Currency Matters

Published on: September 14th, 2017

When investing internationally, don’t underestimate the impact that currency moves can have on your returns.

Comments

  • lD
    lance D.
    14 September 2017 @ 22:58
    if the GMI & MI2 are not suitable as retail cannot access the vehicles to trade then i don't see what the problem is in letting us here at macro insiders have a copy ( i can keep in under my hat )
    • IH
      Iain H.
      21 September 2017 @ 22:18
      But you might give these publications to your budy who works at a hedge fund! Get real
    • lD
      lance D.
      3 October 2017 @ 11:43
      HaHa a buddy that works at a hedge fund .i should be so lucky i doubt my buddys could spell hedge fund lol . i was not expecting Gmi & mi2 to actually release there main publications to me however i do understand how you or somebody else would feel my comment was a serious request .. let me assure you it was not..more of a 'tongue in cheek comment' so wind ya neck in plz . peace out !
  • JB
    Julian B. | Contributor
    15 September 2017 @ 16:09
    Ladies and Gents let me address some of these initial comments on this piece. First of all, your input is well received and at this early stage of MI invaluable. So, keep it coming! Also, please understand that I'm certainly not trying to patronize anyone or just fill up your inbox with pointless fluff. This article was specifically prompted by a number of client requests for a guide to FX. It was therefore designed to cater to a large but unquestionably a subset of our readership. In particular, those who view currencies primarily through the prism of their impact on the total return of their equity positions. Don't forget that Macro Insiders attracts a very broad audience. Therefore, I want to ensure that everyone is up to speed, because I think the FX markets are about to get much more interesting. All the same, even in the future when I suggest themes and trades I will not be able to create a portfolio that will be a good fit for everyone. Given your different skill sets and investment objectives that wouldn't be appropriate. Instead, when we do suggest specific trades I will try to offer various ways of enacting them so that the entire spectrum of client experience and product flexibility is captured. I have noted the interest in “trading” FX and when appropriate will be suggestions. For example, just yesterday, as the Bank of England turned more hawkish, one such opportunity has arisen. Buying GBPJPY now that spot has broken 148 entertains some chunky targets around 165-168. A trader could stick a stop in a couple of big figure below the break for a 5:1 payoff ratio. I hope that clarifies a few issues? Regards Julian
    • JM
      Jim M.
      15 September 2017 @ 16:18
      The promo for MI succeded in (1) gaining a large following and a succesful launch but also (2) raising expectations quite a bit. It was HEAVY. Still a believer but.....
    • gg
      gurdeep g.
      15 September 2017 @ 18:00
      Forgive me Julian, the last paragraph almost reads as ...here's a trade idea that I thought of , enough of the negative comments. Disappointed and usually the first to stick up for RV when I read negative comments, but slowly losing my trust in this product.
    • GM
      Gerald M.
      15 September 2017 @ 19:00
      Everyone watching GBPJPY saw the technical breakout from the previous two highs at around 148. Is there a "Macro" reason for your thesis that takes it to 165, do you have a model that supports that level or is it just a technical target reclaiming the Brexit induced drop? I'm just trying to understand your thinking behind this recommendation. Thanks!
    • JB
      Julian B. | Contributor
      15 September 2017 @ 19:59
      Gerald the macro thinking is an extension of our comments around European fixed income. With the exception of the BoJ central banks around the world but especially in Europe have overcooked the economy. That's because they treated a fall in oil prices as deflationary and not what it really is i.e. transitory disinflationary but ultimately stimulative. Hence we are getting far higher nominal GDP growth than they expected. At this stage their temptation is to resist market pressures for higher rates. After all they need financial repression and I suspect some of them are trying to Nominal GDP Target. However, at some point the pressure gets too great and something has to give. In Sweden and the Czech Republic they've held bond yields down but the currencies are staring to take the strain. In Canada and now the UK we've seem a combination of bond and FX movement. The good news is that because all of these are smallish markets and none of their currencies are funding global risk then the fallout is constrained. But wait until the ECB is forced to switch tack.
    • MS
      Marc S.
