of Ireland and into a more stable bank and currency.

On speaking with a friend of mine, a Maltese bank called Sparkasse was mentioned. I dont know why Malta or this bank but its supposed to be the 10th most stable bank in the world? Does anyone have any thoughts on why I'd need to go to a Maltese Bank and are there better options?

I was thinking of transferring most of my savings to this bank and into Canadian Dollars. I'm not an economist and would be grateful for anyones opinion on: 

(a) this bank, 
(b) Malta, 
(c) canadian dollars 
(d) whether I need purely a canadian dollar account or both a canadian dollar and euro account (if this is even possible or desirable) 
(e) how to keep things above board with regard to DIRT payments etc and finally 
(f) the best way to get the most out of my conversion into canadian dollars from euro e.g. convert to sterling first.

Thanks very much folks,

Newera.


----------



## Chris

Newera,
best advice for you is do not put all your eggs in one basket. Moving money abroad is a good move, but I don't know anything about Malata. Getting some CAD is a good move, but also look at other currencies in order to diversify.


----------



## Marc

Newera,

*Do fiscal deficits lead to currency depreciation?
*No. It is commonly believed that large fiscal deficits and high    debt cause a currency to depreciate as the government borrows more from    foreign sources, and investors who are concerned about inflation and    default risk flee the currency. Although recent developments in the US    would seem to support this relationship, there is less convincing    long-term evidence that deficits affect currency rates. During the 1970s    and 1980s, the dollar strengthened while the government increased    deficit spending. This observation is consistent with academic studies    concluding that exchange rates appear to move randomly, and there are   no  models to date that can reliably forecast currency returns.

You can't infer that a low debt, low inflation country like Canada will lead to a  good investment from a currency perspective simply because the currency  follows a random walk based on FUTURE news events which by definition  are not predictable.

However, what the data clearly shows is that you are exposed to additional volatility  from currency risk, and that you are rarely rewarded for this additional  risk compared to an investment in short-term € money market accounts.

Investing in a Globally diversified portfolio of stocks, bonds etc across many countries does make sense. But trying to pick a foreign currency/foreign bank account because you are worried about the Euro is a bad strategy.


----------



## Newera

Thanks very much for the replies folks. I dont know enough about stocks and shares to invest wisely and have seen many people lose everything in stocks and shares. 

My primary objective is to protect my principal savings rather than risking it further in an investment portfolio. I have nowhere to put bars of gold and dont want to increase the chances of having my home burgled.

I understand that putting all my eggs in one basket doesnt sound like a good idea, however, of all the currencies, it would appear that the Canadian Dollar has been the soundest over the past number of years. boring from an investment perspective but good for someone who wants some bit of stability in a chaotic economy.

I would incur additional charges on my account for each currency I hold .... approx €40 per annum per currency for starters, plus transaction fees. I'm just a bit boggled at the moment and feel that for every currency that I would invest in other than the Canadian Dollar, I introduce another variable and a greater chance of being burnt.


----------



## farmerette

Newera said:


> Hey guys,
> 
> This is my first post here. After reading this and other threads on forums I must admit that I am very concerned about the euro collapsing or Ireland getting kicked out and to me, it seems wise to transfer any savings out of Ireland and into a more stable bank and currency.
> 
> On speaking with a friend of mine, a Maltese bank called Sparkasse was mentioned. I dont know why Malta or this bank but its supposed to be the 10th most stable bank in the world? Does anyone have any thoughts on why I'd need to go to a Maltese Bank and are there better options?
> 
> I was thinking of transferring most of my savings to this bank and into Canadian Dollars. I'm not an economist and would be grateful for anyones opinion on:
> 
> (a) this bank,
> (b) Malta,
> (c) canadian dollars
> (d) whether I need purely a canadian dollar account or both a canadian dollar and euro account (if this is even possible or desirable)
> (e) how to keep things above board with regard to DIRT payments etc and finally
> (f) the best way to get the most out of my conversion into canadian dollars from euro e.g. convert to sterling first.
> 
> Thanks very much folks,
> 
> Newera.


 
i put 30 k in canadian dollars back in march , one euro bought 1 . 36 canadian dollars at the time , today , the euro ( depsite all the turmoil ) will buy you 1 . 40 canadian dollars or thereabouts , obviously i chose a bad time to buy but the fact of the matter is , the canadian dollar tends to track the american dollar and the american dollar is in permanent negative territory for the past number of years , swiss franc all the way if you have currency concerns , its bomb proof


----------



## monagt

What is Sterling is so weak? I know the UK is in trouble fiscally but does it warrant a drop from 1.4 to 1.06? Now at 1.11 against a Euro in trouble?


