Are CurrencyShares foreign currency trusts a good idea?

[Altair]

I'm thinking of buying some shares of CurrencyShares Australian Dollar trust (they trade on the NYSE under symbol FXA) as a hedge against future dollar depreciation.

I was initially planning on buying into the Canadian Dollar Trust, but it apparently doesn't pay any interest at all while the Australian Trust pays out 2.63% interest:

http://www.currencyshares.com/produc...ils?symbol=FXC

http://www.currencyshares.com/produc...ils?symbol=FXA

Apparently short-term interest rates are a lot higher in Australia than in Canada. Both seem like similar economies so going with the Australian dollar seems like a no-brainer.

Does anyone have experience with these trusts? One question in particular that I have is how the monthly interest is paid to you- I assume they wire it directly to your brokerage account, correct? Wouldn't want to deal with the hassle of getting small monthly checks to cash, but I can't imagine they would do that.

From what I've read, the assets are very safe because you are buying into actual currency sitting in a vault- not the promise of a bank. So you get paid even if the unlikely event that JP Morgan/Chase (the depository bank) goes under. The downside is that when you sell the shares you have to pay regular income, not lower capital gains rate.

All in all, it seems like a reasonable hedge against a falling dollar- anyone disagree?

[charliebrown]

Re: Are CurrencyShares foreign currency trusts a good idea?

I own FXA, and am thinking of dumping it. It is in a downard trend for a long time now.
One thing to be wary of is the "carry trade" This is were investors borrow yen (because borrowing yen is cheap), then usethe proceeds to buy a high yielding currency. Aussie Dollars are high yielding compared to yen. This nets them interest each month. This drives the A$ up. However if the same traders percieve that yen borrowing will increase, or the A$ interst rates will decrease the will "unwind" their trade and you will see the A$ go down. This is probably the main reason why the A$ has fallen from 1.00 exchange rate to the USD, vs. about .65 now.
In looking at the economy of the australia they have a lot of over indebted issues as the eurozone and the u.s. do. The australian economy is dependent upon a exportation of raw materials to the asian manufacturing economies. And since commodities and asian exports are falling this is also putting downward pressure on the A$.
I assume if asia gets out of the funk first, then the A$ may appreciate. Dont know if this will happen.
The A$ has shown a little upswing lately moving from around 60 to 65 vs USD.
Of all the FX holdings i dont know of any where the country is not in trouble, and is lowering interest rates and doing a keysian stimulus as well,
FXB, FXP, FXF, FXY, FXC, FXA, FXE all econs are in trouble.
Is there a country out there that has a positive balance of trade, running a national surplus, does not have unfunded liablities like medicine or retirement? Is not plagued by an aging population?
That would be currency to hide out in.
Brazil?? Dont know. Hopefully someone smarter than I will chime in.

FXA pays a monthly dividend i think were around 2% apy now. Was 6% at one point.

Im not a lawyer or an account so I cant judge how the trust would hold up under stress of the trustee, or an A$ or USD crash.

Of all the currencies that CurrencyShares manages, the ones that have held up best have not been the high yielders. They are the swiss franc, and the japanese yen. So reaching for high yield is not always the safe play.

[Altair]

Re: Are CurrencyShares foreign currency trusts a good idea?

Thanks for the info- how is the monthly interest payment made- do they wire it to your brokerage account?

[cjppjc]

Re: Are CurrencyShares foreign currency trusts a good idea?

Thanks for the info- how is the monthly interest payment made- do they wire it to your brokerage account?

That's funny.:p

[Altair]

Re: Are CurrencyShares foreign currency trusts a good idea?

That's funny.:p

I called CurrencyShares and they confirmed that they will in fact wire it to your brokerage account each month. So maybe you could get an account and get a good laugh every month when that happens since that phenomenon amuses you so much.

[cjppjc]

Re: Are CurrencyShares foreign currency trusts a good idea?

I called CurrencyShares and they confirmed that they will in fact wire it to your brokerage account each month. So maybe you could get an account and get a good laugh every month when that happens since that phenomenon amuses you so much.

I think you missed the humor.;)

[Altair]

Re: Are CurrencyShares foreign currency trusts a good idea?