      15 September 2017 @ 20:14
      Julian, thanks for taking the time to answer. I don't think we need a model portfolio to suit all kinds of investors. However, a more or less regular update on calls made would be what I'd except from a product in this price range: e.g. your dax call (which I executed via options) first went quite well, and then not so good. Updates on taking profits or on whether you still stick to it would be nice. Same for gold, which is stalling after a nice run, which you nicely called. As both Raoul and you seem to agree, time horizon and trade size are crucial; give us your updated views, and we will then make our own, informed choices as responsible investors. But we pay you for your specific views, which we value so highly!
    • JB
      Julian B. | Contributor
      15 September 2017 @ 20:42
      Marc very valid points. I know the Real Vision team are working on a far better chat room/forum, which should allow us to be a bit more interactive. However, I will say that you comments illustrate the problem we face with MI clients i.e. the client base is very diverse. You appear to be a very active trader, which is great but because you appear to use options on some of your trades, you need quick results. Now in the case of gold you got an initial bounce but now we are pausing and you want further input. However, our call wasn't meant to be a trade per se. Instead, it really meant as an allocation back precious metals after a long period of being agnostic. Maybe, in future pieces we can make set out different options to clients with different objectives, levels of sophistication.
    • GM
      Gerald M.
      15 September 2017 @ 22:32
      Hi Julian, Thank you for the quick response and tying the ideas together with the trade recommendation. That is very helpful! I have a few ideas on trade positioning but it may be easiest to just take a small exposure in the FX market. It's mine to figure out. I'm glad to hear that Macro Insiders is working on a Chat room solution. They should consider creating a private GMI Slack channel. Have a good weekend :-)
    • BT
      Bryan T.
      16 September 2017 @ 13:26
      That is a good solution. I subscribe to other high-end letters and they will suggest a few different ways to play a trade idea ...perhaps buy any ETF, an option, or a spread ... a few different ways to trade an idea. However I don't want to understate how important the educational component of the service is. The entire line of real vision products have been exceptional thus far for me personally. I enjoy some of the challenges raised at times by the advanced investment cocepts and methodology that have been presented on this platform. I feel like I have a advanced knowledge of investing but when I have to go searching to find a term I don't understand, well for me that's a good thing. I've advanced further. No one starts out as an expert and even those here with significantly advanced knowledge I can't help but believe pick up a few new ideas or have some of theirs validated or dashed. Julian, I appreciate your statement of concern and open-mindedness and effort to reach out and understand how to best serve your subscribers. I look forward to the evolution of the Real Vision product line.
    • IH
      Iain H.
      21 September 2017 @ 22:02
      Julian, Thanks for your response to comments. For me. I appreciate any sharing of your process to making a trade. I don't expect all trades will be winners. It would be helpful to get your thoughts on how it plays out as time goes on, also a guide to time frame your thinking of and maybe anything that might make the trade a dead duck that we should watch for would be helpful. So far so good .
  • IH
    Iain H.
    21 September 2017 @ 21:44
    I found this useful. To get the process of a professional is why I am here. Nothing is perfect if Julian had cracked it I am sure he wouldn't be doing this!
  • JV
    Jason V.
    15 September 2017 @ 07:20
    Clear insight into the analytical process of one of the very best analysts in the business -- that is immensely valuable. Clear guidelines on applying that process to one's own market analysis -- also immensely valuable. As for actionable ideas, in last week's Insider Talks Julian presented two clear trades directly related to this 'follow-up' In Focus piece today. Namely, short DAX (I executed this by buying April 18 Puts in the EWG ETF). And to closely watch the EUR/USD for a fall into 'the mid-teens' as a buy signal best executed on the EUR crosses. Macro Insiders is a 'foot in the door' to world-class, institutional level research. With humility, patience and personal effort this access will offer private investors manifold rewards going forward.
    • DW
      Daniel W.
      18 September 2017 @ 14:10
      Hey Jason, I am also following Julien's analysis. Regarding the DAX, my understanding of what he said is that he is expecting a higher Dax in the short term (due to a possible bounce in DXY and because the DAX was already down quite a bit from ist high) so I think his Suggestion was to wait for a better entry. A better technical solution to discuss These Things would be great.
    • JV
      Jason V.
