1) The TED [Treasury-Eurodollar] spread, which is a measure of market confidence, is up dramatically over the past two months, from 18 basis points to 52 at present. That indicates decreased confidence in the banking system, though swap spreads have not widened to confirm that judgment.

2) The Indian Rupee has rallied almost 10% against the dollar over the past two months, because of the need to recycle the US current account deficit, and restrain inflation at home, tighter monetary policy is needed in India, and many other developing nations. That means upward pressure on their local currencies, which will hurt their exporters. India is letting that process happen at present, other developing countries are allowing dollar liquidity to further inflate their economies.

My view is that the next major blow-up will happen as a result of a neophyte developing large country central bank overshooting on their tightening of monetary policy. China is my lead candidate, but India could do it as well.

3) Ordinarily I like what Jack Ciesielski has to say. He is far beyond me in terms of understanding the nuances of accounting standards, and I recommend his work to all professionals. I think his recent Barron’s article misses a nuance of SFAS 159, though. If SFAS 159 were mandatory, Fannie and Freddie might have some difficulties. But SFAS 159 can be ignored by any company that wants to ignore it, and used to the degree that any company wants to use it, so long as they disclose where they are using it and where they aren’t using it. So, I’m not sure the SFAS 159 has much relevance to Fannie and Freddie over the short run. Over the long run, it might be different if SFAS 159 becomes mandatory, or if the US adopts International Financial Reporting Standards.

4) I have posted at RealMoney on numerous occasions regarding overvaluation of many risky asset classes versus safe asset classes. I appreciated the piece at TheStreet.com regarding Jeremy Grantham, and the piece over at The Big Picture discussing it. I think he is right, but early. We haven’t run out of liquidity yet, and perhaps we get an exponential rise in risky assets that signifies the end. On the other hand, tightening global central banks in aggregate could be the end. For the cycle to change, we need a fall in profit margins, and a rise in discount rates. I think both are on the way, but they don’t come like clockwork.

As an aside, if managed timber is still cheap to Mr. Grantham, that could be a good place to hide. Decent return, and some inflation protection.

5) Dig this article from Businessweek. Know what it reminds me of? Manufactured housing back in 2000-2003. Lenders bent over backwards to keep loans current, at a price of future credit quality, and only gave up when their companies were facing death. Most died; a couple survived and much of the remaining corpus is part of Berky now.

The banks will keep marginal lending alive until it becomes a serious threat to their well-being; after that they will act to protect the banks. The severity of loan defaults thereafter will be very high.

6) How much international goodwill has the US lost through unilateralism? Part of that cost is measured by the fall in the dollar. The current account deficit presumes on the good graces of the rest of the world, but at the edges, if our policies aren’t well-liked, the deficit will get cleared at lower exchange rates for the dollar. Just another reason that I am long foreign currencies.

7) Central bank tightenings? Look at Japan and China. I have a little more belief that China will continue to tighten; they have been doing so for the last year. The acid test is how much they are willing to let their currency appreciate, and I think China will let that happen.

I am more skeptical about Japan. Their central bank is not very independent, and regardless of the article I cited, there isn’t a lot of reason for the Bank of Japan to act rapidly. Central Banks are political creatures that avoid pain; they are not entrepreneurs, particularly not in Japan.

8) What’s better in accounting, rules or principles? The current mood in accounting leads toward principles. The idea is that principles allow for a more accurate description of the corporate economics than the application of rules that though consistent, may not fit all companies well.

I split the difference on this issue. We need rules and principles. Rules for consistency and comparability, and principles for accuracy to individual situations. That is why I would have two income statements and two balance sheets. One off of amortized cost that would be consistent and comparable across all firms, and one off of fair market value, that would give management’s view of the economics of their firm.

9) I had been critical of the FOMC over at RealMoney because they had not been injecting enough reserves into the banking system in order to keep the Fed funds rate at 5.25%. Over the last week they have amended their ways. They have bought bonds and sold cash, and now Fed funds resides more comfortably near 5.25%. (I would post a link, but as I write the Fed website is not responding.

10) A harbinger of things to come: Fitch downgrades some 2006 subprime deals.

11) The Wall Street Journal was “dead on” this morning about talking about the degree of leverage being applied to the markets. I’ve been writing about this at RealMoney for some time, and I would advise everyone to look closely at their asset portfolios, and ask what assets would be at the most risk if financing were interrupted. For equity investors, I would encourage you to be long stocks with high ROAs, not high ROEs.

