Where to now? You’d be surprised

SO the next question is where can I avoid getting killed since the whole world is blowing up? People keep asking me this. Also there is some kind of idea that because not all currencies can go down together (true) it doesn’t matter where you are (false).

In the US and the UK, there are totally unsustainable borrowing profiles which are politically extremely hard to shift in a democracy. Much of the US budget is entitlement spending; an operational leverage effect that results from that means that any serious cuts have disproportionate effects on the remaining programmes. I still like the US in general because it has the world’s most dynamic economy and the politicians may be smarter than the population and understand that cutting back on immigration is rather bad demographic economics. But you can’t really park there.

In the UK, we have bizarrely just lost the Chief Secretary of the Treasury to a rental payment scandal in which one cannot be sure that his treatment would have been identical had he been heterosexual. He was looking very credible at cutting sufficiently to retain the Aaa rating – which is essential if this borrowing profile of a rather insane £156bn p.a. can come off with some kind of glide path down rather than a hard stop – but we now have the former Press Officer for the Cairngorms who will presumably be just as effective at putting The Fear into Work and Pensions and their £230bn annual spend.

So no GBP and no USD. EUR? Well, there’s Greece. And Spain. And now Hungary. So forget it. It might make holidays cheaper again, but that’s the only benefit.

All three of these problems have a long way to go before being resolved.

So nothing is left, right? No – there is Norway. Seriously. Why? Firstly, because my mate Andy J. thinks it’s a good idea and he knows everything. But actually, if you look into it, it makes sense.

No debt

They have no government debt and so they do not pay interest on it – cf. UK annual debt service £43bn.

Big surplus

Even more amazingly, they have saved their oil revenue in a big pension fund worth about $443bn. They own about 2% of equity in Europe.

Own currency

The NOK has a number of great things going for it, including the huge pension pot, but also: it isn’t the EUR, the GBP or the USD.

So what should you do? Well, you could just buy the NOK and sit still waiting for the rest of the world to crater. You would probably make out in local CCY terms. But there are proper companies there doing serious things you could look at. These two have NYSE listings:

NYSE Global Listings

NYSE Technologies Global Market Data | as of 17:08 ET 03 Jun 2010 | Market data delayed
Name Symbol Listing Last Trade Date/Time Volume Change % Change
Seadrill Limited SDRL NYSE $ 21.20 03Jun10 16:48 ET 1,262,094 $ 0.41 1.97
Statoil ASA STO NYSE $ 20.96 03Jun10 16:02 ET 2,038,401 $ 0.35 1.69

You can guess what they do.

So you could even sit there and gain from any NOKUSD strength without lifting a finger or going to Oslo.


7 Responses to Where to now? You’d be surprised

  1. James Monk says:

    Didn’t the Norwegian sovereign fund lose a packet in the last few years? Is it not also said that all currencies are derivative of the dollar? I don’t know if that’s true, but I can see why it might be true in a world where USA is the dominant consuming economy (no one can afford to have their currency appreciate too much Vs. the USD). If that is true then all currencies *can* go down together, which would show up as e.g. oil price rising (modulo rising demand/falling supply). If the NOK is a proxy for oil then that would also suggest buying Norway is a good idea. On the other hand, I’m not really into buying oil companies, and I don’t like Norway’s idea that they can flog off all their oil and expect the assets they buy in exchange to be worth something in 100 years because shit always happens eventually.

    On the EUR problems, would not a Greek/Hungarian/whatever default actually be EUR positive in the medium term (after any immediate panic)? You would basically be destroying EUR denominated assets, which as we learned when Lehman went titsup strengthens the currency in which those assets are denominated. Of course, the long-term policy response may be to quease, but the ECB’s propensity to do that seems lower than other central banks. I was reading that a similar scenario with Japanese denominated assets may not be beyond the realms of possibility, in which case one could seek out some alt-energy ninjas to invest in (if one believes that alternatives to oil are the future, which BP debacle suggests is the case).

    Laws’ problem was that he did something that was identical with a common housing benefit fraud. He had to go in order to maintain consistency.

    yeah, and I still don’t think you’re making a good argument on why the UK gov’ debt is the big problem everyone thinks it is, but that disgreement is pointless since we’ve had it a billion times before.

    • timlshort says:

      Everyone has lost a packet in the last few years on more-or-less everything. But also oil like gold is known as the anti-dollar. Meaning simply that since both are priced in dollars, if the dollar falls, then all else being equal, the nominal oil price and the nominal gold price should rise. Hence the other aspect of buying the two oil-related stocks.

