How to invest during weak EUR, high inflation, and meek interest rate?

[kcnalp]

@peterson1111 Oh thats nice.

Which means in two years I could sell all IUSE and buy SXR8.

oh you have lump of cash, then that could work. But I'm not financial adviser, keep asking.

 

[agamemnonoftroy]

@peterson1111 Scuse me? You have no capital gain tax just after 2 years?

 

[peterson1111]

@agamemnonoftroy No.

 

[agamemnonoftroy]

@peterson1111 Nice!

 

[mursieme]

@peterson1111 Very interesting example

 

[craig01]

@peterson1111 What is your basis to state that the USD is too strong?

 

[vitfitprayer]

@craig01 people in europe make peanuts if euro is so weak

 

[memejz]

@vitfitprayer That is a stupid answer. The correct one is that a strong dollar makes it unattractive for outsiders (non-usa) countries / buyers to shop stuff from usa. Hence their international sales / trade will decline. A weak dollar makes everything look cheap to outsiders and they will buy more from usa.

 

[craig01]

@memejz Yes but when do you know it is too much? Also it's not like I'm buying a lot of Boeings and Mustangs (sadly). I feel like most of my consumption would be more tied to CNY than USD.

 

[memejz]

@craig01 Yeah cause consumers are the big spenders in international trade...... Companies dictate it. At a certain point it will be cheaper for europe to buy/develop inhouse than to import from USA. This barrier varied per company/household etc. But overall it doesnt help if dollar goes up. At least not for international trade.

 

[jeepneytravel]

@kcnalp I usually make no directional bets unless the market situation is very clear and the opportunity evident (lehman or covid-level crisis). Otherwise tax and transaction costs are not worth the bet.

 

[kcnalp]

@jeepneytravel I completely agree with the tax debacle!
So you are saying you will keep buying USD assets with EUR while EUR itself depreciates?

 

[jeepneytravel]

@kcnalp Yes, the important thing is not denomination but correlation between USD and underlying earnings. Broad indices include companies that do business worldwide so their future earnings should not be so closely correlated with the dollar.

 

[kcnalp]

@jeepneytravel I get that, but how do you deal with getting fewer positions with the same budget over your DCA period?

 

[jeepneytravel]

@kcnalp That happens every time the market goes up right? You just invest what you money you have and try to rebalance at the same time.

 

[kcnalp]

@jeepneytravel Good point, but with deflating euro against usd the marking swing effect is compounded with currency loss. Is there better way to decouple those effect or you just turn a blind eye, have faith on historical data, and believe they will zero out?

 

[jeepneytravel]

@kcnalp It sounds to me like you are still assuming that your assets move in sync with the USD which should not be the case so the compound effect should not be that large. I let it swing, as you say, since I believe that large currency movements are offset by interest rates and trade in the long term. Now the dollar is strong because the FED is raising rates faster than other currencies, but other central banks will follow suit. Moreover trade with the US should improve given that foreign goods look cheaper to US consumers.

 

[kcnalp]

@jeepneytravel

that your assets move in sync with the USD which should not be the case so the compound effect should not be that large.

MSCI World is at least 50% US Company, I get that they operate internationally and strong dollar is bad for that, but they are US company still, and the US itself is a BIG market. With cheaper import, It should have some positive correlation with dollar strength, I don't know if we can just ignore the compound effect.

I'm under the impression that all this US-centric investment strategy (e.g., the VWCE cult) and often cited historical data are made from perspective of US person, assumes there is no currency risk, since they earn and invest in USD.

 

[jeepneytravel]

@kcnalp American companies will buy foreign currency to buy those cheap imports so that should counter the trend, is what I meant.

You are right that the whole discipline is US centric - there is no rational reason to weigh regions in global ETFs based on market size if you really think of it - but the good news is that the dollar is very stable and luckily for us it does not move too far from the Euro.

I would buy an equal weight global ETF if there was one.

 

[kcnalp]

@jeepneytravel

American companies will buy foreign currency to buy those cheap imports so that should counter the trend, is what I meant.

Hmm, so Apple would stocks some Yuan or Taiwanese dollar when they import their devices? Wallmart do the same for their wholesale import? I was under impression USD is still used..

You are right that the whole discipline is US centric - there is no rational reason to weigh regions in global ETFs based on market size if you really think of it - but the good news is that the dollar is very stable and

Yeah not saying it's bad, some assumption stays the same or is sufficiently close

luckily for us it does not move too far from the Euro.

I consider >20% slips to be far enough.