Do derivatives make a mockery of margin requirements? You bet they do, and we can start with furures and options, before moving on to private agreements.

12) Leave it to Caroline Baum to catch the mood of the government, and apologists for the current economy. Ex-housing, we are doing fine. Another way to say it is housing is doing lousy, and export-oriented sectors have not made up the difference.


That’s what I am seeing now. Are you seeing thing I am missing, or do you disagree with what I have said? Post here, and let’s discuss it.

I estimate that we are almost halfway through insurance earnings season now, so here are the broad trends from the various insurance subindustries:

Primary Commercial

What a hot subindustry.  Beating the estimates were CNA, James River, Ohio Casualty, American Financial Group, American Safety, Navigators Group, and Hanover Group.
All but Ohio Casualty and CNA increased their net written premiums.  Ohio casualty was particularly impressive, with the loss ratio improving in the commercial and specialty lines.

Now, I am not a fan of the commercial lines in this part of the cycle, good as earnings look for now.  Here are things to look at for analysts because of the long-tailed nature of this business:

  1. Are the current year loss picks (loss estimates from new business as a percentage  of earned premium) deteriorating?
  2. How much income is arising from release of prior accident year reserves?
  3. How much is pricing deteriorating?
  4. Are terms and conditions deteriorating?
  5. Are they daring to grow in areas where pricing and terms and conditions are deteriorating?

Too many red flags and you should discount current earnings heavily.

Mortgage Insurance 

No good news here.   PMI and Genworth both miss.  Genworth misses due to mortgage claims (LTC takes a day off from capital destruction), and PMI misses due to higher mortgage claims in the US and Australia.


Principal Financial misses due to higher death claims.  Odd reason for a big company; the law of large numbers should be doing more for them.  High valuation, so it might take some abuse tomorrow.  That said, I would view it as transitory, so if PFG get smashed, I want to pick up the pieces.

The Bermudans

Axis Capital beats handily.  What else would you expect in a low cat quarter?  If it doesn’t rise much tomorrow, it means that the P&C reinsurers have reached equilibrium with the good quarter.


Unitrin misses on lower net written premiums, and poor performance in their personal lines, and their Unitrin Direct line.

That’s all for now; let’s see what tomorrow brings.

One of my readers, Steve Milos, asked me the following question:

Free cash flow is a metric that I like to use when judging investments in most types of companies. However, I’m not sure how to apply it to insurance companies, or even how to calculate it, given the uncertainty of claims. Do you use it? How do you calculate it? Currently, I’ve used P/E, P/Book, dividend yield, combined ratio as metrics for insurance companies instead.

Before I start, for those that have access to RealMoney, I would refer you to the following two articles:

Parsing the Financials of the Financials, and

Time to Get Personal with Insurers (free at TSCM).

Quoting from a recent article at RealMoney:

The free cash flow of a business is not the same as its earnings. Free cash flow is the amount of money that can be removed from a company at the end of an accounting period and still leave it as capable of generating profits as it was at the beginning of the accounting period. Sometimes this is approximated by cash flow from operations less maintenance capital expenditures, but maintenance capex is not a disclosed item, and changes in working capital can reflect a need to invest in inventories in order to grow the business, not merely maintain it.

And quoting from the first article that I cited above: The cash-flow statement is of great use in gauging the health of industrials and utilities, but it tells us next to nothing about financials. One of the best values of cash-flow statements is that they enable one to attempt to derive estimates of free cash flow (the amount of cash that a business generates in a year that is left over after it has paid all of its expenses, including capital expenditures to maintain its existing business). Deducting maintenance capital expenditure from EBITDA often approximates free cash flow.

However, cash-flow statements for financials can’t in general be used to derive estimates of free cash flow, because when new business is written, it requires capital to be set aside against risks. Capital is released as business matures. In order to derive a free cash-flow number for a financial company, operating earnings would have to be adjusted by the change in required capital.Sadly, the change in required capital isn’t disclosed anywhere in a typical 10K. Even the concept of required capital can change depending on what market the financial institution is in and what entity most closely controls the amount of operating and financial leverage it is allowed to take on.

