Even Supermodels Don’t Want To Get Paid in US Dollars!

With Bloomberg reporting today that Gisele Bundchen, the world’s highest-paid supermodel, has refused to accept payment in U.S. dollars, the dollar’s downtrend is receiving more negative publicity.

Giselle joins the ranks of billionaire investors like Warren Buffett, Jim Rogers and Bill Gross who are pessimistic on the dollar’s future. The 27 year old Brazilian model has made $33 million in income so far this year.

According to the Treasury Department’s data, U.S. investors bought $198 billion in foreign securities this year through August, 72 percent more than in the same period last year.

Sovereign wealth funds run by the largest exporters and oil producers, including China, Singapore and Qatar are also liquidating US dollar positions. Its projected that these funds may grow from a current $2.5 trillion to $17.5 trillion by 2017 and shift more than $500 billion out of the dollar over the next 3 years.

If I were you, I’d try to sell ahead of them. There’s a saying in the market. If you’re going to panic, make sure you panic before everyone else does!

Buffett Hates The Dollar Too!

Its not often that Warren Buffett offers investing advice that’s easily to implement. According to an email I just got yesterday,

“We are still negative on the dollar,” Buffett continued, shifting his focus to Berkshire’s strategy for dealing with the troubled U.S. currency. “We bought stocks in companies that are earning their money in other currencies. We are gaining foreign currency exposure.” His comments echo Jim Rogers’ and Julian Robertson’s bearishness from yesterday.

So where will the $52 billion man be putting his money?

“My impression is that the Korean market is modestly cheaper than other markets in the world. I think the Korean market will do better for the next 10 years,” said Buffett. The Oracle of Omaha is currently visiting the TaeguTec facility in Daegu, South Korea. TaeguTec is a subsidiary of Iscar — a company Berkshire Hathaway bought a $4 billion stake in last year. While there, he voiced his approval of South Korean steelmaker Posco.

“It’s a great company,” Buffett said of Posco, “and great companies get worth more and more all the time.”

I had recently sold half my PTR stake and bought ICON Asia-Pacific Region S Fund(ICARX), which has quite a few korean companies in it. But if you want to get a pure Korean play, iShares MSCI South Korea Index (EWY) is a good buy. Its up 40%+ YTD!

Another good buy is the Korea Fund (KF). Like EWY, its also up 40%+ YTD. I bought a little bit today since its paying a crazy 32% dividend and today its going ex-dividend (which means its the last day to buy it and get the dividend).

If you’d like to buy it, it should trade at a 32% discount on Monday (since it’ll be ex-dividend, it will most likely drop by the amount of the dividend) even though the dividend won’t be paid out until end of November.

The advantage to buying right before the dividend is that sometimes stocks don’t drop the full amount of the dividend or they quickly make up the loss in share price. The disadvantage is you’re slapped with a dividend and a tax liability immediately.

Maybe I’ll sell the other half of PTR and buy EWY as well. Although, according to ETFConnect, KF trades at a 5% discount to NAV, while EWY trades at a 1% premium.

But regardless of what you buy, you’ve been given a chance to invest like Buffett.

Jim Rogers Backs The US Dollar

Jim Rogers, co-founder of Quantum Fund along with George Soros, achieved 4,000% returns in the 80’s. He’s famous for being bearish on the US economy and the US Dollar. However, he’s currently bullish on the Dollar, saying that everyone is negative on it.

In his opinion, when too many people take one side of a trade, the opposite is likely to happen. The Dollar has been in a bear market since 2002, but it turned bullish during 2005. He thinks its over-sold and in the short-term at least, due for a correction.

While I’m not buying any Dollars, I could definitely use a spike in the USD for my entry point into Australian Dollars.

Many claim the dollar’s weakness is helping offset a dropoff in U.S. economic demand that’s come from a recession in the housing market. Goods priced in dollars are cheaper in Europe or Australia, and manufacturing in the U.S. becomes more attractive for companies that export goods. That helps preserve jobs in the U.S.

