The Safest Port in the Storm

Ship In Heavy Storm, by James E. Buttersworth

Economies around the world have not seen a shock like COVID-19 ever before. Of course, over a matter of years, WWI and WWII devasted many economies (with lasting impacts for those nations that did not ultimately prevail), but the world wars didn’t hit this fast nor this broadly. Today, the world is more connected than ever before and the Coronavirus respects no boundaries and attacks friends, family, and foes alike. In a matter of months, nearly every nation on the planet has suffered death from the virus, and on a global basis, cases are still rising.

Accordingly, stock markets around the world are experiencing volatility like never before. While professional money managers (ie. those that gamble with other people’s money) may continue to put capital to work via sector rotation strategies (moving from sure-losers like airlines, hotels, and restaurants into relatively more likely winners like ecommerce, online search, social media etc), there is no escaping the fact that suffering economies will drag down purchasing power which ultimately must impact the investment markets. Not surprisingly, high net worth individuals and family offices managing their own money have moved into cash at record levels. Even before COVID-19 economic impacts, high net worth individuals held 28% of their wealth in cash.

They say “cash is king” and “any port will do in a storm” but if you can get your boat load of cash from an questionable port to a better port in a matter of hours, you should.

Imagine holding Hong Kong dollars or Argentina pesos or Brazilian real — pretty awful. But, even the euro isn’t all that great. Versus the almighty US dollar, over the past nine years, the euro has dropped from a value of $1.48 to under $1.08 — a 27% decline in value. In just the past year, the dollar has strengthened over 12% compared to the euro.

To make matters worse, as Europeans know all too well, holding Euros or Swiss Francs in a bank account actually costs you money due to negative interest rates (eg. paying 0.5% to hold euros and paying 0.75% to hold francs). Even holding them in a time deposit account generates very little yield while still exposing the investor to potential further weakening of the currency. For non-US investors, buying US dollars from an FX broker is a viable way to get into a relatively safer currency but, with brokerage fees and no interest yield, its not as good at is might be for US investors simply able to open a high-yield Certificate of Deposit with a bank in the States. Unfortunately, very few US banks will open deposits for foreigners, especially if they are unable or unwilling to fly to the US and visit a bank branch (which may be closed due to the pandemic).

At least holding euros is not holding Indian rupees or Chinese yuan (which are subject to capital controls) or holding (cyclically) collapsing currencies such as the Argentine peso or Brazilian real, or the “under siege” currency of the Hong Kong dollar which, while pegged to the US dollar, runs the risk of being nationalized into the Chinese yuan in the months ahead.

=https://www.fx-exchange.com/ars/usd-exchange-rates-history.html
The Brazilian real has lost 1/3rd of its value vs the USD in five months of this year.

There are safer ports in this storm. The US dollar, in a bank, in the USA.

As an online-only bank, Medici Bank operates at lower costs. As a US-based bank, Medici can more readily invest in lower risk, higher yield credit opportunities in the US market. And, for those willing to take 5 minutes to go through an online application process, Medici Bank offers high interest rate US dollar denominated Time Deposits to non-US depositors.

The author is CEO of Medici Bank USA; see https://medici.bank to learn more.

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