I think you missed the humor.;)

I did. And you can safely assume that I am not an expert on these matters by virtue of the fact that I asked the question. Therefore, your response was not particularly helpful.

[Prazak]

Re: Are CurrencyShares foreign currency trusts a good idea?

Of all the FX holdings i dont know of any where the country is not in trouble, and is lowering interest rates and doing a keysian stimulus as well,
FXB, FXP, FXF, FXY, FXC, FXA, FXE all econs are in trouble.
Is there a country out there that has a positive balance of trade, running a national surplus, does not have unfunded liablities like medicine or retirement? Is not plagued by an aging population?
That would be currency to hide out in.
Brazil?? Dont know. Hopefully someone smarter than I will chime in.

I make no claims that I'm smarter than you, but wouldn't the answer to your question be Norway? Unfortunately there are no currency ETFs for the NOK, you have to open up an f/x account or use your offshore account to set up in NOK-denominated instruments.

[charliebrown]

Re: Are CurrencyShares foreign currency trusts a good idea?

You probably are smarter than me. i'm an simple guy who tries to trade the big picture. I will have to look up the stats on norway. I appreciate your insight. i dont know if im ready to open up an f/x account, another thing I have to manage and maintain.

Maybe there is a way I can buy ADRs in norwegian companies?
Norweigan bonds through a brokerage account??

[charliebrown]

Re: Are CurrencyShares foreign currency trusts a good idea?

I dont know how the monthly interest gets to my brokerage account (magic) , but in January i got a credit to my brokerage of 24.00 on 112 shares of FXA. (approx 3.8% APR) interest is credited once per month. I assume i got another other interest payment in feb, but I just cant find that statment. I think the interest rates have gone down since January. My brokerage has an option to take the cash dividend and roll it into my money market account or buy more shares. (That is how I wound up with 112) I started with a lot of 100.
Over a few years I wound up with 112. At one point the APR on FXA was around 6%. This was during the big commidity run up in 2008.
Hope this helps.

[simitpatel]

Re: Are CurrencyShares foreign currency trusts a good idea?

i'm a currency trader, though i don't trade the ETFs, i trade with currency brokers (oanda and fxcm).

i like australian dollar over the long-term, and trade it regularly. it's been good to me. however, i trade using technicals, so basically i look for momentum and then get it in on AUD. i'm in an AUDJPY (aussie dollar vs japanese yen) trade now which is working well for me.

even though i like AUD on a four year outlook, i would not feel comfortable buying it and holding it for that long. so i'm in and out based on momentum in the market.

my two cents, fwiw.

[rjwjr]

Re: Are CurrencyShares foreign currency trusts a good idea?

Altair,

I recently opened an account with EverBank, www.everbank.com. I learned of them initially from the Kitco web site (a precious metals web site for those that are unfamiliar with it www.kitcosilver.com). I then listened to a presentation by the EverBank President and their CEO at the World Money Show held a number of weeks ago in Orlando, Florida. EverBank appears to be mostly an online/virtual bank, although they do apparently maintain some physical branches. I believe their HQ is St. Louis, Missouri. Now for the relevence of this post...

EverBank has a number of CD's that are pegged to foreign currencies. Not only can you purchase a CD pegged to the Norwegian Krone and many other single currencies, but you can invest in a CD that is pegged to a basket of currencies. I chose the "DebtFree CD", which is pegged in even 20% allocations to Aussie Dollar, Brazilian Real, Japanese Yen, Singapore Dollar, and Swiss Franc. These were selected and so named "DebtFree" for the obvious reason that the Countries have a history of strong balance of payments surpluses. There are 3 month or 6 month maturities available. The CD currently pays 1.85%, but unlike a typical CD with a definite return of principal, the currency CD may return more or less principal depending on the performance of the underlying currency(ies). When you open your "CD" account, you also open a cash account in which your interest payments are automatically deposited.

I opened the account online, sent in some paperwork and an initial deposit, and purchased the CD online. All very easy so far and their correspondence and web site thus far have me feeling quite confident in their stability. I have sent a second deposit as they also have allocated and unallocated gold accounts that I may try.