But a debased currency is a hefty price to pay for growth, and not an easily reversible one, says Rogers. It breeds inflation and weak purchasing power, which ultimately undermines any short-term boost in growth. He reiterated his belief that the U.S. dollar is bound for a decline similar to the British pound’s 50% decline in the early 1980s.

He’s not very impressed with Bernanke lowering the interest rates either.

“The fool went and cut interest rates with the stock market down 6%,” he says of Fed Chairman Ben Bernanke. “What’s he going to do when stocks are down 30%?”

He says Bernanke and the Fed are ignoring obvious evidence of inflation in food, education and entertainment prices.

“This is a man who’s made a career learning about printing money and now we’ve handed him the printing press,” he says, likening Bernanke to his predecessor Alan Greenspan in their penchant for saving the markets by cutting rates and inflating asset bubbles.

Rogers is a believer in the global growth story, particularly China’s. He said he’s sold out of all his emerging market investments except for his investments in China, claiming the other emerging nations have “been exploited by 20,000 MBAs running around looking for markets.”

Rogers hopes he’ll be able to pass down his Chinese stocks to his 4-year-old daughter, but adds he may be forced to sell.

“If a bubble develops in China in the next year or two, I’ll have to sell because bubbles end badly,” says Rogers, pointing to Japan, where stocks remain well below their levels of over a decade ago. But he believes Chinese stocks would have to double before he’d feel forced to sell.

The self-proclaimed “inactive investor” is not buying much these days. He’s bullish on commodities, though he agreed he’d be hard pressed to find anything to buy at these levels. If he’d buy any commodity it would be in the agricultural space rather than the metals, though he declined to specify one. He’s short the U.S. investment banks along with the dollar.

Next to China, Rogers says he’s long gold.

I’ll undoubtedly buy more gold,” he says, predicting it will double from here in the next few years.

Australian Dollar To Hit Parity With US Dollar.

I sold my long position in CurrencyShares Australian Dollar Trust (FXA) today. I made a nice 6% in about two weeks on it. I sold it because it gapped down and looked like it was going to drop futher in the next week or two.

The US Dollar is due for a short-term bounce which will cause the price of FXA to drop, but thinking long-term, I think the Australian Dollar will hit parity with the USD within 18 months. It isn’t a far fetched idea when you consider that 1 AUD = 1.20 USD in 1981.

Others agree with me. According to Chris Gaffney of Everbank.com:
“Fundamentals suggest the Aussie dollar will continue to rise in 2008. The economy is expected to expand by more than 4% next year, and inflation will accelerate. Overseas shipments of raw materials, which contribute about 14% to Australia’s economy, helped drive 4.3% growth in the second quarter from a year earlier, the biggest increase in three years.”

I strongly recommend Everbank’s free daily newsletter about the currency markets, the Daily Pfennig. It’s pretty good.

A technical analyst at Goldman Sachs suggested “a close above the resistance level 89.25 would set the Australian dollar free to reach parity”.

The Aussie buck traded at 88 cents this morning. Parity is only 13% away.

But in the short term I’m looking for a bit of a pull back.

Canadian Dollar Hits Parity With US Dollar

Today the Loonie achieved parity with the US dollar for the first time in 30 years. Five years ago, 65 cents could buy you 1 Canadian Dollar. Since then the Dollar has devalued 50% against the CAD and nearly 100% against Gold. This has been partly due to a massive increase in the number of Dollars floating around, and partly because of the low interest rates which no longer attract much foreign interest.

[Image of Ben Bernanke Action Figure and included Helicopter]

The 50 basis point cut in the Federal Funds rate isn’t going to save us from recession. What it definitely did do is weaken the dollar further against all major currencies.

How are you going to Hedge against a weakening dollar?

I been a strong advocate of investing in Gold and Silver for 2 years. Today Gold hit $735 after trading around around the $665 mark for the past year.

