As your graph confirms, over long periods the expected return of FX is zero. If you intend to accumulate/spend gradually then hedging is a waste of time and money.NormR wrote:I generally don't bother with currency hedging. Sometimes it makes you look brilliant and on other occasions the opposite. Personally, I'd rather avoid the costs of hedging.
High US Dollar
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Re: High US Dollar
Sedulously eschew obfuscatory hyperverbosity and prolixity.
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Re: High US Dollar
Be better on a log scale.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Re: High US Dollar
No, it's a $1 initial investment, dividends reinvested, no fees/taxes.pmj wrote:For reference, does this represent, for example, investing $1000/year over ## years?
Re: High US Dollar
It was a quick back-of-the-envelope type graph designed to show the recent pattern to people who don't think in log terms. So, for my purposes, it was the best choice.Shakespeare wrote:Be better on a log scale.
Re: High US Dollar
Thanks for the graph Norm!
I took the 1980-2000 period for the "red line" knocked off 15 basis points from the yield and the 2000 data point on the red line falls down to the blue line. In other words the cost of hedging (if only 15 basis points) destroys the advantage of hedging. Apparently, real costs of hedging can be far higher (judging by tracking errors between a hedged index and a hedged index fund).
I do not hedge my foreign equity content. However (full disclosure), I do hedge my foreign bond content (some PIMCO, some Altamira HYB and some Manulfe floating income fund...). Perhaps this is a mistake... My argument has always been that these funds are meant to be spent out over the next decade and I did not want to have to worry about Forex risk.
I took the 1980-2000 period for the "red line" knocked off 15 basis points from the yield and the 2000 data point on the red line falls down to the blue line. In other words the cost of hedging (if only 15 basis points) destroys the advantage of hedging. Apparently, real costs of hedging can be far higher (judging by tracking errors between a hedged index and a hedged index fund).
I do not hedge my foreign equity content. However (full disclosure), I do hedge my foreign bond content (some PIMCO, some Altamira HYB and some Manulfe floating income fund...). Perhaps this is a mistake... My argument has always been that these funds are meant to be spent out over the next decade and I did not want to have to worry about Forex risk.
"The term is over: the holidays have begun. The dream is ended: this is the morning."-C.S.Lewis, The Last Battle
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Re: High US Dollar
I think Canadians were actually buying USD back in 2008-2012. I believe I read that most were seniors. Canadians, for a few years, were one of the largest buyers of U.S. real estate.SoninlawofGus wrote:That's the problem with charts. Looking back, it's obvious that everyone should have been buying USD, but hardly anyone was it seems. The media was talking about the CDN dollar heading to 1.50. The US was in a state of collapse and Canada was riding high. I wonder how many people on this board were buying more USD at that time. I was, but not nearly enough. The flip side is when will the CDN go too far too quick? I don't think we're there yet, but I obviously don't know what I'm talking about.
Anecdotally when I dealt with various U.S. realtors, they said that virtually all their clients were retired Canadians. I was the only 30-something Canadian that they were dealing with at the time.
Thanks for that Norm. I believe I saw a similar chart a long time ago, but it's nice to stroke the old confirmation bias.NormR wrote:Here's a quick graph I recently cobbled together showing the returns of the S&P 500 in CAD and USD. I had to check the starting / ending FX rates just to make sure I wasn't goofing up
My perspective would be the same.NormR wrote:I generally don't bother with currency hedging. Sometimes it makes you look brilliant and on other occasions the opposite. Personally, I'd rather avoid the costs of hedging.
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Re: High US Dollar
Been thinking about this recently. It appears that the USD/CAD at 1.31, historically speaking, is at fair value (just glancing ignorantly at the charts that George linked)? Perhaps we may see the CAD increase from here?
Re: High US Dollar
Perhaps. Or perhaps it may decrease. Imagine the election of an NDP majority in October.Flaccidsteele wrote:Perhaps we may see the CAD increase from here?
In my view it is impossible to forecast changes in FX rates (just as it is impossible to forecast interest rates).
George
The juice is worth the squeeze
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Re: High US Dollar
Still got your card, George?Imagine the election of an NDP majority in October.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Re: High US Dollar
Yes.Shakespeare wrote:Still got your card, George?Imagine the election of an NDP majority in October.
Senate nomination coming up
(I would turn it down. Still it would be nice to be asked.)
George
The juice is worth the squeeze
Re: High US Dollar
Currency returns vs US dollar
Over 15 years, most major currencies are flat. Just as the theory says they should be.
Over 15 years, most major currencies are flat. Just as the theory says they should be.
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Re: High US Dollar
End of the line for the U.S. dollar rally?
In the meantime, the Fed’s isolation may add to pressure on it to keep interest rates lower for longer and protect the U.S. economy. In the past month, traders have pared bets the Fed will boost rates at its Sept. 16-17 meeting to a 28 percent chance of a rate increase, down from 50 percent odds as recently as Aug. 13.
The U.S. Dollar Is Gaining Like It's the 1980s -- For Better or Worse
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Re: High US Dollar
Maybe I should take up currency trading!Flaccidsteele wrote:End of the line for the U.S. dollar rally?
Canadian dollar jumps on disappointing U.S. jobs report
The Canadian dollar has rebounded sharply over the last three days, taking a jump on Friday because of a report showing disappointing job numbers in the U.S.
The loonie is up half a cent in late afternoon at 75.94 cents US and has moved up just under one and a half cents since a mid-week low of 74.50.
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Re: High US Dollar
I guess it's now possible that the Canadian dollar will continue downwards. We'll see what the Fed will do in December.