      18 September 2017 @ 18:54
      Hi Daniel, thanks for your message. I'm looking to build into a decent short DAX position by adding contracts with rallies in the underlying. I will also look at maybe going a little further out on the time horizon as an added 'cushion'. Julian did say in the short term he expected the EUR to ease off a bit after its strong rally, thus likely adding to near term DAX strength. My hope is to build a short position with better entries offered by a rallying DAX. I wanted to at least get some puts in the portfolio to take advantage of both Julian's and Raoul's sense of an upcoming correction and increase in market volatility. The Bund yield has recently started moving higher too, and I'm keenly keeping an eye on that .6% figure Julian mentioned. That would help add to my conviction, as would a renewed spike in the EUR. Time will tell, but should be an interesting coming six months I feel!
  • AN
    AKIO N.
    17 September 2017 @ 17:22
    Isn't this piece more suitable for Real Vision TV or publications where costs are lower and more elementary? Macro Insiders is supposed to let us share the same insights as high-end research materials like GMI or Julian's service to top clients. Nevertheless, I love you, Julian^^)
    • RB
      Richard B.
      18 September 2017 @ 10:28
      completely agree. This piece of research was very basic.
    • MZ
      Michael Z.
      18 September 2017 @ 15:04
      I agree, was hoping for something more substantial.
  • RI
    R I.
    18 September 2017 @ 01:10
    Julian - Speaking of currency matters, I would like to re-ask a question I raised after your last video chat with Raoul that went unanswered. In a prior report, Raoul indicated that if the DXY trades below 93 and worst-case at or below 92, then we would likely need to drastically change our global macro views. Needless to say, the DXY has breached those levels in a sustained fashion. Given the global monetary policy convergence underway, there is little reason for an upward move in the DXY, not to mention the US's enlarging fiscal imbalance. Except for a short-lived bump in the DXY if and when the US passes a repatriation tax holiday (don't hold your breath), isn't it now safe to say that the dollar bear market (and consequently global reflation) have won?
    • RP
      Raoul P. | Founder
      18 September 2017 @ 12:37
      I as yet have not changed my views. I like to give things time as the dollar isn't just a trade to me but an investment thesis. on trades I tend to be more stop-loss focussed.
  • JC
    Justin C.
    17 September 2017 @ 15:28
    I find that as a UK investor, having some simple guidelines to help determine sensible timing for investing overseas helpful.
  • WM
    Will M.
    16 September 2017 @ 18:42
    I found this a useful piece bringing me up to speed with some currency factors I did not know about. Lets give MacroInsiders a chance folks. You just need a couple of great trades a years from this service to dwarf the subscriptions costs. I appreciate having access to Julian and Raoul and trust they will deliver, or the service will fade away. Some us do need more "hand holding" than the more experienced types I suspect are commenting below. I too have a large investment pile to try to make more than 1% real at the moment.
  • SB
    S. B.
    16 September 2017 @ 13:31
    The USD may still be the worlds reserve currency, but is the USD shortage thesis still valid? With the recent developments like for example, the oil futures denominated in yuan/gold. A higher price for the Dollar may only hasten this process. It seems to me that the USD can surely appreciate, but I don't expect a raging bull market. I must say that I am currently also a bit disappointed in Macro Insiders for this high price.
  • R
    Rahul .
    14 September 2017 @ 15:07
    Macro Insiders began with a lot of potential, though it seems that of late, the content is being created to fill the space. There was nothing actionable and the premise itself is pretty basic. I had higher expectations!
    • SV
      Steven V.
      14 September 2017 @ 15:44
      My view exactly.
    • JM
      Jim M.
      14 September 2017 @ 15:51
      I don't necessarily disagree with this but perhaps it's important to catch the subtle ideas that Raoul and Julian pass on. For obvious reasons we're not gonna get the complete GMI content but Raoul's recent comments on things like FB and GOOGL ought to catch our ear and eye. Also WGO and ELS might pay for the whole shebang over time.
    • DW
      Daniel W.
      14 September 2017 @ 17:37
      I do partially agree. I am not quite sure where this is going. Access to those two guys is something I have waited for a Long time. my Impression is that they might want to get some Basic stuff across at the start so nobody is left behind when Things get more interesting and actionable. However, I would like to hear a comment from the two. If we are supposed to stay at this Level, it feels a bit "light".
