Subject: Re: US equity but not $ exposure
The problem with currency hedging, as with all hedging, is that one side of the hedge will lose a lot of money, by design. You don't know in advance which side it will be. Most people aren't prepared emotionally for seeing this happen.

If you hedge an equity or debt portfolio out of US dollars and into Euros or whatever, and the euro tanks, the hedge will cost you a ton. It's imperative for one's sanity to only ever look at the sum of the two positions, never just one or the other. It's particularly tough at the moment because US interest rates are higher, which means that a hedge out of USD will cost money daily even if the exchange rate doesn't move.


For anyone with a cash balance, or a net debt, you have no choice but to make a wager on currencies: it's unavoidable. For those with cash balances, the simplest mitigation is just to hold your cash in a currency (or mix of currencies) that you feel is most likely to hold its purchasing power. For those with debt, sometimes you can move your debt into a currency you think is most likely to be weak. These approaches don't count as hedging per se, and don't really cost anything in the same way.

I moved almost all my cash to non-US currencies in mid March (I've been running around 65-70% cash), and at the moment I feel like a genius. Of course things never move in a straight line and I'll feel like a fool again soon enough.

Jim