Best way to protect against a collapse in the euro

Brendan Burgess

Brendan Burgess

Founder
Messages
52,181
I don't know if it will happen or not, but I would like to take some precaution against this risk.

Some Irish shares are well diversified with a high proportion of their earnings coming from outside the eurozone e.g. CRH. (in which I am an investor). Is there any research on the exposure of Irish quoted companies to the euro?

I had thought of putting money on deposit in a sterling account, but I reckon it's better to buy UK shares.

Any particular sectors which offer diversification which is not available in Ireland? I am thinking of the oil companies which probably give exposure to the dollar and sterling. British utilities maybe?

I don't like ETFs as gains or losses are of no use for CGT purposes.

What about a UK Investment Trus i.e. a quoted share so I can use the CGT gains or losses.

I presume that there must be unit trusts which invest in American shares? Are these tax efficient for an Irish resident?

Please limit discussion on this thread to what an individual investor can do. The general implications can be discussed in this thread.
 
I was going to just hold some Euro notes as cash, in case Ireland defaulted.
What would happen to our cash if the Euro collapses? - will the notes be practically worthless?

What is likely to happen, Greece defaults, then Ireland or does the Euro just collapse once Greece defaults?
 
Do you not think that moving from Euro to Sterling or US Dollar is like jumping from the fryingpan into the fire? I would suggest currencies from countries with prudent fiscal polisies and lots of natural resources: Swiss Francs, Australian Dollar, Canadian Dollar.

If you are looking for oil/gas exposure take a look at Canadian Energy Trusts, which also give a regular monthly dividend at very high yields.

And then there is always gold and gold miners, but there is an extensive separate thread on this.
 
Would it not be prudent to invest at least a portion in an 'apocalypse' fund? Something that can be easily bartered in small amounts.
Precious metals are fine, but might be hard to barter for everyday goods, if the worst happens.
Maybe water filters or fuel might be a good choice.
 
It depends what you mean by a ‘collapse’ of the euro? i.e a devaluation or the collapse of the single currency system? Assuming a significant devaluation were to occur, as the return on foreign currency denominated stock markets (e.g. S&P500, FTSE100) is the return on the stock market plus the change in the exchange rate since the date of purchase, you would expect a devaluation of the euro to increase the returns on foreign denominated stocks when expressed in euro. If this results in an portfolio overweight in foreign denominated equities, you could capture the gain by re-balancing your portfolio by switching out of foreign denominated equities into cash or euro denominated assets. Unless you are a dyed in the wool buy and hold investor you should be looking at technical events or price points at which you would switch out of foreign currency denominated equities, if the euro were to devalue significantly. [Disclaimer: The above is comment / observation and is not a recommendation to follow any particular investment strategy or to buy / not buy any particular fund or stock.]
 
Do you not think that moving from Euro to Sterling or US Dollar is like jumping from the fryingpan into the fire?
Click to expand...

I wouldn't be moving my entire portfolio, just part of it.

I like the idea of an apocalypse fund. Although I would not go so far as to have goods to barter.
 
I would firstly pick up a copy of Peter Schiff's 'Crash Proof 2.0'.

Where ever he says dollar replace with euro and US with Ireland ;-)

I am doing the same with sterling in the UK.

Basically I suggest diversification and go defensive.

One option- UK mega cap, cash rich, defensives like Astrazeneca, GSK, BAT, Shell, BP, Vodafone. These are yielding 5% or so and on P/E's of around 8-14. They haven't risen as much as the trash cyclicals and offer more downside protect IMO.

I believe the euro to be highly overvalued against sterling unless Labour / hung parliament win the next UK election and the bankruptcy occurs. If the tories get in I see sterling rising a lot v the euro and dollar.

Otherwise hold some precious metals.

Also Asian stocks. Most are currently on high P/Es and price to book though. Japan is dirt cheap and the Nikkei has made a double bottom IMO after 20 years in the doldrums.

Basically Peter Schiff says 3 ways to make money when your currency tanks - capital gains, dividends and currency gains.

The last 2 are the most important. Buy for dividend and in countries with trade surpluses and foreign cash reserves. Their currencies will likely rise v the bankrupt West over the next 20 years.

Best currencies IMO for the long term investor-

Norwegian Krone
Aussie Dollar
Singapore Dollar
Canadian Dollar
Chinese Yuan (if you can buy it!)

Countries with 'real' rock solid economies behind them.

In the UK Investment Trusts (IT) are better than Unit trusts IMO for the long term investor.

You can buy IT's at a generally lower annual management charge, also a lot sell at a discount (but understand this mechanism first!), have management boards etc.

I also like uncorrelated assets like timber as a small portion of a well diversified portfolio.

worst investment going forward for the long term investor-

Fixed Interest Government Trash Bonds

As above, Please do your own research - this is not a recommendation ;-)
 
I can't see anyway that the US Dollar, Euro and British Pound aren't completely destroyed in value over the next 20 years.

Debt at 80%+ of GDP.

Deficits of 10%+. This is an unbelievable statistic. Truely unbelievable.

Deficits will probably end in 5-10 years leaving debt/gdp at peak of 110%+.

Massive trade gaps.

huge unfunded public liabilites (making the real debt/gdp levels of 350% to 500%).

The West is stone cold broke. If it were an individual or company we would long ago have been declared bankrupt.