By the way, they also are involved in home loans and standard banking activities, but claim to have no exposure to the bubble mess, in fact they encouraged us (the audience at the Money Show seminar) to check their public disclosures and performance on the FDIC website. I perused it, but I don't have formal finance or accounting training enough to comment.

Another CD of theirs that caught my interest is the "New World Energy CD" which is pegged 33% each to Canadian Dollar, Australian Dollar, and Norwegian Krone. This might be right for you based on your original post.

I know this sounds like a paid advertisement for EverBank, but I have no connection with them, have no family or friends that are associated with them in any way, or any such connection. I told you earlier how I heard of them and it is the God's honest truth. I offer this information solely as an attempt to be helpful to Altair and any other fellow itulip member with like interest. In fact, my experience with EverBank is very short and my basic due diligence satisfied me, but may not satisfy you. Hope this helps.

[rjwjr]

Re: Are CurrencyShares foreign currency trusts a good idea?

Altair and itulip friends,

In regards to my previous post, please do a search on this forum using the name Everbank. I have now taken the time to do the search and read some of the itulip-er comments. There seems to be a number of negative concerns. So far, my experience has been fine, but I wanted everyone to be aware that others' have concerns. In fairness, most of the concerns were issues that people have heard about, only one itulip-er (of the 6-7 threads I read) seemed to have a direct negative experience. As for now, I am sticking with them, but I'll keep a close eye out for anything fishy or objectionable.

[Prazak]

Re: Are CurrencyShares foreign currency trusts a good idea?

charliebrown, I would never want to hold myself out as being a financial expert. I own a small export business and work in developing markets. I don't know enough about Norwegian companies to recommend or not recommend any of them.

rjwjr, I've long considered those Everbank instruments but always hesitated instinctively. And recently I came across this troubling thread: http://www.openmarket.org/2008/10/07...inancial-woes/

I don't know if there's anything to this, but I don't like the sound of it. Most days I read Chuck Butler's Daily Pfennig and tend to like his analysis, but for a number of reasons I don't regard those Everbank currency CDs as a good place to gain forex exposure. For one thing I wouldn't want to be locked into a currency product for any significant length of time during a volatile market (as apparently was the case with these holders of Everbank CDs in Polish Zlotys and Iclandic Krona).

The bank is headquartered in Jacksonville, FL, by the way; some of its currency operations are in St Louis apparently because that's where Chuck Butler lives and Everbank acquired the outfit he used to work for (Mark Twain Bank).

I trade currencies with ETFs and options. But I invest in currencies through a bank account offshore where I have interest-bearing foreign currency accounts that are flexible enough that I can switch in and out on a day's notice without penalties (better than being locked into a CD like at Everbank, but not as flexible as a spot forex account).

It has its disadvantages and advantages viz a forex account (no leverage, a bit more cost than the typical PIP), and it's not FDIC-insured as with the Everbank instruments. But it's a very old bank in a very stable jurisdiction, and I'm not positioned in these to trade. I'm positioned to have a safe pile of cash that's not USD and not located in the USA (ie, another ripcord to pull besides spreading gold around a few vaults). And the small interest kicker is nice.

I recently moved out of JPY and into NOK. Always interested to hear what anyone has to say about the Norwegian Krone.

[Slimprofits]

Re: Are CurrencyShares foreign currency trusts a good idea?

I am interested in the Norwegian krone too.

pros: oil exporter, positive current account, pension reform in '07

cons: bad loans on bank books, more coming due soon, ?

stimulus / rates: http://uk.reuters.com/article/bankin...090212?sp=true

Norway's government has proposed a 10 percent increase in expenditure in 2009, while the independent Norges Bank has slashed interest rates by 325 basis points in five months.

"Interest rate setting still provides some scope for stimulus," Gjedrem said. Norges Bank cut its main rate to 2.5 percent this month and projected rates bottoming out around 2.0 percent in 2009.

fyi, the Financial Times has recently promoted bullish reports from HSBC and Merk

http://www.ft.com/cms/s/0/0fdbd8a6-1...0779fd2ac.html

http://www.ft.com/cms/s/0/ca170f16-1...0779fd2ac.html

http://www.merkfund.com/merk-perspec...009-03-10.html