Thursday, February 21, 2008

A fistful of Euros, full text.

A fistful of euros

As the US dollar continues its slow decline in value, canny American investors are putting stock in using foreign currencies
Ian Williams

Guardian CiF
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February 20, 2008 8:00 PM | Printable version

This month, Ron Paul, who may be cuckoo, but is sometimes like the first of cuckoo of spring in his denial of "accepted wisdom", called in Congress for allowing competing currencies.

What goes around comes around. In the Brooks Brothers store in New York, they used to display early 19th century account ledgers which, in view of the parlous state of the dollar and the British source of most of their material, recorded prices in sterling.

Then, and for some time later, the services of a lady of the night allegedly cost two bits, a bit being a Spanish dollar cut into eighths. And if it is not insulting the ladies, the New York Stock Exchange until a decade ago also priced their stocks in bits, or a least in eighths of a dollar. And that was before we got the real two-bit bonds - collateralised subprime mortgage obligations.

Partly because of the latter, but also because the greenback is looking mouldier and mouldier, Reuters reports that New York stores are eagerly taking euros and hoarding them to watch their value rise.

Indeed, I was recently choking in a New York cigar store, where I was speaking about the history of rum, and an Italian tourist waving euros in a way that one cannot imagine ever brandishing fistfuls of lira bought fistfuls of cigars and jars of pipe tobacco at prices unimaginable back home.

There are occasional whispers of canny artists contracting to be paid in euros, and rappers now wave fistfuls of euros rather than dollars.

It sounds familiar to anyone who grew up in the 1960s in Britain as sterling struggled to stay afloat. But in those days, no one could take more than £50 abroad, and strict currency controls stopped British investors running abroad to avoid sinking with the pound.

Washington pushed the rest of the world to end currency controls, incidentally precipitating the East Asian currency crisis for all the countries that followed their advice. The US did not need currency controls. Indeed, a decade or so ago, from the comfort of the world's reserve currency, American investors were loath to buy stocks in overseas companies, but thrown on their own devices by the companies that used to fund their pensions, millions are now discovering the joys of hard currency investments in Europe, Asia and Latin America. International funds have so far stood them well, growing in value and returns far more than the domestic equivalents. Heading the charge was legendary investor Warren Buffet, who said five years ago:

Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in - and today holds - several currencies ... . Both as an American and as an investor, I actually hope these commitments prove to be a mistake. Any profits Berkshire might make from currency trading would pale against the losses the company and our shareholders, in other aspects of their lives, would incur from a plunging dollar.

Last week Buffet had not changed his mind. "In the future, I would predict that the US dollar will decline, I don't know what it will look like in the short term, but force-feeding the rest of the world $2bn a day is inconsistent with a stable dollar," he told Canadians basking in the renewed power of the Loonie. But as a sign of the times, he said the only currency he held was the Brazilian real. Now that would have had fund manager certified a decade ago. Now, as they get real, Americans will be calling their broker.

It brings it all into perspective, and anyone tempted to invest abroad will surely find their resolution to do so strengthened by Washington's response to the current economic precipice on whose edge we are teetering: lots of tax rebates in the hope that feckless American consumers will rush to Wal-Mart and keep the Chinese factories busy - while the canny ones rush to the brokers and buy international stocks and funds.

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