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BNY Mellon Chief Currency Strategist Michael Woolfolk on how investors can profit from currency investments.
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Currency markets are already open for business today and the bottom -- over Pimco has been weighing in that.
-- -- galore -- but yes Bill Gross tweets after the G-7 meeting Pimco this Bill Gross who is widely followed when it comes to any investment move he makes.
Says.
-- by the Brazilian re all and watch out for inflation's bullets.
He warns of upcoming currency war after this weekend's G-20 meeting that sent the yen as we showed at the top of the program near 33 week low -- Even as G-20 ministers say please don't use the term currency war you can think it but you can't -- the -- I think -- for the Mexican -- -- for the next currency play by the way the peso has been looking extremely strong over the past six months.
Let's get right to my next guest who agrees only in part with bill -- but has ideas of his own about what to short what to go long to make you money he is Michael Wolf -- Chief currency strategist at Bank of New York Mellon so good to have you today yes good at -- what action over the weekend -- get -- currency war but.
People are constantly looking for yield and you could argue.
That is again is dropping 33%.
Against the dollar over the past several months and that there's some yields right there he shorts again.
Absolutely no the way that.
That most investors look at equities and bonds they want to hedge -- a foreign exchange return.
That risk is something that they're not familiar with and consequently.
-- are now.
Kind of leaving themselves out of a double play.
Depending upon where you invest now.
You need to got to consider not only.
The return on the underlying security but also the foreign exchange.
In many cases it could enhance and otherwise drab return.
Well we have had could also hurt another rise in decent return right and -- certainly -- and now that you at the G-20 in essence of let's just explain this for people.
Over the weekend they said don't call -- a currency war but when these countries devalue their currency.
With this specific effort to improve their economy then it's okay.
But either way there's always a trade.
So let's just just drill down on the young for a minute would you be shorting the -- because you know that Japan is dying to weaken its currency so that its exports become more attractive.
They're looking to do -- devalue the currency certainly not only to make their exports more attractive.
But also to stimulate inflation in their economy that's one of -- that the problems that they've been suffering for the last twenty years is deflation it has its own problems.
So -- is certainly you what you want to I think short the yen right now.
There's going to be pushed back in the spring push back from other Asian exporters that aren't feeling the.
Pinch we'll for a totally annoyed at me why does Japan get to do this and they don't I guess because they have the Central Bank that can easily maneuver through this but when you say spring do you mean April may April made a parents of that and of itself is a currencies -- OK so put something on the calendar but you can -- -- until possibly then.
Let's get to Bill Gross -- call on the Mexican peso -- heat is loving this and it was just a couple months ago.
That the tweet came out I -- I wanna say he started piling into the Mexican peso it looks like around last June.
Since then the Mexican peso has been moving considerably higher and I just look at that let's say 10%.
Not a bad move at all.
Against the dollar but tell me then where you see the opportunity with the peso -- this is where you agree with him.
Yeah I do agree with them -- Mexican peso that was gonna that to tweet that was heard round the world if you will that the Mexican peso is a great currency hello degree if it's.
If not -- currency certainly very good currency would like to see the fundamentals in Mexico bit stronger I think there on the on the mend.
But.
We've had a problem with dollar Mexico breaking below about the 12601250.
Level reflecting Mexico -- dollar week.
And it's -- the way let me just interrupt it would keep what this one Bill -- put this tweet -- Mexican peso looks good.
I believe that Mexican debt just began people began piling into that back in June when he started telegraphing that.
And it has been a very strong trait.
So maybe he was talking his book a little bit maybe it will so either way I'm sure he knows what he's doing but.
Why not them look at this and say what's -- Central Bank doing yeah.
They are not devaluing their currency -- you'd go long that one because it's not going to be -- -- negative but other.
I think what we like the Mexican peso Mexico is investment grade its debt is investment grade it -- majority of its.
Trade and investment flows are going to the US are tied to the US in terms of their their direction so.
With the US improving this year Mexico will improve.
We see that the demand for their debt for their equities will continue to grow if you want to gain a greater exposure to emerging markets which is the search for yield right now you have to have a piece of Mexico even -- animals aren't quite as strong as you'd otherwise like what would you short.
I'll I do not like the Brazilian reality in and this is -- I part company really the Bill Gross on the currency space.
The Brazilian government is not comfortable with currency strength they have had a great deal of success in the last several years -- controlling.
The pace of of currency appreciation.
And I would expect them to implement further.
-- Measures regulatory reform measures to discourage foreign investment and.
As -- finish up where does all this leave the US dollar of we're devaluing and away by printing so much and by so much fed involvement but to -- others trump us.
And therefore make us look stronger you know.
This is going to be the tale of two -- in terms of 2013 minute see you little bit more dollar weakness in the first half the year dollar strength.
Becoming more reflective the second half the year eventually we have to go to break.
With this negative relationship between the -- the dollar.
Normally when the Dow rallies the dollar -- that has not happened since we went to zero interest rates five years ago.
That has to change so expect that to be more -- two -- fourteen.
Michael Wolf focus just explain to you that all you really have to do is look at what central banks are doing and if they are devaluing their currency you can.
Figure out you can short that.
We no longer want -- -- -- thank you so much thank you -- focus BMY Mellon chief currency strategist are all kinds of investments you can wait -- be on equities that's why we try to bring that to you.
