This week, Rydex introduced 6 new ETFs that will enable more investors to become involved in the ever expanding currency markets. Following the popularity of the Rydex Euro Currency Trust (NYSE: FXE) the company has launched ETFs that track the performance of the British pound (FXB), the Canadian dollar (FXC), the Mexican peso (FXM), the Australian Dollar (FXA), the Swiss Franc (FXF), and the Swedish krona (FXS). These products represent fantastic opportunities for the average investor to give themselves more global currency exposure.
As The Commodity Investor has said many times, the US Dollar is an extremely vulnerable asset to own and investors are advised to spread their risk.
While the ramifications of this launch are numerous and far reaching, it falls short of what The Commodity Investor was hoping for. Certainly, the Australian and Canadian dollars have performed extremely well over the past few years, but as metal prices decline over the next 12-18 months, those currencies are likely to suffer as well. In the long term, however, they are likely to perform very well especially versus the US Dollar. The best asset of the group is the Swiss Franc (FXF), which we recommend for every investors portfolio. Despite the fact that the Franc has joined the world of fiat currencies by severing its tie to gold a few years ago, it still ranks as one of the most stable currencies in the world. By essentially purchasing the FXF etf, investors can translate as much of their base currency as they want to into Swiss Francs. Over the past century, the Franc has been a safeguard against political and economic risk which has seemingly been on the rise virtually every day. With this added liquity of an ETF and the already small market for Francs, the Swiss currency could enjoy an enormous run over the next few years. The most worthless of the group is the Mexican peso and Swedish krona. Why Rydex would choose to implement these products instead of the Japanese Yen is beyond our understanding. This leave us still waiting for some intelligent company to unleash a Yen ETF. With their economy rebouding and their central bank mopping up liquidity, the Yen is likely to be one of the best performing of all the currencies in the next 2-3 years.
This launch is simply another step in adding greater liquidity to currency markets. While this is certainly a move in the right direction, investors must understand the effects of such products. Not only does this have the effect of bringing increased volatility in the currency markets, it brings the world a step closer to a univeral store of value. A person in Chicago getting paid in Dollars can now have all their assets backed by a government half a world away, such as Switzerland, with the click of a button. The moment they stop liking the Swiss government, they can dump the Franc for the Mexican Peso, along with millions of others. Such ease of movement could cause wild price swings in the marketplace, sending nations from creditors to debtors in the blink of an eye. The most positive element however is that such liquidity can neutralize goverment interference in currency markets. While private investors have been betting on the dollar’s decline for a long time, Asian governments have been interfering in this process and essentially been controlling the value of their currency and other currencies for the assumed “benefit” of their citizens. Such marketplace interferences always correct through economic crises. These ETFs have the potential to neutralize government interference and allow the marketplace to do its job, which is to reach economic equilibrium. While certainly it may take several years before enough investors accumulate for these ETFs to have such an impact on global politics, any ability to limit government interference is a major plus.
This week, Rydex introduced 6 new ETFs that will enable more investors to become involved in the ever expanding currency markets. Following the popularity of the Rydex Euro Currency Trust (NYSE: FXE) the company has launched ETFs that track the performance of the British pound (FXB), the Canadian dollar (FXC), the Mexican peso (FXM), the Australian Dollar (FXA), the Swiss Franc (FXF), and the Swedish krona (FXS). These products represent fantastic opportunities for the average investor to give themselves more global currency exposure. As The Commodity Investor has said many times, the US Dollar is an extremely vulnerable asset to own and investors are advised to spread their risk.
While the ramifications of this launch are numerous and far reaching, it falls short of what The Commodity Investor was hoping for. Certainly, the Australian and Canadian dollars have performed extremely well over the past few years, but as metal prices decline over the next 12-18 months, those currencies are likely to suffer as well. In the long term, however, they are likely to perform very well especially versus the US Dollar. The best asset of the group is the Swiss Franc (FXF), which we recommend for every investors portfolio. Despite the fact that the Franc has joined the world of fiat currencies by severing its tie to gold a few years ago, it still ranks as one of the most stable currencies in the world. By essentially purchasing the FXF etf, investors can translate as much of their base currency as they want to into Swiss Francs. Over the past century, the Franc has been a safeguard against political and economic risk which has seemingly been on the rise virtually every day. With this added liquity of an ETF and the already small market for Francs, the Swiss currency could enjoy an enormous run over the next few years. The most worthless of the group is the Mexican peso and Swedish krona. Why Rydex would choose to implement these products instead of the Japanese Yen is beyond our understanding. This leave us still waiting for some intelligent company to unleash a Yen ETF. With their economy rebouding and their central bank mopping up liquidity, the Yen is likely to be one of the best performing of all the currencies in the next 2-3 years.
This launch is simply another step in adding greater liquidity to currency markets. While this is certainly a move in the right direction, investors must understand the effects of such products. Not only does this have the effect of bringing increased volatility in the currency markets, it brings the world a step closer to a univeral store of value. A person in Chicago getting paid in Dollars can now have all their assets backed by a government half a world away, such as Switzerland, with the click of a button. The moment they stop liking the Swiss government, they can dump the Franc for the Mexican Peso, along with millions of others. Such ease of movement could cause wild price swings in the marketplace, sending nations from creditors to debtors in the blink of an eye. The most positive element however is that such liquidity can neutralize goverment interference in currency markets. While private investors have been betting on the dollar’s decline for a long time, Asian governments have been interfering in this process and essentially been controlling the value of their currency and other currencies for the assumed “benefit” of their citizens. Such marketplace interferences always correct through economic crises. These ETFs have the potential to neutralize government interference and allow the marketplace to do its job, which is to reach economic equilibrium. While certainly it may take several years before enough investors accumulate for these ETFs to have such an impact on global politics, any ability to limit government interference is a major plus.
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