Robust U.S. jobs report bolsters case for December rate hike
Robust U.S. jobs report bolsters case for December rate hike
U.S. job growth surged in October and the unemployment rate hit a 7-1/2-year low of 5.0 percent in a show of economic strength that makes it much more likely the Federal Reserve will raise interest rates in December. Nonfarm payrolls increased 271,000 last month, the largest rise since December 2014, the Labor Department said on Friday.
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Re: High US Dollar
It's hard to imagine the Canadian dollar going down much further from here. We're likely closer to the bottom than we think.
Canadian dollar traders are getting ready for the last leg down
Canadian dollar traders are getting ready for the last leg down
Forecasters see the Canadian dollar weakening to $1.35 per U.S. dollar in the first three months of next year, and then strengthening to $1.32 by year end, according to the median estimate of a Bloomberg survey. The loonie closed Monday at $1.3373 per U.S. dollar, or 74.78 cents (U.S.).
Re: High US Dollar
Why?Flaccidsteele wrote:It's hard to imagine the Canadian dollar going down much further from here.
Imagine
(1) domestic price of oil falling further, perhaps due to increased production in the Middle East, perhaps due to Canadian production being "locked in" due to lack of pipelines
(2) interest rates rising in the U.S. and perhaps Europe, but not in Canada, because of a weak economy
(3) migration of capital from Canada to other jurisdictions, as taxes (and energy prices) go up in Canada
Why?We're likely closer to the bottom than we think.
Mind you, we're closer to the bottom than we were a year ago. But being closer to a minimum after a decrease is a tautology. (Of course, that doesn't stop market commentators from saying this about securities that have fallen in price. But then most of their statements are devoid of content.)
George
The juice is worth the squeeze
Re: High US Dollar
How strong is the dollar?
The dollar is more overvalued as measured against the major currencies. The above-average valuation is probably well justified, given economic troubles in Europe and Japan.
Measured against a broad basket of currencies, the dollar is 2% above the long-term average. Nothing extraordinary to see here.This chart is arguably the best way to look at the relative strength or weakness of the dollar. It's calculated by the Fed, and adjusted for trade weights and inflation. There are two versions: one using a broad basket of currencies, and the other using just seven major currencies (euro, Can$, yen, pound, swiss franc, aussie$, and swedish krona). The most recent data, released today, shows that the dollar is trading about 2-12% above its long-term average values against these baskets of currencies. I've used a log scale for the y-axis in order to better reflect the degree to which the dollar is above or below its long-term average.
The dollar is more overvalued as measured against the major currencies. The above-average valuation is probably well justified, given economic troubles in Europe and Japan.
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Re: High US Dollar
http://www.theglobeandmail.com/report-o ... e27525105/
FYIW, I've seen forecasts of 2:1 CAD/USD, albeit an extreme case.
FYIW, I've seen forecasts of 2:1 CAD/USD, albeit an extreme case.
Re: High US Dollar
I don't think the loonie will fall to much under 70 cents. At the height of the debt crisis in mid-1990s, we got to circa 64-65 cents. That said, clearly our economy is going nowhere fast and the loonie should continue to soften. Much like George, I see the key issues as:
1. Unless the Saudis have a change in heart, the effect of low oil prices has at least a year to run. Capex budgets are still being cut and the impact via indirects has yet to be fully felt. Short of a mircle in improvement in Services, GDP has no basis to grow and tax revenue growth is a fantasy.
2. Between the likes of Notley, Wynne and Trudeau raising corporate taxes and imposing CO2 taxes (never mind increased electricity prices for a variety of political reasons), corporations have little reason to re-invest in Canada. There won't be enough new investment in renewable energy to offset the declines elsewhere. It would take a man with balls like Buffett to invest in Canada right now.
1. Unless the Saudis have a change in heart, the effect of low oil prices has at least a year to run. Capex budgets are still being cut and the impact via indirects has yet to be fully felt. Short of a mircle in improvement in Services, GDP has no basis to grow and tax revenue growth is a fantasy.
2. Between the likes of Notley, Wynne and Trudeau raising corporate taxes and imposing CO2 taxes (never mind increased electricity prices for a variety of political reasons), corporations have little reason to re-invest in Canada. There won't be enough new investment in renewable energy to offset the declines elsewhere. It would take a man with balls like Buffett to invest in Canada right now.
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Re: High US Dollar
I think ig17 and AR have provided as good reasons as any.ghariton wrote:Why?
Re: High US Dollar
Really? The blog post that I cited doesn't support your side of the argument. US dollar isn't terribly overvalued compared to the long-term averages.Flaccidsteele wrote:I think ig17 and AR have provided as good reasons as any.ghariton wrote:Why?
Re: High US Dollar
Maybe not relative comparing the greenback to a basket of currencies, but the loonie has further to fall against a number of currencies. There is a difference depending on from where one views it.ig17 wrote:Really? The blog post that I cited doesn't support your side of the argument. US dollar isn't terribly overvalued compared to the long-term averages.
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Re: High US Dollar
Looking back at my original post I am glad I didn't sell any of my US dollars at the time. However, I am in the process of exchanging a small sum using Norbert's Gambit this week -- just waiting on the trade to settle.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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Re: High US Dollar
If oil is only 3% of Canada's GDP why is the CAD getting smoked?
Mods pls move to oil thread if more appropriate there.
Mods pls move to oil thread if more appropriate there.
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Re: High US Dollar
32% of GDP is export of goods and services in 2011-2015. In the 2001 to 2005 period the % of export was 37 to 42% and the dollar was 1.5 to the USD then too. The number appears to be going up. To maintain a non-negative GDP figure, and if oil is 3%, I imagine the CAD$ must devalue to the point that we can export 3% more (35%) to stay flat and maybe 4 or 5% more to get a 1-2% growth rate? Only problem is the rest of the world has also moved forward and maybe the world has more to offer for exports such as Mexico or China or Eastern Europe. Another option is to increase GDP by mass immigration and job creation.