# US$ currency -- what to do with a block of $US?



## gardner (Feb 13, 2014)

I receive a portion of my income (ESPP, RSUs, options) in $US stocks, which I generally flog off as quickly as possible yielding US$. I generally use the broker's 150 basis point exchange for small sums, but larger amounts I keep in $US in a $US account. I'm looking for ideas and opinions how to deal with a reasonably large block of $US.

I've been hanging onto it as a kind of currency hedge, but $US is up these days and maybe it's time to just sell it. Any recommendations where to get a good rate for $25K blocks or so?

I have some Canadian dividend stocks that are traded in $US on the NYSE, but I don't feel like investing heavily would be a useful currency hedge when the underlying stock is $CAN and I get burned (twice) on the dividend exchange. Figuring out whether there is any real currency hedge at all in this position makes my head hurt.

I can't seem to earn nearly anything on $US at interest. I have some term deposits turning over every few months and they earn a couple of basis points at best. Are there any reasonable $US bonds these days? Once upon a time there were some Hydro Quebec issues worth owning.

Any opinions what options I should be looking at?

Thanks.


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## Causalien (Apr 4, 2009)

Spread it out to gold, euro and cny.


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## GoldStone (Mar 6, 2011)

gardner said:


> Any recommendations where to get a good rate for $25K blocks or so?


Use Norbert's Gambit.

http://www.finiki.org/wiki/Norbert's_Gambit


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## Janus (Oct 23, 2013)

I think you should keep it in USD. The fall of the Canadian dollar has only just begun - and why not invest in the US stock market, which is a heck of a lot better diversified than Canada's?


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## GoldStone (Mar 6, 2011)

Janus said:


> The fall of the Canadian dollar has only just begun


That's your opinion and not a fact. Bloomberg article below quotes a few bank economists who forecast stable CAD.

http://www.bloomberg.com/news/2014-02-13/loonie-s-worst-seen-behind-as-bulls-embrace-surplus.html


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## CanadianCapitalist (Mar 31, 2009)

My situation is similar to yours in that I receive a portion of my compensation in USDs. I simply use the greenbacks to buy into US-listed Vanguard ETFs and contribute these in-kind to RRSPs.


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## Janus (Oct 23, 2013)

GoldStone said:


> That's your opinion and not a fact. Bloomberg article below quotes a few bank economists who forecast stable CAD.
> 
> http://www.bloomberg.com/news/2014-02-13/loonie-s-worst-seen-behind-as-bulls-embrace-surplus.html


Absolutely it's an opinion - that's what these forums are for. I'd hope nobody takes any economic/FX/earnings projection here for fact!

I'll use "I think" more often to avoid any confusion.


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## GoldStone (Mar 6, 2011)

Janus said:


> I'll use "I think" more often to avoid any confusion.


:encouragement:


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## Janus (Oct 23, 2013)

To provide a few reasons behind my opinion:

• The Canadian economy is looking poor, and the interest rate trend might have to be downward instead of upward. Meanwhile US rates are decidedly upward-trending.

• Related to the point above in terms of Canadian rates is our housing situation. I think it's a disaster waiting to happen, and in the event housing does turn, demand for CAD will drop. The fact that we've just cut off the top end of Vancouver real estate by canceling the "buy a visa" program is (I think) the first shoe to drop.

• CAD is linked to oil. US supply is booming, while OPEC supply is recovering from a year of major shortages (iraq, lybia). Demand is fine, but supply is coming back quicker, which should ease the price of oil and reduce demand for CAD.


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## hboy43 (May 10, 2009)

gardner said:


> I have some Canadian dividend stocks that are traded in $US on the NYSE, but I don't feel like investing heavily would be a useful currency hedge when the underlying stock is $CAN and I get burned (twice) on the dividend exchange. Figuring out whether there is any real currency hedge at all in this position makes my head hurt.


I do not understand the above statement. Set up $US account at your brokerage and deposit into it your $US. Buy for example a Canadian bank in $US on the US exchange. Phone broker and tell him to journal over (in plain speak move") the stock to your $Can account. Receive dividends in $Can. No currency conversion cost anywhere.

hboy43


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## gardner (Feb 13, 2014)

hboy43 said:


> Phone broker and tell him to journal over (in plain speak move") the stock to your $Can account.


Excellent idea. I just got off the phone with TD, having moved my TSX/NYSE cross-listed issues into $CAN.  This is a reasonable way to buy, using $US, things I want to hold and enjoy in $CAN, with no currency spread.

I'll have to do some research how to pull off a "Norbert Gambit" using TD. But I've done it 1/2 way, I guess.


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## houska (Feb 6, 2010)

Like CanadianCapitalist, I try to keep stuff that comes in USD as-is and not convert it. Of course, not an option if you need to spend it (vs invest it), but I don't believe I nor anyone else is terribly good at timing the market on USD/CAD, and I think most of us underestimate how much of our future cash needs will track USD more than CAD. Of course if we live here we will have CAD needs, but many consumer goods, south of the border travel, etc, etc are in fact US dollar spend (even if we pay a retailer for it in CAD) and I think most of us are overexposed to the CAD from a long term asset-liability matching point of view.