Federal or state regulators sometimes impose the biggest constraints on leverage — this is particularly true for institutions that interact closely with the public, i.e., depository institutions and life and personal-lines insurers. For companies that raise capital in the debt markets or do business that requires a strong claims-paying-ability rating, the ratings agencies may lay on the tightest constraints.

Finally, in rare instances of loose regulatory structures, the tightest constraint can be the company’s calculation of how far it can push its leverage before it blows up. Again, this is rare; many companies estimate the capital required for business, but regulatory or rating agency standards are usually tighter.

Actuaries have their own name for free cash flow. They call it distributable earnings. It is equal to earnings less the change in capital necessary to support the business. When sales are growing, typically distributable earnings are less than earnings. When sales are shrinking, typically distributable earnings are more than earnings.

As pointed out in the second quotation above, the hard part is knowing what entity requires the most capital to be held against the business. Is it the regulators, the rating agencies, or the company itself? The tightest constraint determines the capital that is required.

The second part of what makes it hard is that the capital standards for the rating agencies are dimly known to outsiders. Internal company capital standards are not known to outsiders either. Finally, the regulatory standards for capital are known but complex. The formula is known, but not all of the data that goes into the calculation is public. A further difficulty is that different companies run at different percentages above the minimum capital standards, and typically, that is not disclosed.

Aside from that, there is the problem of whether the reserves are fairly stated, but the nuances of that are beyond this discussion. What can an insurance analyst do to get something near free cash flow?

Ask questions on leverage policy. Ask the company how they decide what the maximium amount of business they could write next year is. Premiums-to-surplus? Statutory net income/loss limits? How much more could you borrow at the holding company at your current rating? Questions like this cut through the clutter of what you don’t know, and allow you to estimate how much capital they will have available to increase dividends, buy back stock, or buy other strategic assets. You can also read reports from the ratings agencies, since they focus on this.

In practice, I have a “back of the envelope” feel for how loose or tight capital is at firms that I analyze. I spend more time on pricing power, since it correlates better with stock price performance in normal situations. I look for the sustainability of underwriting margins. I also graph Price-to-Book versus Return on Equity, looking for companies that earn a lot on their net worth, and have a reasonable chance of sustaining those earnings.

I hope that helps explain how to analyze insurance companies, approximating some aspects of free cash flow. If you have a question, pose it below so others can benefit from your question and my answer.

I have added a few features to the blog for syndication purposes.  You can now get my RSS feed via e-mail through Feedblitz.  You can also get the RSS feed through MultiRSS, which handles all popular RSS feed readers/aggregators.


I have also added new methods to help me understand what aspects of the website get the most use, so I can understand what people like to read and what is less interesting.  Eventually, I will add some advertising to my blog to help defray the cost, and enable me to have some compensation for providing content.  Not that I plan on blogging full time, but if I were writing a newsletter, having a blog that throws off a reasonable amount of revenue would help make ends meet as I build my business.


Again, suggestions are most welcome in terms of format, design, article topics, etc.  I enjoy it when people comment on my blog, so please feel free to do so.

This is post 100, as WordPress counts. I am going to take a brief break from writing about the markets to write about the first two months of blogging.


First, this blog is not what I would like it to be yet. I have many more things to build out, but given my responsibilities as a husband and father, I can’t go overboard. I have to serve my employer as well, and for that matter, Realmoney.com.


Speaking of RealMoney.com for just a moment, this blog might not have come into existence were it not for the example of Barry Ritholtz, the encouragement of Cody Willard, the encouragement of various readers at RealMoney, and the neglectfulness of one of the editors there, who I made the offer to of a blog/newsletter, and after promising to get back to me, he did not get back to me. After three-plus years of writing there, I expected more. (Particularly since Jim Cramer was kind enough to recommend me to the editor in question. Anyone who thinks Cramer controls the editorial side of TSCM doesn’t know what he is talking about.)


Many, but not all of the things that I used to write in the Columnist Conversation are now getting written here as a result. I am internally debating as to where to put my comments. Here I might get some compensation for them, whereas at RealMoney I don’t get any compensation. I’m grateful to Cramer and RealMoney for the opportunity, but with work getting busier, it is easier for me to blog at night, rather than writing in the day.


