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Time to Invest More Money in the US?
Old 12-10-2007, 01:22 PM   #1
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Time to Invest More Money in the US?

Sooooo,

I was taking a look at my portfolio and noticed that my European Stock index fund was up 17% YTD. But after talking to my dad (who lives in Europe) over the week-end, I realized that major European indices are only up about 2-4% YTD. So the vast majority of the 17% I earned this year on the European fund comes from the dollar devaluation against the Euro. Now knowing that Europe's growth is slowing down (and that when it is not slowing down, it's rarely on fire), it sounds to me that if the dollar was to start appreciating against the euro, even so slightly, mutual funds that invest solely in Europe would start yielding negative returns pretty quickly (the situation might be the same for Japenese funds, but I don't know much about Japan's economic growth propects).
It also looks like many people around the world are unhappy with the weak dollar and people start complaining about it. This makes me think that it is possible that there will be a concerted effort to shore up the dollar and prevent further large drops in value. European exporters are twisting the arm of the ECB to lower rates for examples, with Airbus threatening delocalisation out of the Euro zone. Surely with all the dollars they hold in reserves, the Chinese don't want the dollar to fall much further either. And oil producing nations want to be paid with a stronger currency. Also, the fact that in the past few weeks we have seen large foreign investments in the US makes me think that I am not the only one seeing value here at home. I doubt people would be investing billions of dollars in the US if they thought the dollar was collapsing or on course to weaken much further. Finally, currencies' valuation are typically on a 15-year cycle and the dollar has been weakening now for about half that time.
So do you think it is time to trim a bit my international positions (especially in low growth geographical areas) and invest more money right here in the US?
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Old 12-10-2007, 04:17 PM   #2
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My view would be the worst is yet to come for the greenback. There is at least another year (if not 2) of great turmoil in the RE market and there is no indication that Washington will come to grips with both the fiscal and trade deficits. Until the Dems can reverse the Bush 'tax cut' damage, it will only get worse with the AMT fix...with no offsets anywhere to make it revenue neutral.
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Old 12-10-2007, 05:09 PM   #3
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Until the Dems can reverse the Bush 'tax cut' damage, it will only get worse with the AMT fix...with no offsets anywhere to make it revenue neutral.
So, the problem is not that the government spends too much and in a poorly manner. The problem is that we are not being taxed enough yet, and once that is "corrected" by the commu...I mean, the democrats, we will be out of the woods. Is that it?
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Old 12-10-2007, 05:33 PM   #4
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Based on purchasing power parity the Economist is now estimating the Euro is something like 20% overvalued versus the dollar. But who knows when and if the PPP difference will be corrected. Also if the Euro goes down might not the Euro area equities rise? Depends on how quickly the Euro changes too. If the Euro goes down 5% per year over the next 4 years, maybe the equity markets rise enough to give a decent return there.

Personally I own 2 diversified international funds so if the Euro goes down it is still possible that Asian countries will pick up the slack. The Economist has estimated a PPP overvaluation for Asian currencies. I think maybe one should try to pick a long term ratio of international to U.S. equities and pretty much try to stick with that. It is really almost impossible to get ahead of both the equity and currency markets.
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Old 12-10-2007, 05:40 PM   #5
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So, the problem is not that the government spends too much and in a poorly manner. The problem is that we are not being taxed enough yet, and once that is "corrected" by the commu...I mean, the democrats, we will be out of the woods. Is that it?
This is a continued derail of the intent of this thread....so don't want to get into a political war.... I don't know how Americans are going to choose to fix the problem, but continuing fiscal deficits will only put the country up against a brick wall someday. I don't hear any of the candidates on either side talking about reducing the fiscal deficit so far.
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Old 12-10-2007, 06:20 PM   #6
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One of the exceedingly irritating things about Mr Market and his buddy Adam Smith's Invisible Hand - the dollar/market fix will begin to arrive before any tangible fixes you can hang your hat.

Sooo - blow on your dice for luck say RTM and decide when to roll.

heh heh heh - That's why dollar cost averaging and long term get talked up a lot. I bet on Tuesday in the year??
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Old 12-10-2007, 06:27 PM   #7
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Until the Dems can reverse the Bush 'tax cut' damage
Don't hold your breath.
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Old 12-10-2007, 07:26 PM   #8
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I don't hear any of the candidates on either side talking about reducing the fiscal deficit so far.

Well, there is this guy called Ron Paul.....
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Old 12-10-2007, 07:42 PM   #9
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The currency markets are huge and I'm amazed (and amused) that people here might think that a few political concepts are a good way to characterize these markets.

Anyway I prefer to take a pragmatic approach to how to split up my equity allocation. So I've got something like a 33% equity allocation to international and I let the fund manager try to figure out the companies (and countries) that are best. When this allocation strays too much, as it has lately (it's 37%), it is time to rebalance into U.S. equities.

Would appreciate hearing how others manage this.
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Old 12-10-2007, 08:05 PM   #10
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Well, there is this guy called Ron Paul.....
Ah yes, your favorite, RuPaul.
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Old 12-10-2007, 08:26 PM   #11
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The currency markets are huge and I'm amazed (and amused) that people here might think that a few political concepts are a good way to characterize these markets.

Anyway I prefer to take a pragmatic approach to how to split up my equity allocation. So I've got something like a 33% equity allocation to international and I let the fund manager try to figure out the companies (and countries) that are best. When this allocation strays too much, as it has lately (it's 37%), it is time to rebalance into U.S. equities.

Would appreciate hearing how others manage this.
I do about the same as you - with approximately the same percentages.

I think dollar may gain a little against Euro - but that's it. All other Asian, BRIC currencies will appreciate against dollar.

I think the biggest influence on the strength of US dollar is the trade deficit - much more so than politics or housing market. The huge oil and China deficits will continue exerting downward pressure on dollar.
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Old 12-10-2007, 09:17 PM   #12
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Thanks for your all your responses so far.

I won't get into the political arguments, so to get back to the original subject.
First I agree with many of you that market timing is baaaaaaaadddddddd! So you know, I generally consider myself a boglehead. Set an asset allocation I can live with (in my case 67% US / 33% International) and DCA into it one dollar at a time. That's what I have been doing for a few years now and don't plan on changing. However, once a year, I take a critical look at each one of my investments to see if they still make sense to me or not and make changes as needed. And when I found out that my European index fund behaves almost like a pure currency play, it made me second guess my choice. It was supposed to be my "safest" international position but I am now wondering if I didn't make a mistake when evaluating the risks associated with this fund. Right now investing in Brazil for example makes a lot more sense to me and seems less risky.
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