Diversify Your Assets Now – Invest in Foreign Currencies, and in Foreign Countries

Eric Roseman (July 16, 2010)

Last week I met a lot of investors at Freedom Fest in Las Vegas. These freedom lovers were shocked by the state of government finances.

Most of the investors – over 2,000 this year – at our Sovereign Society presentations didn’t have offshore bank accounts. But they were eager to move some assets overseas.

I urged these delegates to immediately open a European private banking account.

(FYI – the offshore event of the year is still to come. Read this important announcement to find out how it pays to be early to the party…)

A private account in a good offshore jurisdiction can possibly shield assets from domestic economic uncertainty. And asset protection is important. But most people are clued-out. They think private banking is only for the Big Boys. It couldn’t be for them.

Not true.

I’ve always believed it’s a big mistake in financial planning to have all your assets denominated in one currency. And even worse, under the auspices of one legal system.

To me, this is a recipe for financial suicide in the age of violent capital markets, credit destruction and massive fiscal deficits.

This is the essence of The Sovereign Society since its inception 13 years ago: it’s your right to diversify worldwide and seek the best strategy to protect your nest egg and minimize taxes.

And today, you’ll see how to do just that.

It’s All About the Dollar … or is it?

When you think about it, most of us earn an income in dollars. We maintain IRAs or 401(k)s in dollars. We hold insurance and life policies in dollars.

The list goes on. Investment portfolios? Dollars. And, of course, our home and real estate holdings are in dollars.

You get the point. Our lives depend upon the strength of what, in essence, may not be worth the very paper it is printed on.

Well, many people’s lives are dependent upon this fiat currency. Sovereign investors like us know that there are dozens of other currencies out there into which we can diversify our dollars.

And anytime I can exchange money for, well, more money – well, count me in!

The Smart Way to Turn Dollars into Bigger Bucks

With the stock universe boasting upward of 10,000 tradable securities, it’s just as easy to pick a loser as a winner. The problem is, when you’re only able to bet on stock going up, you could find yourself with pain instead of profits.

Currencies enable you to pick a winner … and a loser … and play them against each other at the same time. You buy the stronger one and short the weaker one, and you’ve just created your very own two-pronged profit play.

Specifically, what you want to do is buy surplus currencies and sell deficit currencies. That’s the long-term trend now as global economic power continues to shift from West to East, a trend since 2008.

Goodbye Dollar, Hello Profits

A major divergence has begun. Emerging markets’ central banks in several countries are raising their interest rates while the Federal Reserve stands pat.

And as rates rise in fast-growing countries, the dollar stands to lose.

Over time, emerging market currencies will likely continue to appreciate vis-à-vis the dollar and the euro.

A few years ago, The Sovereign Society, in conjunction with Everbank, launched the Asian Currency Portfolio, backed by FDIC. It is a one-stop shop for holding major Asian regional currencies.

Our reasoning back then was that Asia’s major currencies would appreciate against the dollar over time. Their compelling growth rates, accumulated surpluses and undervaluation versus the dollar all supported this notion.

Now, these secular trends are powering ahead as Asian central banks tighten monetary policy. Yet the Fed keeps rates unchanged.

As the West struggles with growing austerity measures to combat huge fiscal deficits, Asian economies (excluding Japan) are growing strong and their currencies are appreciating.

The Banking World Extends Beyond Ben Bernanke

Wednesday, Thailand’s central bank hiked interest rates. And since early July, four other emerging market central banks have also tightened. These include Peru, India, South Korea and Malaysia.

Last month, China decided to loosen its trading band on the renminbi. This triggered instant appreciation of its currency, plus compelled other regional banks to raise rates to combat Asian inflation.

The West, on the other hand, is experiencing an interesting dichotomy mid-2010:

Currency investors have watched the West struggle with low growth despite prolonged easy money policy. This has created softening inflation or accelerated disinflation.

And this directly contrasts Asia. Over in the East we see strong growth, rising inflation and increasingly hawkish central banks now tightening policy.

Based on economic growth trends, interest rate differentials and trade surpluses, emerging market currencies deserve to be upgraded.

And this secular long-term shift will last years, if not decades – only interrupted by systemic crises. And these crises should serve as buying opportunities for dollar and euro-based investors.

Hold Asian Currencies, and Bank in Europe

Investors should absolutely diversify their assets across currencies. But they should also hold assets outside their home countries for even better diversification.

Risk decreases with diversification: a basic fact of investing.

And just as it doesn’t make sense to hold 100% of every asset in dollars or euro, it doesn’t make sense to have all assets in one country.

And the benefits of parking some money in a European private bank are clear.

Top banking centers include Switzerland, Austria and Denmark.

And those already banking in these havens aren’t looking to dodge taxes.

They simply they want to diversify their assets outside of their home domicile.

They are genuinely concerned about what Obama is doing to the country and don’t trust all their assets to one government, one system.

And if another financial time-bomb hits world markets, governments may introduce foreign exchange controls.

Many international investors living in Europe feel the same way.

Don’t think it can happen?

Look no further than Britain in the mid-1970s when they introduced currency controls. By 1975, the IMF was lending to a near-bankrupt United Kingdom and residents couldn’t take more than £50 pounds (roughly US$154 today) out of the country.

More and more people are moving some money outside of their home residence and increasingly buying gold because of the growing instability of the global exchange-rate system.

My advice is to move a portion of your assets to Europe now. And to diversify out of holding just one currency.

Eric Roseman
Investment Director
The Sovereign Society

Editor’s Note: I’ll be speaking at The Sovereign Society’s Offshore Advantage Academy November 3-6 where the focus is on the easiest ways to start moving assets offshore, plus the best investment strategies for the current market environment.

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Tags: Offshore Banking