Friends help in blogging. I particularly want to thank James Altucher, Roger Nusbaum, Jeffrey A. Miller, Bill Luby, and Abnormal Returns for the help in getting noticed. I also want to thank the editors at RealMoney who put up with me mentioning my blog several times in the first week of its existence.Business opportunities come as you blog. Newstex is indexing the content of my blog for its readers, and I get a percentage of the revenues. A fellow trying to start an individual health insurance company wants me to be his chief investment officer; first let him get assets to manage, and we can discuss it (It is a very interesting opportunity). Insurance Journal is using some of my insurance posts. I signed up early with Seeking Alpha and Technorati to increase my visibility. I’ve talked with some value investing blog aggregators, but nothing has come of it really.What I would love to be able to do would be to work from home. My commute is horrible, and I would like to spend more time with my family. I have about 20 takers if I started a newsletter, but that’s not enough to get off the ground. I would need at least 100 before I would start doing a newsletter.


Ability to reference free articles that RealMoney has syndicated to Yahoo!, etc., has been another source of exposure. All in all, I’m happy with the first two months, and am looking forward to yet more fun with my readers and collaborators. Do you have feedback for me on what I have been doing here? E-mail me, or just post a comment to this article. Above all, thanks for reading!


PS — If you like what I write, recommend me to other well-known bloggers. If you like how I invest, and you have a wealthy friend who might like to seed a low risk equity manager, recommend me to him. Thanks again.

Here we go again:

Financial Guaranty

MBIA pulls out a positive surprise and ends the day up. I suspect that in the current environment where there is a lot of skepticism over structured finance, that it doesn’t take much of a positive surprise to give MBIA a lift. Too many shorts.


Stewart misses badly, and doesn’t fall much. Part of it is due to a charge for title claims that is likely to be nonrecurring. STC has a good track record, little debt, and is trading below book already. How much can it get hurt?

Primary Casualty

Travelers beats and raises guidance and the price falls. Huh? They showed decent top line growth as well. Could that be a worry in a softer pricing environment? It could, but so far that’s not the way other stocks have responded. Philadelphia Consolidated misses and the stock falls, though the company maintains their earnings guidance. When you have a high multiple, investors expect more I guess.


After lackluster results from RDN and MTG, Triad Guaranty beats earnings and the stock jumps 5%. Amazing what good earnings will do when peers have missed. That said, I would be skeptical of future quarters in 2007.

The Bermudans

Transatlantic beat by a decent amount and the stock went nowhere. Perhaps the recent market moves after the reports of the earnings of peers have silently moved the bar above where the sell side left it. Arch Capital beats as well; we’ll have to see how it does tomorrow. I wouldn’t expect much of a move. The valuation on a book basis is significantly higher than that of peers. It takes more of a beat to significantly move the needle. Anybody done a good reserve analysis on ACGL?


Old Republic (that venerable and stodgy firm; I like stodgy.) missed estimates. General insurance did well, while mortgage and title both lagged. Hartford beats and raises guidance. Good quarter all around, particularly in variable annuities. Makes me think that when the life companies start reporting next week, that asset- and mortality-sensitive ones should do well. We’ll see how HIG does tomorrow. I’ll be listening to the call. Who knows, maybe I’ll lob in a question.

Full disclosure: long HIG

Perhaps for blogging, I should not do this. My editors at RealMoney told me that they liked my “Notes and Comments” posts in the Columnist Conversation, but they wished that I could give it a greater title. Titles are meant to give a common theme. Often with my “Miscellaneous Notes” posts, there is no common theme. Unlike other writers at RealMoney, I cover a lot more ground. I like to think of myself as a generalist in investing. I know at least a little about most topics.

Now, I have to be careful not to overestimate what I know, but the advantage that I have in being a generalist is that I can sometimes see interlinkages among the markets that generalists miss. Anyway, onto my unrelated comments…

1) So many arguments over at RealMoney over what market capitalization is better, small or large? Personally, I like midcaps, but market capitalization is largely a fallout of my processes. If one group of capitalizations looks cheap, I’ll will predominantly be buying them, subject to my rule #4, “Purchase companies appropriately sized to serve their market niches.” Analyze the competitive position. Sometimes scale matters, and sometimes it doesn’t.

2) My oscillator says to me that the market is now overbought. We can rise further from here, but the market needs to digest its gains. We should not see a rapid rise from here over the next two weeks, and we might see a pullback.

3) My, but the dollar has been weak. Good thing I have enough international bonds to support my balanced mandates. I am long the Yen, Swissie, and Loony.

