When All Currency Investments Look Bad

There was a joke on a famous satire site that said, “the nickel has devalued against the quarter” or was it, the “quarter has devalued against the dollar”? Either way, it gives a good indication of present concerns when all major currencies appear to have negative features.  Most people believe the US dollar is on a long trajectory downward with massive government deficits and trade deficits to contend with.  The Euro is not the darling that it was a year ago as Greece encounters severe fiscal problems and potentially threatens the stability of the currency bloc.  Meanwhile the British pound has been targeted by many strategists to suffer a devaluation over the next few months. One reader asked me if there were alternatives in the currency arena that I liked. Here are some thoughts:

–Australian dollar — The Aussie dollar has been attractive as a high yielding currency.  It tends to move with commodity prices since Australia is a major exporter of basic commodities including iron ore.  Tends to correlate with global growth.

–Emerging market currencies — there’s a lot of attention on the value of the Chinese Yuan. In addition, growth prospects in emerging countries tends to be more attractive than in developed countries. Wisdom Tree has an emerging currency fund that is indexed to multiple currencies to have exposure spread out to avoid one country exposure.

–Gold, silver, or other metals — typically when all currencies look bad, a flight to quality tends to happen in gold.  Be aware that gold has had quite a runup already.

–Avoid lots of big bets in high risk areas — sometimes when all of the options seem negative, the thing isn’t to chase any of them, but rather to wait for a more opportune time.  This isn’t to say to sit out all investments, but currency driven ones may not be the best risk-return balance right now.

shared at this week’s Carnival of Personal Finance