----------



## Newera

farmerette said:


> i put 30 k in canadian dollars back in march , one euro bought 1 . 36 canadian dollars at the time , today , the euro ( depsite all the turmoil ) will buy you 1 . 40 canadian dollars or thereabouts , obviously i chose a bad time to buy but the fact of the matter is , the canadian dollar tends to track the american dollar and the american dollar is in permanent negative territory for the past number of years , swiss franc all the way if you have currency concerns , its bomb proof


 
Hi farmerette,

The difference in the exchange rate for Canadian Dollars between now and the time you bought, amounts to a nice bit of money. In relative terms its not that much of a fluctuation in exchange rates. However, if Ireland reverted back to the punt and you hadn't safeguarded your savings by converting to a currency such as the Canadian Dollar, your euros could potentially be worth between half and a fifth of their present value if you are to believe what some people are suggesting. 

Newera


----------



## dec1892

I have the same type of worries as Newera, in that my euro savings will be decimated if the euro collapses. 

At the moment I have euro a/c opened in the UK, but I have yet to transfer my euros from AIB to the UK bank (Barclays in the UK).......was going to, but over the last 2 weeks the euro situation has worsened and I'm now considering converting my euros to a basket of 'stronger currencies' - probably into CAD, AUD, CHF and GBP.....my thinking on this is that if I diversified across a number of currencies, the probability of seeing my savings decrease in one currency might be offset with an increase in another currency....so the net affect would cancel out

The other options I was considering was:
1. investing into a diversified fund portfolio (something similar to what Marc outlined with Goldcore earlier in this thread)

2. paying down my mortgage outstanding with my savings.......this would thereby relieve my worries about my savings being hammered as would put them to use by reducing my mortgage. Would this be such a bad option to take??

All opinions welcomed from the AAM folk on here.....


----------



## andycole

swiss franc all the way if you have currency concerns , its bomb proof......

i thought the thinking was that the swiss franc was about 30% overvalued; mainly due to the large influx of money?

is it really bomb proof - even now?


----------



## Duke of Marmalade

Marc said:
			
		

> This is stylised fact that is so well known that it has a name, the “forward bias puzzle,” namely high-interest currencies tend to appreciate when uncovered parity predicts depreciation.


Interesting stuff. However, I would like to know exactly what statistics we are investigating here. Over the long term the following observations seem incontrovertible: Latin American currencies are both high interest and high depreciation, Swiss Francs are low interest and high appreciation, similarly the Yen. Before the Euro, the D-marc, Irish Punt, French Franc, Sterling etc. all seemed to behave as expected i.e. that generally the higher the interest rate the more long term depreciatory was the currency. So the "forward bias puzzle" does not seem to exhibit itself on long term trends.

Maybe the short term is very different. Take Euro/Sterling. For quite a while now the short interest rate on Euro has been higher than on Sterling which means at any point in this phase the markets in equilibrium must be bidding up the Euro to the point where they expect Sterling to appreciate against it, thus cancelling out the interest rate differential. Yet the opposite has happened. Of course it is impossible to make any conclusions out of this as the situation is overwhelmed by the broader EZ crisis.