4) Sold a little Tsakos today, just to rebalance after the nice run. Cleared out of Fresh Del Monte. Cash flow looks weak. Suggestions for a replacement candidate are solicited.
5) Roger Nusbaum is an underrated columnist at RealMoney in my opinion. Today, he had a great article dealing with understanding strategy. He asked the following two questions:

  • If you had to pick one overriding philosophy for your investment management, what would it be?
  • If you had to pick four of your strategies or tactics to accomplish this philosophy, what would they be?

Good questions that will focus anyone’s investment efforts.

6) In the “Good News is Bad News” department, there is an article from the WSJ describing how the SEC may eliminate the FASB by allowing US companies to ditch GAAP, and optionally use international accounting standards [IFRS]. If it happens, this is just the first move. Eventually all companies will follow an international standard, that is, if Congress in its infinite wisdom can restrain itself from meddling in the management of accounting. The private sector does well enough, thank you. Please limit your scope to tax accounting (or not).

7) Also from the WSJ, an article on how employers are grabbing back control of 401(k) plans. Good idea, since most people don’t know how to save or invest. But why not go all the way, and set up a defined benefit plan or a trustee-directed defined contribution plan? The latter idea is cheap to do; we have one at my current employer. Expenses are close to nil, because I mange the money in-house. Even with an external manager, it would be cheap.Would there be people who complain, saying they want more freedom? Of course, but they are the exception, not the rule, and of those who complain, maybe one in five can do better than an index fund over the long haul. I am for paternalism here; most ordinary people can’t save and invest wisely. Someone must do it for them.

8) Finally, the “hooey alert.” The concept of using custom indexes to analyze outperformance smacks of the inanity of “returns-based style analysis.” I wrote extensively on this topic in the mid-90s. Anytime one uses constrained optimization to calculate a benchmark using a bunch of equity indexes, the result is often spurious, because the indexes are highly correlated. Most differentiation between them is typically the overinterpretation of a random difference between the indexes. Typically, these calculations predict well in the past, but predict the future badly.

That’s all for now.

Full Disclosure: long TNP FXY FXF FXC

Updating yesterday, here we go again:


Willis beats, with stronger revenues as well.  Probably goes up tomorrow.  Brooke Corporation beats, but who can really tell, their press release reveals few details.  Personally, I believe every company that reports earnings should provide an income statement, balance sheet and statement of cash flows at minimum.  I shouldn’t have to wait for the 10Q, or go to their website for a supplementary packet.


Landamerica and Fidelity National both stronger than expected.  LFG went higher yesterday; FNF goes higher tomorrow.  If housing continues to sag, I would expect earnings to flatline, despite business from foreclosure sales and default processing.

Personal Lines

Commerce Group misses, blames weather and some technical items.  Would expect it to fall tomorrow, despite the enhanced buyback.  Personally, I distrust companies that announce expanded buybacks when earnings are poor.


Still no core life companies have reported. National Financial Partners preannounces a miss.  Stancorp misses; looks like the Street just got ahead of the trend.  SFG still reaffirms annual guidance, so the damage should be limited.  I like SFG management a lot so if the price falls dramatically, it should be bought.

The Bermudans

Montpelier beats.  I suspect that the sell side got too pessimistic about MRH’s business prospects given the changes in Florida law.  As Pat Thiele of PartnerRe put it on his conference call, there is more business to be done by private reinsurers in Florida than one might expect.  It will be interesting to hear what Tony Taylor says on his conference call tomorrow.  Perhaps he will grace us with another quote from the Bible? 😉

That’s all for now.  Earnings season is in full swing, and we are 25% through.

As of this evening, maybe 15% of the insurance industry has reported earnings. Insurance is different from other industries because of the accounting complexity involved. That complexity is necessary, because insurance is one of the few industries where one does not know the cost of goods sold at the time of sale. That’s why insurance is one of the slowest industries to report earnings. As one might expect, the insurance companies generally report in order of increasing accounting complexity. I’ll go through the insurance sub-industries to give you a feel for what is working, and what is not.


Rough quarter. AJ Gallagher and Hilb Rogal Hobbs both missed earnings, and will probably be punished tomorrow, if Brown & Brown is any measure. Brown & Brown beat earnings by a little, but their organic growth (same store sales) was negative for the first time in who knows how long. Stock down 7%. Well, what could you expect? Premium rates are falling, and insureds are not increasing their coverages by as much, so premiums go down, and commissions move in lockstep.