I realized that the Feds were going to drop the rate last week and put in an order to buy FXA. FXA is the CurrencyShares Australian Dollar Trust, an ETF that tracks the price of the Australian Dollar. Immediately after the Fed rate cut it jumped 3% and is up 4% for the week. It also pays an annual yield of approximately 5% on a monthly basis.

As the Dollar continues to weaken, I expect FXA to keep on appreciating. The question is how low do you think the Dollar will go?

Japanese Housewives Burned By Forex Trading

The New York Times has an interesting article, Japanese Housewives Sweat in Secret as Markets Reel about housewives losing a lot of money in trading forex.

Since the credit crisis started shaking the world financial markets this summer, many professional traders have taken big losses. Another, less likely group of investors has, too: middle-class Japanese homemakers who moonlight as amateur currency speculators.

Ms. Itoh is one of them. Ms. Itoh, a homemaker in the central city of Nagoya, did not want her full name used because her husband still does not know. After cleaning the dinner dishes, she would spend her evenings buying and selling British pounds and Australian dollars.

When the turmoil struck the currency markets last month, Ms. Itoh spent a sleepless week as market losses wiped out her holdings. She lost nearly all her family’s $100,000 in savings.

While a lot of people have made fortunes trading forex (like George Soros), when a large number of housewives enter the market, its a sure signal that the market top is in. The lay people are always the last people to enter any bull market and like we saw in the internet bubble in 2000, mark the last phase of speculators to rush to profit from quick, easy money.

Apparently this greed-driven mania manifests itself regularly, prompting Alan Greenspan to observe that humans might never be able to protect themselves from bubbles. The history of manias has been well documented going back hundreds of years in Extraordinary Popular Delusions & the Madness of Crowds. If you haven’t read it I strongly recommend you pick up a copy at your local library. Another new book on the subject is Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, which is on my long and never-ending list of books to read and has come highly recommended.

Related Readings:
1. How the carry trade really works.
2. Turning Japanese.

Petro-Yen Instituted By Iran

More and more countries are growing weary of the US Dollar. Latest in the list is Iran.

Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran’s central bank said it is reducing holdings of the U.S. dollar.

Iran wants yen-based transactions “for any/all of your forthcoming Iranian crude oil liftings,” according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments “effective immediately,” according to the letter, dated July 10 and obtained by Bloomberg News.

I guess they’d rather get paid in the world’s most undervalued currency which has a good chance of strengthening over the next few years, rather than the USD which looks like its just going to keep on depreciating against all other currencies.

Warren Buffett has hinted that he’s made a significant currency play but of course, he won’t say which one. Speculation is that its either Japanese Yen, Indian Rupee, Chinese Remnimbi or Australian Dollar. But Buffett, like many foreign countries isn’t too keen on keeping his US Dollars either.

The Yen is severely undervalued but until the BOJ increases rates, it’ll likely stay weak. The good news is that the economy is strengthening, so this finally seems like a possibility.

With the Indian 10 yr Reserve Bank Bond yielding 7.5%, and it having appreciated 20% against the USD in the past 2 years, it doesn’t surprise me that it made the list.

With a huge stake in Petro-china (PTR), investing the chinese currency sounds redundant, so I doubt Buffett would buy it.

The AUD has appreciated rather nicely against the USD over the past 2 years. That looks like a likely candidate too.

Dollar Hits A New Low

This week the US Dollar sank to 25 year lows against the Pound, AU/NZ Dollars and other currencies. There’s a saying that money flows to where its treated best.

What does that mean? It means people are converting their money into currencies with the highest yields.

Yields on the AUD,NZD and South African Rand are quite a bit higher than here in the US. Their economies also seem to be growing faster than the US’ too. SA Central bank Governor Tito Mboweni said last week that interest rates were ‘too low’. The South African Reserve bank raised the benchmark lending rate by 50 basis points on June 7th and may raise them again on Aug. 16. Not surprizingly, the South African Rand is sitting at a six week high.

I don’t know if its already too late to the party, but buying foreign currency ETFs or stocks with foreign exposure might not be a bad idea. I’ve done very well with Anglo Amercian (AAUK) and BHP Billinton (BHP).