----------



## Newera

dec1892 said:


> I have the same type of worries as Newera, in that my euro savings will be decimated if the euro collapses.
> 
> At the moment I have euro a/c opened in the UK, but I have yet to transfer my euros from AIB to the UK bank (Barclays in the UK).......was going to, but over the last 2 weeks the euro situation has worsened and I'm now considering converting my euros to a basket of 'stronger currencies' - probably into CAD, AUD, CHF and GBP.....my thinking on this is that if I diversified across a number of currencies, the probability of seeing my savings decrease in one currency might be offset with an increase in another currency....so the net affect would cancel out
> 
> The other options I was considering was:
> 1. investing into a diversified fund portfolio (something similar to what Marc outlined with Goldcore earlier in this thread)
> 
> 2. paying down my mortgage outstanding with my savings.......this would thereby relieve my worries about my savings being hammered as would put them to use by reducing my mortgage. Would this be such a bad option to take??
> 
> All opinions welcomed from the AAM folk on here.....


 
Naturally it depends on your own personal circumstances, how much is left on your mortgage, the value of your mortgage etc but I would be slow to use my savings to pay off a chunk of my mortgage. 

In the event of a doomsday scenario for the Ireland and we revert to the punt the punt would be dramatically devalued against the euro and other currencies. You would be paid in punts but since your mortgage was taken out in euros, you would probably still have to pay back the euro value of the mortgage. Your euro savings and new earnings could be worth as little as 50-20% of the euro so in effect, your mortgage will have increased by 2-5 fold meaning that you will never be able to pay it off anyway (again depending on your personal circumstances). Looking at it another way, if you had 20 years left to pay in your mortgage, it would be like having to maintain the current level of payments for 40-100 yrs which is impossible.

In my humble opinion, there would be no point in wasting your savings now on a mortgage that in the above scenario, you will never be able to pay. I would just default like the rest of the country would in that situation.


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## joe sod

monagt said:


> What is Sterling is so weak? I know the UK is in trouble fiscally but does it warrant a drop from 1.4 to 1.06? Now at 1.11 against a Euro in trouble?



that is actually the strength of sterling that it has the flexibility to move with the british economy and that is the weakness of the euro in that it doesnt have the flexibility to move with the irish or greek economies, that is why there is all this talk about the euro breaking up because it cannot flex, what would have happened to the irish punt in the current situation, it would have fallen by 50% back in 2008 taking the huge strain off the economy and restoring competitiveness. For safety i would recomend putting money into US dollars or sterling even though they may weaken further although i cannot see that happening against the euro with all the troubles it is having, I believe the euro itself will eventually take the strain because it has to, they will monetize the debts and print euros and allow it to fall.


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## dec1892

Newera said:


> Naturally it depends on your own personal circumstances, how much is left on your mortgage, the value of your mortgage etc but I would be slow to use my savings to pay off a chunk of my mortgage.
> 
> In the event of a doomsday scenario for the Ireland and we revert to the punt the punt would be dramatically devalued against the euro and other currencies. You would be paid in punts but since your mortgage was taken out in euros, you would probably still have to pay back the euro value of the mortgage. Your euro savings and new earnings could be worth as little as 50-20% of the euro so in effect, your mortgage will have increased by 2-5 fold meaning that you will never be able to pay it off anyway (again depending on your personal circumstances). Looking at it another way, if you had 20 years left to pay in your mortgage, it would be like having to maintain the current level of payments for 40-100 yrs which is impossible.
> 
> In my humble opinion, there would be no point in wasting your savings now on a mortgage that in the above scenario, you will never be able to pay. I would just default like the rest of the country would in that situation.


 
I have about EUR 200k left on the mortgage - surely this would have to convert to punts as well if our deposits were converted to punts??


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## queenlex

horusd said:


> I was listening to Peter Brown MD of Irish Institute of Financial Trading , on Pat Kenny yesterday saying the liklihood of the Euro going belly-up was increasing. He mentioned that switching out of the Euro involved considerable risks due to FX fluctuations.



Is that the guy who's sometimes on vincent browne's show of talking nonsense (albeit sometimes entertaining rubbish)?  I know a qualified economist well who thinks he hasnt a clue so dont know how much credibility I've give to his statements...he seems to love the sound of his own voice too if its the same guy and just talks for the sake of it....  I wouldnt mind too much of the stuff talked by so-called experts on Irish tv too many of them have their own agendas....  

