Making Money Alert: The New Currency War

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Unless you’ve traveled to Tokyo recently, you may not have noticed that over the past several months, the value of the Japanese yen has plummeted vs. rival foreign currencies. The yen’s decline is no accident, as the Japanese currency began heading lower right around the time it became apparent that the Japanese people were going to elect Shinzo Abe their new Prime Minister.

Indeed, the main plank in Abe’s economic policy was to have the Bank of Japan (BoJ) increase its inflation target to 2% or 3% from 1%. The small increase in the BoJ’s inflation target actually represents a marked shift away from deflationary central bank policies to inflationary central bank policies, a massive sentiment switch for a country that’s not known for change.

You see, after 30 years of economic stagnation, and rewarding savings over investment, something had to change in Japan. So, they’ve embarked on a currency weakening program designed to incentivize citizens to invest their capital rather than just shovel it into Japanese government bonds. The result of what will amount to easier monetary policy will be the same as it has been in the United States, namely the value of the Japanese currency is likely to decline while Japan’s equity market goes up.

The chart here of the Currency Shares Japanese Yen Trust (FXY), an ETF pegged to the yen, clearly shows the yen’s recent plunge.

The concomitant rise in Japanese stocks can be seen via the iShares MSCI Japan Index (EWJ). The fund now trades at a new 52-week high, having blasted through both the 50- and 200-day moving average in November.

Now, if you own Japanese stocks, you’re in good shape. If you are a Japanese citizen, your yen isn’t going as far as it used to. But the Japanese policy to debase its currency is causing another side effect that recently has been described by the financial press as a “currency war.”

The thinking here is that everyone can’t have a weak currency. Japan is trying to keep the yen down relative to the U.S. dollar, the South Korean won, and even the Chinese yuan.

This phenomenon of a currency war is nothing really new. But this time, the combatants are different. Now, Japan is competing with regional rival South Korea with the intent of wiping out Seoul’s hitherto competitive advantage.

Traders certainly have taken note of this situation. Hence, the slide in South Korean stocks, represented here by the chart of the iShares MSCI South Korea Index (EWY). The South Korean market is down about 10% since January, a mighty fall compared to EWJ’s recent spike.

As investors, it behooves us to watch how this latest currency war plays out. Currency battles tend to escalate into potential protectionist moves, which can negatively affect a whole lot of American companies and a whole lot of stocks. The bottom line here is that I want you to be sure you are aware of what’s taking place in countries such as Japan and South Korea, because in this global economy, one country’s actions affect us all.

Fiscally Fit for the New Year, Part V

For the past four weeks, we’ve outlined the steps needed to become fiscally fit in 2013. This week, we have Part V of our series, which is all about living trusts, wills and guardianships.

When it comes to preparing for the inevitable in life, many of us fail to act responsibly. I know it can be hard to think of ourselves as not being around any longer, but that’s no excuse to neglect this extremely important part of your financial life.

If you have any kind of significant net worth, you need a living trust. When you have a living trust, your desire for what happens to your money, your property, your insurance policies, etc., after you’re gone, is in your hands. By setting up a living trust, you control the disposition of your assets by appointing a trustee to carry out your wishes.

If you don’t have a living trust, then everything you held dear in your life literally could be at the mercy of the courts. That situation means someone who doesn’t know you, has never met you, and has no personal interest in you or your family, will decide where your assets go after you’re no longer here. I don’t know about you, but I can’t think of anything more infuriating than having the courts determine where the products of my life’s toil will go.

Yet without a living trust — and/or without a will — this dreaded situation may be precisely what happens.

Guardianships also are extremely important if you have children. Who’s going to take care of your progeny if you are no longer there to do so? Where will your assets go, and who will look after those assets for your children? Without a guardianship, the courts are in charge. Don’t let that unfortunate situation happen.

A little proper planning is all it takes to make sure you are in control of your assets after you’re no longer here to do so personally. If you already have a living trust, will or guardianship, make sure you periodically review the trust to make account for all of the changing circumstances in your life. A divorce, a significant change in your financial situation or the death of a spouse are all prime reasons for you to alter your financial plans. So, make sure you have those plans in place and up to date for 2013.

Next week, we’ll conclude our series with a discussion on insurance and annuities.

If you’d like to hear more about how to become fiscally fit, or if you want my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.

Mason on Enslavement

“To disarm the people is the best and most effectual way to enslave them.”

–George Mason, founding father and co-author of the Second Amendment

I don’t want to get too political here, but whenever a debate confronts our nation, it is incumbent upon one to take a stand in defense of freedom and the Constitution. Here, George Mason tells us what the real intent of the Second Amendment is, and why it’s so important to every American.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

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