Buying Canadian Income Funds For Passive Income (and Financial Freedom)

Yesterday, I bought some more Canadian Income Funds, also called Royalty Trusts or Canroys. As I mentioned before, I recently refinanced a property and I managed to pull some money out (totally tax-free!).

Rather than spend the money on an SUV or a big-screen TV, I opted to divide the money into 3 parts. The first 1/3rd went towards replenishing my emergency fund which was drawn down by vacancies in my rental properties. The second 1/3rd went towards future investments in summer just in case there’s a pullback in the stock market and the last 1/3rd went to building up my passive cash-flow.

Long time readers will realize that I haven’t made any effort display my net worth or any goals of net worth.
That’s because I feel its a meaningless number. If I had a $1 million dollar net worth and it only generated $25,000 a year in income (like Cd’s did a few years ago) that’s pretty sad. On the other hand, if I owned a $1,000,000 car-wash that generated $125,000 that’s pretty significant.

My goal is to generate passive income. Its your passive income that provides financial independence, not your net worth. If you have $3,000/month through various passive income streams, you’ve got your basic food and shelter taken care of and you won’t starve if you lose your job. That is my short term goal. My longer term goal is generate $10,000/month in passive income so I can travel the world without worrying (or working).

I’m currently not even at 50% of my $3,000/month goal so at least 1/3rd of all future investments must take me towards that goal. That’s why I bought some Canroys yesterday. I bought Harvest Energy (HTE) and Canetic Resources(CNE). They generate revenue from oil and gas production and refining. The noteworthy part is that they payout around 12% dividend per year. Since the selling of oil and gas leads to a depletion of reserves, its important that they keep some of their revenue for future acquisition of new properties and for drilling new wells. Both of them have a payout ratio of under 80% which isn’t bad considering they have proven and probable reserve lifespans of 9.5 years.

There are Canroys with lifespans of 6-7 years and payout ratios of 95% that yield 15% but I’m suspicious of their longterm viability. These two seem like pretty safe bets. If oil prices rise there’s a chance of increased payout and also capital appreciation. If not, I’m still getting my 12% yield.

The only issue I have is that the Canadian Government takes its 15% tax straight out of my account. But even considering for that, my yield is still just over 10%. Besides, I get a US tax credit for that amount, so its not a total loss.

I also bought some units in Prism Income Fund(QSR.UN) which owns and operates nearly 500 fast-food franchises in Canada (Taco Bell, KFC, Long John Silver and Pizza Hut). Their stock has been pretty stable compared to other Canroys following the whole Taxation issue. Its also currently yielding 12% and while I don’t expect much capital appreciation, I don’t expect it to drop in value or its dividend to fluctuate with the price of oil and gas.

So now I’m one step closer to my goal of $3,000 in passive income. This brings my total passive income from Canroys to $300 per month. I’m also getting $300 from a loan to a developer at 2% per month. And I average around $300/month from my various online ventures. (Even though my online ventures aren’t passive, I enjoy pursuing them and I have geographic independence. Thats why I’m counting it).I’m also making around $150/month from my direct oil and gas drilling investments, so I’m almost 1/3rd of the way to my goal!

When I get the money back from the developer, it’ll be redeployed at a much lower rate. But I expect the cash flow from the direct oil drilling program to increase enough to cover this short-fall.

That Crazy Loonie

In the wake of the commodities boom, the Canadian currency has appreciated almost 50% against the U.S. dollar since the beginning of 2002. In the last three months alone, strong economic data, inflows from mergers and acquisitions, buoyant commodity prices and above-target core inflation resulted in a rise of the Canadian dollar (CAD) of about 8%.

I’m really happy since I own a lot of Canadian Income Funds which pay out monthly dividends in Canadian dollars. So as the Loonie appreciates, my monthly dividend increases too!

Will the Loonie ever achieve parity with the US Dollar though? Some analysts are predicted it to hit $0.96 = C$1.00 which is awfully close.

What do you guys think?