    • gg
      gurdeep g.
      15 September 2017 @ 17:33
      Far from bit 'light', we lost one week which everybody seemed to have forgotten about. Not a great piece, hedging currency exposure is rather basic even for the dumbest of investors such as myself
  • jm
    joeri m.
    15 September 2017 @ 15:21
    In my opinion I don't mind that there is no trade idea. I think it is quite normal that you can't have an idea every month (this product is not for short term trading). Different factors need to allign before making an investment. I really like theoretical lessons or history lessons on Macro Insiders. I really liked the history about interest rates and the term premium that Julian wrote about. I liked his piece on Europe and EM very much. But here I must admit the content is a little light. It would have been more valuable if you added some of the models you use to check if a currency is overvalued or not. When interest rates are the main driver of rates and when not,... That would be valuable. Imo there is not much added value to this article but if there were a few models that look at the fundamental value of the euro vs dollar, things would have been different. Given the presentations Julian has given on RealVisionTV, his knowledge of history is very clear (think about the parallel he made about the oil price collapse, interest rate movements and stock market movements from 2015 to 1987, I found it very interesting) Something that would have been interesting is the following. How does the gold call work with his call on europe? If you look at 2015 when european equities corrected heavily on the same catalyst as Julian expects now, gold declined. Will this time be different? That would be some interestig research imo.
  • CR
    Corey R.
    15 September 2017 @ 15:16
    I dont expect actionable ideas in every piece. I have only a handful of high conviction trade ideas every year I imagine its the same for them. So I am okay with articles like this more on the process. But moving averages and currency hedging is very basic for this audience. I think a better idea would be a primer on how to value a currency. Whats the difference between DXY and the trade weighted dollar and how do these affect the dollars value? What about current account, FDI, etc. And how do you form a thesis from these pieces of information? I think an article on these topics would have been valuable and of the caliber I would expect from Macro Insiders.
  • KR
    Kieran R.
    14 September 2017 @ 23:36
    It seems from comments below a lot of people just want to simply be spoon fed trade ideas constantly. I think background info and theoretical lessons (even if only back to basics) are just as important. Macro Insiders is only new and I get the impression that Raoul & Julian are slowly giving valuable insights into their processes. It takes time to flush these out and if you're patient I do think you will get tremendous value over time. But we already have received a good early stream of trade ideas whether it be Julian on gold, Raoul on USD, the oil trade, European rates. And don't forget real vision as a whole with Raoul and Kyle Bass flushing out a curve steepener idea just the other day. The trade ideas will come but I do think these simple insights are important as well because it is as much about learning and developing your capability as it is trade ideas. Also don't forget this is a retail product and many of the subscribers would have varying capabilities and understanding (you can tell by some of the questions asked in comments in previous issues) so they need to cater to everyone Cheers guys
    • lD
      lance D.
      15 September 2017 @ 06:35
      This is a spot on comment . well put
    • DB
      David B.
      15 September 2017 @ 07:38
      Please see promotional link- https://www.realvision.com/landing/gen-macro-insiders. To excerpt------------------------------ You can now access Real Vision’s first ever premium research product, Macro Insiders. Macro Insiders is a revolutionary new type of financial research product. It gives individual investors access to elite financial analysis that is typically only available to big banks, hedge funds, and wealthy families… At a fraction of the price. Macro Insiders will deliver the same benefits the world’s financial elite have enjoyed for years. It will pinpoint opportunities to make money in stocks, bonds, currencies, commodities, and real estate… In any direction. Julian and his six analysts have 2,000 proprietary models and indicators they use to constantly track the market. It all starts with the charts. And when something 'flashes', Julian and his two senior analysts find the best way to play it. --------------------------------------------------------------------- From this promo and its tie to a $40,000 subscription, I did expect actionable trade ideas. Please look at the multiple stock charts detailed in the promo. In reference to the actionable ideas form your post, what percent of your portfolio are you willing to allocate to a play on gold, Exxon puts or the US dollar? For an investor versus a speculator perhaps one would allocate 10% to all three. Market index actionable ideas are required to invest a much larger percent of the portfolio. I subscribed to make money. I can obtain theory free from multiple sources including many financial web sites. Please take my comments from the view of an individual investor with 1.5 - 2 million dollars in both IRA's and non-retirement assets. My goal is investing more of this with ideas from my subscription.