      The phrase ‘all currencies are derivative of the dollar’ probably means something like ‘the US economy is a major driver of the world economy’. Now that latter is certainly true, though the BRICs thesis has it being less so in the future. But as you yourself have often pointed out, not all CCY can go down together. In any case, there are around 200 countries in the world. The majority have their own CCY and some of them are deeply unrelated to the USD.

      I would adjust ‘no one can afford to have their currency appreciate too much vs the USD’ to ‘no one who trades a lot with the US’. I admit that that is a lot of people, but it isn’t everyone.

      I think you have adjusted the meaning of ‘all CCY going down together’ in a way which breaks the term. If for example there is on your definition a GBP crash such that oil costs twice as much but a USD crash at the same time by the same amount, it won’t matter. But the first without the second would import inflation.

      None of us will be around in 100 years so that is someone else’s problem. But surely it is sensible for the Norwegians to realise the diversity benefit of not being wholly dependent on oil and it is open to anyone to share those benefits of diversity backed by assets.

      There is a big difference between Hungary and Greece because of course the former are in the EUR while the latter can devalue. I don’t see any way in which value destruction on a massive scale can be positive for a CCY and I don’t see how borrowing at 12% of GDP a year can be either actually done in the bond markets without losing the Aaa rating or why we have the right to spend that type of money in a single parliament and let people graduating with me pay it back over their lifetimes.

    • timlshort says:

      And also on Laws, I guess my problem is that if it had been money paid to a woman with whom he was in some way involved, would the outcome have been the same? The post-06 rules say you can’t pay rent to a spouse. I am not sure why that is a problem in the first place, but if I had been in place – admittedly with more corporate sensibilities than political ones – I would have said “rules say I can’t pay a spouse, I am not married, end of story”. You could then have invited people to try to prove that you were quasi-married which would have involved you demanding the News of the World producing a marriage certificate and them running a load of stories like ‘spent 4 days once in same house, went to pub together, had long weekend in Brighton, saw romantic movie’ which would have been ludicrous and pointless. Because even if it had worked as a smear, you could have just insisted on the binary nature of ‘married’.

  2. Simon Bevan says:

    Buying the Nok as a hedge maybe, but buying to profit from i’m not convinced – after all it’s still a commodity currency and still in the Eurozone. It’s already highly valued, so what’s the best you would achieve, a few percent in a few years minus transaction costs, it’s never going to a high yielding return, and for a lot of risk. Long term currency investments I think are interesting are the the South Korean won, as it’s a proxy for the chinese yen.

    The Euro’s a tough one. I was at a conference the other week and most people thought the Euro was still a good long trade – the argument being that it is still the only real rival to the dollar, and like James said, destroying the bad currencies will strengthen the remainder. But what are the problem childs. Greece, Spain, Portugal are the main candidates. You say Hungary but spain has 20% unemployment, that’s pretty hard to recover from.

    • timlshort says:

      Well, a hedge is a profit if it works…

      Norway isn’t in the Eurozone – that’s kind of key because I wanted to avoid the EUR because of the PIIGS, of which the last two are the major problems so far. So I guess by ‘Norway is in the Eurozone’ you mean ‘Norway is exposed to the European economy’ – which is of course true, but oil is a commodity in global demand. If you don’t like the oil story, then I guess I fall back on asking you what you do like in the current environment – this is the big question. You might want to go back to the thorium in the last post!

      I’d be looking for a lot more than a few years and a few %. I don’t think 30% type adjustments in major CCY are impossible. Certainly a failure to get a grip on the deficit positions of sovereigns would have that type of effect. EURGBP has gone from 0.88 to 0.83 a week ago, mostly on Greece and Spain. That is with an aggressive supportive policy stance, so if the UK blows its emergency budget on 22 June you could see an agency downgrade and a 30% decline on the back of that.

      KRW is interesting – tell us more about that. And how would you get the exposure, easily…?

      Yes – I don’t like the EUR at all short term and I like it so little that I couldn’t get to a long-term strategy through it. Keep it under review, sure…

  3. timlshort says:

    James – we are about to see a sovereign default so we will see if you are right that it’s not a problem:







  4. Andrew Jarmolkiewicz says:

    The Norwegian central bank have been doing all they can to depress their currency – they have effectively set its value at the current level through intervention and rate cuts – it is now someway below where it should be. However this means that its vulnerability to commodity shocks is far, far less than say the Aussie or the Loonie. Also its low interest rates mean it is not a carry trade currency so carry trade unwind that periodically annihilates the other commodity currencies (particuarly the Aussie) will not directly affect the NOK as nobody is buying NOK for carry.

    Western governments will soon be engaged in a fresh round of printing to monetise their debt and devalue their currencies – the NOK and Gold will be prime beneficiaries of this.

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