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Investment Strategies: Commodities and Currencies

Posted January 22, 2008

“I’m sure you’re wondering where in the world, when all of the world’s markets are so inexorably tangled up in the subprime knot, you can hide your profits until the worst has passed. Where can you expect to find a reasonable rate of return for your funds while the sky falls on Wall Street?” – Stephanie Grimmett.

by Stephanie Grimmett

Baltimore – (TFN):  Your portfolio probably lost a big chunk of money in the last few weeks. I don’t know about you, but even with the rebound of U.S. markets today, I’m still not too confident about my portfolio outlook for the next six months. I think I might hide in the cellar until it’s all over.

I’m sure you’ve had the same thought in the aftermath of yesterday’s market news. The FTSE 100 fell 5.5%. The Nikkei 225 fell 3.9%, and the Hang Seng fell 7.1% all in one day. All three of the indexes marked their worst drops since September 11 on Monday, and analysts are saying yesterday qualified as more than the entry into a bear market. It’s a market crisis.

And I’m sure you’re wondering where in the world, when all of the world’s markets are so inexorably tangled up in the subprime knot, you can hide your profits until the worst has passed. Where can you expect to find a reasonable rate of return for your funds while the sky falls on Wall Street?

Currencies and Commodities: Where to stash the loot

You could always buy bonds, but when the U.S. is tumbling head over foot into a recession, who wants to own those? You could put your money into “safe” conservative investments, but those safe bets are growing increasingly unsafe in a world where Bear Stearns posts its first losing quarter in 80 years and even peak oil can’t keep Exxon’s stock price from falling.

With all of the old standbys starting to look more like dry kindling than towering redwoods and all of the new growth stocks (in China, alternative energy, technology, etc.) giving off a strong odor of lighter fluid, where can you find a secure and inflammable safe house for your hard-earned profits?

Ever considered a good old-fashioned certificate of deposit? But what I’m talking about here isn’t some$1,500 CD you buy down at your local bank. It’s a new variety offered by online bank Everbank.
 

Everbank takes the traditional idea of a CD and turns it into a moneymaker. Using a variety of CDs, you could invest in the Icelandic krone or the Brazilian reais without becoming a Forex trader or even exchanging currencies.

Even better, you can find specific bundles of foreign currencies that allow you to benefit from the Asian market boom, the steady growth of the Scandinavian economies or oil-producing countries.

Commodities and Currencies: The perfect marriage

But the CD I’m most interested in these days is the Everbank WorldCurrency Index Commodities CD. Even with an economic turndown in the U.S., the emerging markets are still going to be gobbling up natural resources at an increasing rate.

All of that building and growth require raw materials. Builders need timber and steel. Engines need oil and natural gas. And workers need their own sort of fuel: wheat, rice, meat, fish, and all of the other major food products around the world.

In the last five years we’ve been in a commodities growth cycle that encompasses more than just oil and gold. All commodities, whether they’re building materials, precious metals or food, are gaining in value.

Don’t believe me? Just look at the tortilla protests in Mexico City last winter as increasingly expensive corn forced manufacturers to raise the cost of corn tortillas more than 400%. And listen to the outcry of protests from steel producers in Europe and Asia when BHP Billiton (BHP: NYSE) threatened to buy Rio Tinto (RIO: NYSE) and create a company large enough to control the global price of iron ore (steel’s major ingredient).

And now Everbank has found a simple easy way to benefit from the growth in commodities in a CD that also protects your money from the falling U.S. dollar.

Commodities and Currencies: Three dollars and a rand

Everbank’s Commodities CD provides exposure to four of the world’s strongest commodities-based economies: Australia, Canada, New Zealand and South Africa. Your market exposure is divided equally among the Australian dollar, the Canadian dollar, the New Zealand dollar and the South African rand.

In the last year, those four currencies have all gained on the U.S. dollar, with the Canadian dollar gaining almost 30% against its southern neighbor. If you had bought a commodities index CD at the beginning of the year, you would have a nice gain of 8.2% on your investment just in currency appreciation of the basket. As we stare down the barrel of a profit-killing recession, that doesn’t sound too bad.

The Everbank commodities CD offers a 5.40% rate of return, and you get to keep any appreciation in the four currencies. And with those four countries supplying much of the world’s iron ore, gold, diamonds, coal, alumina, timber, natural gas and even meat, dairy and fish products, you can bet rising commodities prices will push their respective dollars (or rands, in the case of South Africa) higher in coming months. 

The CD comes in 3-month or 6-month terms, with no monthly account fees, and you can open one for as little as $20,000. Although the CDs aren’t protected against a currency dip (if the currency falls against the dollar), in today’s markets, I’m more worried about the dollar falling through the floor than I am about it rising significantly, or at all, against foreign currency.

This CD is set to benefit as money flows out of U.S. banks and into tangible assets, like Australia’s coal and iron ore, New Zealand’s wool and food commodities, Canada’s oil and natural gas and South Africa’s gold, diamonds, platinum and any other metals you can think of.

Find out more about the Everbank WorldCurrencies Commodities Index CD.

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Posted by Stephanie Grimmett · Filed Under Investment Strategies 

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