    • EF
      Eric F.
      15 September 2017 @ 10:54
      I include myself as someone with less experience who would benefit from some of the potential trades being laid out more explicitly. I think some of the criticism below is a bit harsh but it would be a shame for myself and others to have to abandon this service because of an inability to justify costs. I do think some sort of forum could be provided whereby some of the more experienced guy then maybe help flesh out ideas. My preference though would be that Raoul & Julian provide a few potential ways to play themes. Every issue doesn't have to chock full of trades but it does feel a couple of specific trades against ideas would be welcome by most each month.
  • GM
    Gerald M.
    14 September 2017 @ 16:22
    As someone who has invested in two currencies for years, I was surprised by how basic this was. It left me with the impression that Julian was short on time this month and wrote a simple piece about something that anyone paying $2K or $3K would already know. I can't think of anyone I know who doesn't know about moving averages. I haven't specifically used a 15e/24w cross before but it's just a cross Backtesting this cross might lend a little more credibility but crosses generally whipsaw traders into abandonment. If Julian has provided a single actionable idea based on COT positioning in conjunction with a cross, I would have given this piece high praise. As it is, I have a new moving average cross to try and maybe there is some value there. This is yet another good reason for getting a forum together for subscribers. If we have to do the heavy lifting ourselves, we need a way to trade ideas that expand on Raoul and Julian's work.
    • GM
      Gerald M.
      14 September 2017 @ 16:24
      Of course I meant 15e/34w as per the article. Hey Macro Insiders, can you give us an edit function please? Thanks!
    • JL
      J L.
      15 September 2017 @ 09:51
      Apologies for repeating myself on here but a forum is a must in my opinion, come on, many free amateur sites provide one....
  • DB
    David B.
    14 September 2017 @ 21:26
    Please note I subscribed to this $3000 service for actionable ideas. It's unbelievable an institution would pay $40,000 to read opinions. I am at the point of just writing this subscription off as a loss given the few realistic actionable ideas since July. Please feel free to call or email me. Very disappointed in this subscription. Comment may have spelling or grammar errors typed from my iPhone.
  • md
    mike d.
    14 September 2017 @ 21:09
    I agree completely with other comments that some actionable ideas, should be included. Example; If you agree with this idea buy xyz. If you don't agree don't.
  • RM
    R M.
    14 September 2017 @ 19:52
    Julian: In future pieces would appreciate a discussion of which technical indicators you find valuable for different situations and markets. The all too short discussion of 15e/34w was the most valuable part of this piece. Further discussion on indicators you have found useful would be welcomed. Thanks.
  • rj
    rodolfo j.
    14 September 2017 @ 19:19
    Appreciate the article, and made me think on my current thesis of MXN USD valuation in the short and mid term.... I was overly excited to see the Real and Peso mentioned, just to be taken to the back burner as usual hehehe. Anyone can discuss my "investment thesis": The Mexican Peso is expensive. I'm assuming a 20-40% devaluation of the peso in the next 12 months. Saludos from Mexico!
  • MD
    Michael D.
    14 September 2017 @ 15:21
    Nice to have actionable ideas, if any, or a statement to the effect that trades are simply developing, and an update of prior ideas (gld gdx gdxj). Also, a running portfolio, even one as simple as that kept in the Weekly Hack would be nice, or better an allocation guide assuming a portfolio of $100K. Realize this is challenging because you have viewers in different countries with different currencies and goals at different stages in their lives, but you can keep it as simple as you like and state your assumptions. (David & Tom Gardner have a nice one at Motley Fool.) Two-cents.
  • MT
    Michael T.
    14 September 2017 @ 15:08
    "The only difference between me and you is that I do the basics very, very, very well."- Quote from a world champion skydiver coaching me. Thanks for summing up what is important looking at currencies and for the introduction to exponential and weighted moving averages.
  • GH
    Gary H.
    14 September 2017 @ 14:28
    Wow - not sure the point in this. Very basic stuff I would expect any subscriber to already know.