Sanrith Descartes
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Investing General Discussion
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Jysin
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15:00*(US) APR CONSUMER CREDIT: $17.9B V $10.0BE - Source TradeTheNews.com
Nothing to see here. Healthy consumer.
Nothing to see here. Healthy consumer.
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Big Phoenix
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Lambourne
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What's changed is that the dollar has lost substantial value YTD, which is why this Euro-denominated ETF is still 12% off the February high. If you're in the US you might be back at the same point nominally but much of the recovery may have been from inflation. Fed still has some of the highest rates which I think signals that inflation isn't under control.
A weaker dollar is going to drive up costs for importers even without a tariff in place so those effects are going to show up at some point. I think the Trump/Musk spat has made it obvious that the deficit isn't going to be brought under control in a major way so I wouldn't be surprised to see the dollar devaluate further. EUR/USD is around 1.13 now, it ballooned to over 1.50 during the GFC.
Interest rate graph from here:
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Asshat Foler
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Lambourne
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All fiat currencies lose value, some just lose value quicker than others. My take is that the dollar is losing value more quickly than the Euro currently.
Dollar lost 10% value since February so if you (as an American) had bought a Euro stock then it would gone up 10% in dollar denominated value even if the stock price in Euros didn't change at all. European stocks have done better than the S&P this year, probably for that reason. Diversifying worldwide can offset currency risks (including those in your home currency)
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Asshat Foler
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Interesting. So these ETFs are basically buying the same sp500 index but in euro denominations?
Lambourne
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Any time you hold a stock that is traded at a stock exchange in another country (directly or through a fund like an ETF) there is an exchange rate risk. If the foreign currency loses value relative to your own, you lose money. If the reverse happens, free gains.
The fund above is a European domiciled fund that you drop your Euros in and then they buy S&P500 stocks with it. Since all of the S&P 500 stocks are traded in the US at dollar denominated stock exchanges, there is an exchange rate risk for European investors. Dollar has lost value compared to Euro, so European investors lost more money compared to where we started earlier this year. Last year the reverse happened and we got free gains.
If you're in the US and you expect the dollar to fall relative to other currencies, buying foreign stocks can be a way to shield yourself or even profit from that. For example, ACWX is an ETF that you can buy in the US and it holds non-US stocks from all over the world. You can see it has gained substantially from earlier this year, partly because of the weakening dollar.
Blazin
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Trying to balance the loss of purchasing power across more depreciating fiat currencies isn't something I would find to be of value. For some foreign investors might want to do so, like a member of the 51st state may want to avoid holding the S&P in their maple syrup dollars.Thanks. This is pretty interesting stuff. Would be interested to hearBlazin thoughts on if this would ever be a worthwhile hedge in a long term portfolio.
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Lambourne
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I fully get that it's probably not something that active traders like you get involved in. You're a very different type of investor than I am.
For buy-and-hold, broad fund investors like myself it's quite a big concern. 10% currency devaluation can wipe out an entire year's returns. Diversifying across the world can lower that risk (and the return)
I don't understand your Maple Syrup dollar point. If Canadian dollars are going to tank relative to the USD, holding US stocks would protect Canadian investors from that devaluation.
Blazin
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You're being specific where I'm being general. If Canadian dollars are going to tank relative to the USD currency hedging might be of value to them...
We agree.
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