There's not too much objectivity in the room on the shows.... and VB's show is not really a serious show...its more lie tabloid banter to be honest....  This is just a scare-mongering thread imo maybe unintentionally so though...  They're not going to let the euro fail...that would be a disaster they cant contemplate...shame on the governments of countries who created the mess with their dodgy short-sighted...they l policies tho unfortunately of which we are one..self-interest among the public and politicians of these countries have created a problem something will be done to kick the Greeks...and us into line to sort it out I'm sure....  They're not going to let anything bring the euro down imo


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## queenlex

Newera said:


> Thanks very much for the replies folks. I dont know enough about stocks and shares to invest wisely and have seen many people lose everything in stocks and shares.
> 
> I understand that putting all my eggs in one basket doesnt sound like a good idea, however, of all the currencies, it would appear that the Canadian Dollar has been the soundest over the past number of years. boring from an investment perspective but good for someone who wants some bit of stability in a chaotic economy.



Relax for Gods sake...are you listening to some Joe Duffy style moan or scare-athon or what?  Re the Canadian dollar I have no idea if its more stable if anything I would thought the euro was the most stable but currencies are always changing in value... Re stocks and shares they say you should have at least 30 grand starting off but its always risky and obviously you should diversify a bit.  I wont go near shares myself bc I'm totally risk averse....I have all my money in euro savings a/cs too


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## queenlex

horusd said:


> Maybe short-term. But I'd rather have my money in owning part of a company than solely owning a risky currency. If the Euro fails, good companies will survive and recover in whatever currency they operate in.



Yeah exactly but what if you happen to pick a bad company or a company that turns bad....say for example you invested some money in a mobile phone company and they God forbid found out the mobile radiation risk was very high after all...company would be wiped out.....


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## monagt

Quote: "You would be paid in punts but since your mortgage was taken out in euros, you would probably still have to pay back the euro value of the mortgage" - NEWERA

Surely the savings AND the mortgage would be in Punts???

Any comments?


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## Duke of Marmalade

_queenlex_ I luv ya.  No way is the Euro going down.  Day by day it gains ground.  Peter Brown is another self serving prophet of doom.  In the _Sindo_ he predicted that the Government will grab 300K off people who have €1M on deposit in Ireland.  Come to Peter for salvation.  Please spare me.


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## brendanyumo

Peter Brown is spot on about Greece.They will default.That's a 100% certainty.
The whole EU project is doomed imo.


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## Godfather

brendanyumo said:


> Peter Brown is spot on about Greece.They will default.That's a 100% certainty.
> The whole EU project is doomed imo.



Yes, it will happen in my opinion as well... Their financial figures seem too much in trouble...


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## bryanod

Default = Drachma is an incorrect equation however.


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## Chris

joe sod said:


> that is actually the strength of sterling that it has the flexibility to move with the british economy and that is the weakness of the euro in that it doesnt have the flexibility to move with the irish or greek economies, that is why there is all this talk about the euro breaking up because it cannot flex, what would have happened to the irish punt in the current situation, it would have fallen by 50% back in 2008 taking the huge strain off the economy and restoring competitiveness. For safety i would recomend putting money into US dollars or sterling even though they may weaken further although i cannot see that happening against the euro with all the troubles it is having, I believe the euro itself will eventually take the strain because it has to, they will monetize the debts and print euros and allow it to fall.


Thi sis a very common misconception, and one that especially politicians love, because they can blame someone or something else. Take the UK where both Wales and NI have significantly weaker economies than the majority of England. This line of argumentation would suggest that Wales and NI are being held back by an unnecessarily strong sterling which suits England. You can argue the same for the US, where Wyoming has a very weak economy when compared to California. But they still have the same currency and exchange rate. 
Currency flexibility has nothing to do with the problem of the Euro. The problem with the Euro is that over a ten year period the ECB massively inflated base money supply by 260% while at the same time not having a system in place that would deal with debt defaults of member countries.
A currencies value is dependent on the underlying monetary policy and the economy, not the other way around.



queenlex said:


> They're not going to let the euro fail...that would be a disaster they cant contemplate


The only thing they can do to stop the Euro from failing is quantitative and qualitative easing, which in itself will ultimately cause the currency to fail. I don't understand how people can argue that it is going to be a situation of letting a currency fail, when the levels of debt we are talking about indicate that there simply will be no other option.



queenlex said:


> Yeah exactly but what if you happen to pick a bad company or a company that turns bad....say for example you invested some money in a mobile phone company and they God forbid found out the mobile radiation risk was very high after all...company would be wiped out.....