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## GoldStone (Mar 6, 2011)

gardner said:


> I'll have to do some research how to pull off a "Norbert Gambit" using TD. But I've done it 1/2 way, I guess.


You did 2/3. The buy and the journal. All that's missing is the sell.


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## gardner (Feb 13, 2014)

Bringing this thread back to life to ask about holding $US bond funds. I've looked over the couch potato recommendations for Canadian investors, and there are lots of suggestions for $CAN bond funds. US advice mainly leads to	Vanguard Total Bond Market ETF (NYSE:BND).

I also found this BMO MID TERM US IG CORP BOND IDX ETF USD (TSX:ZIC.U) that trades on the TSX.

The ZIC.U has a MER in the 0.3% range vs. BND is 0.1%

If I want to hold some $US bond position in a non-registered account, what are my options? Any downside to holding BND on NYSE?


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## alingva (Aug 17, 2013)

gardner said:


> I receive a portion of my income (ESPP, RSUs, options) in $US stocks, which I generally flog off as quickly as possible yielding US$. I generally use the broker's 150 basis point exchange for small sums, but larger amounts I keep in $US in a $US account. I'm looking for ideas and opinions how to deal with a reasonably large block of $US.
> 
> I've been hanging onto it as a kind of currency hedge, but $US is up these days and maybe it's time to just sell it. Any recommendations where to get a good rate for $25K blocks or so?
> 
> ...


Believe me, if anyone in this forum knew for sure what to do he/she would not be in this forum. We all guess and I am pretty sure your own guess is the same as mine. Investment is a probability game, nobody knows for sure but we play the odds that's why diversifying is important. IMHO, you should have some money in currencies, commodities, stocks and bonds (please note, bonds and not bond mutual funds). The question is how much should you keep in each class. The answer depends on your knowledge of each investment class and time horizon.


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## GoldStone (Mar 6, 2011)

gardner said:


> If I want to hold some $US bond position in a non-registered account, what are my options? Any downside to holding BND on NYSE?


No good $US options in a non-reg account, to the best of my knowledge.

Most bonds trade at a premium these days. The coupon yield is higher than the yield to maturity. In a non-reg account, you will be paying tax on the full coupon value, even though your real yield to maturity is lower. Buying a bond at a premium will result in a capital loss that you cannot deduct against the coupon income.


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## gardner (Feb 13, 2014)

GoldStone said:


> Buying a bond at a premium will result in a capital loss that you cannot deduct against the coupon income.


At this point I am thinking in terms of a bond fund. Would this capital loss effect be hidden within the fund, with the fund simply yielding what it yields as ordinary taxable income?

The best possible tax efficiency in non-registered $US is, I assume, going to be capital gains. But even a 100% equity position would yield -- what -- 1% taxable dividends (from US source). I am looking to diversify my $US position a bit to include some fixed income. Right now I am more than half in cash that earns bubkes. I would turn part of that into a bond fund that could yield maybe 3% of taxable interest.


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## humble_pie (Jun 7, 2009)

it's possible to hold interest-bearing securities yielding bupkes when there is expectation that the underlying currency will rise vs the home currency ... how is your outlook for USD/CAD?

i know people who hold CHF for this reason. Swiss francs stopped paying interest 2-3 years ago but the currency has appreciated against USD & at least 20% against CAD ...


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## gardner (Feb 13, 2014)

humble_pie said:


> ...underlying currency will rise vs the home currency...


It is certain that $US will vary relative to $CAN over time. I'm carrying a sizable $US portfolio partly as a hedge against that variation.

I'm not a FOREX day-trader however, and I still need the assets to earn *something*. Having $US 25K in an account earning $25.00 per year doesn't feel like a good idea any more than having a block of gold under my pillow. I wouldn't hold gold because it can't earn anything. But $US should be able to earn money, as well as being a currency diversification holding.


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## GoldStone (Mar 6, 2011)

gardner said:


> At this point I am thinking in terms of a bond fund. Would this capital loss effect be hidden within the fund, with the fund simply yielding what it yields as ordinary taxable income?


The main issue is buying premium bonds that have a high coupon yield (higher than prevailing rates). I will use some made-up numbers to illustrate the idea.

Take 20 year bond issued in 2004 paying 7% coupon interest on the $10,000 face value. Today, it's a 10 year bond paying 7% coupon. Because prevailing 10 year rates are much lower than 7%, you can't buy it at $10,000. You have to pay a premium to buy it. Your yield to maturity (based on the premium price you paid) will match the prevailing 10 year bond rates. The issue is, you will be receiving 7% coupons and paying tax on them. You are not earning anywhere near 7% but that doesn't matter to the tax man.

The bond fund that you want to buy? It's full of premium bonds. The tax issue that I described applies to the fund the same way it applies to the individual bonds.

The bottom line is, taxable account is a bad place to own BND.


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## gardner (Feb 13, 2014)

Another idea: US preferred shares
NYSEFF	iShares S&P US Pref Stock Idx Fnd (ETF)
NYSEGX	PowerShares Preferred Portfolio(ETF)

These guys would yield conventional taxable income with a somewhat stable price. At least no negative after tax income.
Both have a MER in the 0.5% range.


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