The Bermudans

Diversified writers have done well. Aside from windstorm Cyrill and some snowstorms in the Midwest, catastrophes have been light, and there have been few trends in the casualty marketplace that would indicate deteriorating on old business. New business is another matter — pricing is weakening rapidly, and in select markets, terms & conditions are getting compromised. Supposedly pricing is still above levels adequate to earn a profit adequate to justify the capital employed, though in some cases, I am beginning to wonder.

That said PartnerRe, Everest Re, ACE, Platinum, and XL all beat earnings handily. The latter three should do well tomorrow. IPC Re beat as well; they only do property, so they may be indicative of Ren Re, and Montpelier.
Personal Lines

Pricing is deteriorating here, and volume growth is light to non-existent. Allstate and Progressive reported good quarters with weak premium growth, and they have moved higher. Cincinnati Financial guided higher, and has run from there. State Auto Financial missed earnings badly, and got whacked. Selective missed due to the Midwest storms, but raised 2007 guidance… we’ll see how the market treats them tomorrow… should be okay. Midland beat and raised guidance; they have special niches, so good for them, but not indicative of broader trends.

None of the bread-and-butter life companies have reported yet. Those that have reported are one-of-a-kind companies that live in their own space. Reinsurance Group of America beat earnings with strong revenues and was up significantly; they reinsure most of the life space. Maybe that means that mortality margins will be good. Aflac, Ameriprise, Delphi Financial, and Torchmark had good quarters as well. In aggregate, this could be a great quarter for the life companies.


MGIC and Radian both had poor quarters due to bad performance at C-BASS, which each of them owns 46% of. C-BASS services and securitizes mortgage loans, including subprime loans. Away from that, their core businesses seemed to be performing adequately for now. I would be cautious here; residential real estate pricing trends are weak at best.
Primary Casualty

WR Berkley and Chubb; both beat estimates. Chubb is up; Berkley is down. Chubb raises guidance, while Berkley sounds conservative. Neither has rising written premiums. This is clearly the part of the cycle where conservative players pull in their horns. Be on the lookout for companies in this space that show rising premiums written amid the falling premium rates. They will be shorting candidates later this year.
Stay tuned for more on this busy season.

Full disclosure: long ALL RGA short MTG RDN

The Wall Street Journal had two bits on international diversification: a poll, and an article. Both were good as far as they went, but the past outperformance of international over domestic stocks doesn’t help us analyze which will be better in the future. That macro question is hard, particularly because once a streak gets long, it gets more touchy to be long. But let’s look at a “micro” angle on foreign investing.


One of the reasons to invest abroad is to diversify currency risk. Let’s pretend for a moment that we know the dollar is going down over the next few years. What stocks would I buy? I would buy foreign companies that import US goods (costs are getting cheaper), foreign companies that are purely local (earnings stream rising in dollar terms), and US companies that export (sales should rise as the dollar falls).


Now let’s pretend for a moment that we know the dollar is going up over the next few years. What stocks would I buy? I would buy foreign companies that export goods to the US (sales should rise as the dollar rises), US companies that are purely local (earnings stream rising in foreign currency terms), and US companies that import (costs are getting cheaper).


All that said, foreign investing is more complex because of:

  • Expropriation risk
  • Different accounting standards
  • Often less disclosure
  • Poor corporate governance (US investors don’t know how good they have it, or on the negative side, SOX chases foreign firms away from US listings.)
  • Inability to get fair redress in the courts
  • Language issues
  • Foreign trading costs if not listed in the US.
  • War
  • Exchange controls


As for me, I am mainly country-indifferent in investing. I agree with John Templeton, who said something to the effect of: “Buy the cheapest companies in a given industry.” I do look for the “rule of law,” though. Just as when we buy shares in a company, we check to see how they treat outside passive minority shareholders, with foreign firms, we have to go a step further, and ask how the country treats foreign outside passive minority shareholders.


With bonds the issue is simpler, because it boils down to yield, currency and repayment issues. The challenge there is to understand what will drive the relative forward interest rate policy between countries. In the intermediate term, it is better to invest in currencies where the central bank is tightening, particularly if there are any “surprise” tightenings.


I believe in international diversification; in general it is a good thing. But it should not be done blindly; investors should consider the factors that I have mentioned above, if not more factors.