Happens to many investors, but this is only a problem if you have a large portion of your assets in one company or industry, which is always a bad idea.



Duke of Marmalade said:


> No way is the Euro going down.  Day by day it gains ground.  (


Gaining ground against what? Other weak currencies like Sterling and USD. But if you measure against CHF or AUD or more importantly gold you see how much it is weakening.


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## Duke of Marmalade

Chris said:


> Gaining ground against what? Other weak currencies like Sterling and USD. But if you measure against CHF or AUD or more importantly gold you see how much it is weakening.


At the moment I am in the market for a new car and so the price of new cars is my current benchmark. Down 20% in Euro terms since a few years ago.


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## limerickmick

queenlex said:


> Yeah exactly but what if you happen to pick a bad company or a company that turns bad....say for example you invested some money in a mobile phone company and they God forbid found out the mobile radiation risk was very high after all...company would be wiped out.....


 

or blue chip irish banking shares 3 years ago


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## Godfather

bryanod said:


> Default = Drachma is an incorrect equation however.



Why sorry?  The strange thing about the Euro is that a country can pull off somehow apparently...


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## andycole

Any opinions is converting Euro savings into the Danish Krona? If I read correctly it is pegged against the Euro within a 2.5% band width - so would this not prevent a large degree of exchange risk?


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## monagt

‎"Those €87bn of deposits might become very attractive to a government which is running out of options with closing the deficit;"
"And with the precedent of imposing a levy established with the pension levy to fund the Jobs Initiative and with a further wealth tax to be introduced (the property tax), then sizing up deposits for a contribution might become feasible as well as attractive, "

http://namawinelake.wordpress.com/2...ces-new-statistics-on-mortgages-and-deposits/


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## Chris

Duke of Marmalade said:


> At the moment I am in the market for a new car and so the price of new cars is my current benchmark. Down 20% in Euro terms since a few years ago.



Yes indeed, cars are cheaper than a few years ago, but that is mainly because of less taxation rather than an increase in the value of the Euro, which of course is very welcome.


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## gussy

We are three years into argueing about default, the euro and whether the govt. are going to help themselves to our deposits, and guess what all of the above have not happened yet. But keep argueing the point lads, you have got to be right some day. Stop the guess work and get behind the country and lets all try to build a more stable economy. Deposit rates are good and although I dislike Kenny a lot I have to admire his tackling of the vat rate, the bonus culture etc. We have got to stop talking the country down. It's time to play our part and keep our money at home, It's as safe here as anywhere else.,


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## kdoc

gussy said:


> We are three years into argueing about default, the euro and whether the govt. are going to help themselves to our deposits, and guess what all of the above have not happened yet. But keep argueing the point lads, you have got to be right some day. Stop the guess work and get behind the country and lets all try to build a more stable economy. Deposit rates are good and although I dislike Kenny a lot I have to admire his tackling of the vat rate, the bonus culture etc. We have got to stop talking the country down. It's time to play our part and keep our money at home, It's as safe here as anywhere else.,


 
gussy, I believe you are correct.. The prophets of doom have been influencing others to put their dosh into far flung places - Timbuktu hasn't been mentioned yet, but it's only a matter of time. It's not altogether clear if deposits are much safer in some of the institutions in these countries (and the interest rates are lousy). On Saturday night, Eddie Hobbs stated that the Euro, in his opinion, will not collapse. And he is also of the opinion that the economy is beginning to turn in the right direction. However, this positive shift can be helped if people allow the normal circular flow of the econmy to work: spend some money on goods and services and save some money HERE.


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