It is only a matter of time. The only answer is to destroy our currencies. Totally destroy them through printing and printing, stoking inflation and then eventually World War 3, but that is another argument ;-)

for the long term investor 10 years+ then I believe you have to invest in real economies and currencies.

Where do you want to hold your wealth?

The bust West or in real asssets that rise as your currency becomes worthless?

Marc Faber says the West will run negative interest rates for a decade to destroy the debt. In such an environment shares and precious metals will thrive.

Also Asian and 'real' Western (Aussie, Canadian, Norwegian) currencies and stocks will rise considerably v the bankrupt West.

Diversify, diversify, in real stocks in real producing or resource rich economies.

If you want to buy Western stocks, then like you say ones with diversified foreign earnings are the place to be IMO.

Rock solid blue chip mega cap defensives with exposure to emerging markets.
 
everbank

[broken link removed]

click research and planning foregin currency reserves u can setup any account u want based on that.

im not affiliated with this crowd.
 
id be inclined to go with the chinese currency as revaluation is imminent within 6-9 months no doubt.
 
What people should remember is that the stocks and shares in countries who devalue will almost certainly see a sharp and immediate bounce.This is completely logical given the impact of devaluation on competitiveness and stimulus it gives to the economy.This is what happened here in 1993.
Euro break-up is a bigger issue for depositors who may have almost nothing to lose and potentially a good deal to gain - a 'Euro' deposit which ends designated as a new 'PIGS -free' Euro or the new Deutschmark will be worth more.
While agreeing with Brendan's point about CGT,I think he has dismissed ETFs far to lightly.They are an ideal way of gaining exposure to markets like Canada which previous posters have identified(correctly IMHO) as attractive in a world of fiat currencies.
 
Negative real interest rates ( that is the nominal rate - inflation rate) erode or destroy the true value of the debt. I believe Faber's argument is that govts like the US keep printing and printing money. This in turn creates inflationary pressures down the road. The higher rate of inflation combined with the low nominal interest rate environment creates a greater 'negative real interest rate'.
In turn, this is why faber is fond of gold. As gold as no yield, the opportunity cost of holding it is the interest rate that you could of got for your money. So with real negative interest rates, the opportunity cost is diminished.
 
plendoza said:
How does running negative interest rates destroy the debt?
Click to expand...

Borrowing costs below the rate of inflation.

In such an environment the IOUs that a government owe to its creditors can be repaid with currency that buys less than it did when the debt was first taken out, after adjusting for inflation at any point in time.

In such a situation when a creditor receives his/her capital sum back at the end of the bond duration, it will be worth far less in terms of what it can purchase.

In such an environment precious metals and equities will perform the best and hold up better v inflation.

Faber makes a great point along the lines of-

We may only see 5%-10% inflation or so going forward. This is much less than the 70s. However with interest rates so low at 1%-3% or so; the 'real' negative interest rate is significantly more than the 70s.

I believe that interest rates should be around the level of inflation or slightly higher. If anyone can enlighen the discussion on the relationship between inflation and bank interest rate it would be interesting to hear?

The West will likely have interest rates much lower than the inflation rate going forward. Also governments always lie and defraud the public on the true inflation rate through hudonic adjustments (falling electrical goods like i-pods going into the basket of goods to replace everything that rises in price - oil, food, insurance, etc).

Hence we could infact experiencing higher inflation in 'real' terms than we did in the 70s.

Bonds and cash will be destroyed in such an environment.

It may not happen for years in the likes of Ireland where major deflation is still taking its course. Nonethless in the UK it is already occuring.

Inflation of 3-3.5% and the best a bank will give you in interest is 2% or so. There are odd bank account in line with the current inflation rate but the majority well under.

So in the UK currently, bond and cash holders are paying the government a rate of 1% or so to look after their money!

This is government theft of the hard working savers in society in order to to pay for a bloated state.

As inflation takes hold and rises significanlty higher than the world's bank rates rise; it will cost hard working savers more and more in government theft.

In a world of no yield or negative yield on cash, then Faber see's gold as being a great buy. Makes sense to me.

I am parking my savings in the stockmarket and commodities ;-)
 
the aussy dollar seems like a strong candidate as they were not hit that hard by the credit crunch and their are a commodity based currency.
 
There are several currencies that are doing really well at the moment, some are fairly unexpected. One is the Aussie Dollar, but also the Israeli Shekel for example. The country is going through a property and commercial boom.
 
This may be a dumb question, but can anyone on AAM outline how to buy a large amount of foreign currency? The more I see events unfold with Greece and the euro the more I think that eventually there will be a break-up. Personally, at this point, I would feel happier holding my savings held in another currency......just not sure how to go about buying it!
 
Calico said:
This may be a dumb question, but can anyone on AAM outline how to buy a large amount of foreign currency? The more I see events unfold with Greece and the euro the more I think that eventually there will be a break-up. Personally, at this point, I would feel happier holding my savings held in another currency......just not sure how to go about buying it!
Click to expand...

You can try your local bank first, I think I saw a link to foreign currency deposit accounts with PTSB on another thread.

The other option is a foreign financial institution, which gives you the added safety from government confiscation. One option is www.goldmoney.com where you can hold your funds in gold, silver, platinum, USD, CAD, GBP, EUR, CHF, JPY, but you will not receive interest.

(I'm not affiliated to any of the above companies, but am a customer)
 
You must log in or register to reply here.
Back
Top