SIMON BROWN: I have Jacques Plaut on the line; it comes from Allan Gray. We’re talking about currencies and store of value, and I actually just pulled up the US dollar chart [Index] – DXY is the name. It’s the dollar index, so it’s several currencies against the dollar – mostly emerging markets. And while it was absolutely running – and September was trading at almost 115 points, putting it at a 20-year high – I’m telling you, it looks a bit bearish. We have lower highs and lower lows. So we’ll see how it goes. We’ll keep an eye on it. It is a painting that I like to look at.
Jacques, I appreciate your time today to talk about currencies being a good store of value. Maybe I’m lazy, or maybe I’m old school. Generally, when I take Zar (rand) abroad, I just go to US dollars. Is there maybe more thought I should put into this process?
JACQUES PLAUT: Hello Simon. It’s been absolutely the right decision for a few years now. The dollar has been super strong. It outperformed all other currencies. But things can change very quickly. I think investors are changing their minds. They are quite fickle, and if something were to shake their faith in the dollar, I think they could switch to another currency very quickly. There is a bit of a journey…currencies have a kind of fair value, just like stocks.
And at the moment, the valuation of the dollar seems a bit stretched to us.
SIMON BROWN: Obviously, we are talking about majors. Nobody rushes to the Brazilian real, I imagine. But is it really between the dollar, the euro, the pound, maybe the yen or the Swiss franc?
JACQUES PLAUT: I think there are times when you want to opt for certain emerging market currencies. Maybe you don’t want to put everything in Brazil, but sometimes it’s cheap currencies. Another one you left off your list is gold, which just might be an option right now.
There is no currency in the world that gives you an interest rate higher than inflation. Maybe I’m exaggerating a bit.
None of these big [currencies] give you interest rates above the rate of inflation, while [with] or at least you somehow stay even over long periods of time. You must maintain your purchasing power.
SIMON BROWN: i see what you are [saying]. You think [through] this very tactically. As I said just before our chat, I just withdraw money and just do it – I do it in USD. You say, wait a second. I’m looking at the dollar index, the DXY chart and like you said the 20yr highs are unlikely to hold at this point. So you start scratching and looking for that real possible return. In some cases, he may even stay in Zar.
JACQUES PLAUT: The rand does not look too bad. We kind of try to call the rand when it’s at an extreme level – extremely strong or extremely weak. At this point, it’s not extreme but, as you said, the dollar is extreme. If you look, [as] I mentioned before, the interest rate relative to inflation, in South Africa, yes, the CPI is 7.5%. You only get an interest rate of 6.25% from the Reserve Bank. But in the UK, the CPI is 10% and the Bank of England rate is only 2.25%. So it’s not that bad for the rand.
And things are cheap in South Africa. A Big Mac, for example, costs $5 in the US and only $2.20 here. We won’t export Big Macs, will we? It is not a tangible good. But in theory, tourists should come here and buy their Big Macs, and we should have a competitive advantage when it comes to exporting.
SIMON BROWN: Yeah. I looked into this fungible Big Mac idea, but it doesn’t work. Nevertheless, they seem not to decompose. Is the euro the one that might even be on the radar? Because again, it goes back to what you’re sort of saying: the eurozone is experiencing the energy crisis. [The euro] reach parity with the dollar. Again, if we start to see the dollar come back a bit, the euro might be a good place to be.
JACQUES PLAUT: For sure. It’s definitely on the options list, and our strategy is to kind of have a basket of currencies at the moment. But the problem with the euro is that the ECB [European Central Bank] does little to fight inflation. They can’t, because Italy is in huge trouble if it starts raising rates. They will find it difficult to repay their debt. So they’re a little off in that regard.
SIMON BROWN: So where is he? I do a monthly cash relocation. Like I said, it’s always in the dollar. If you were me, what is the motto that interests you the most, at this precise moment?
JACQUES PLAUT: The one I would look more closely at is the Norwegian krone as they have benefited from rising energy prices and it hasn’t been as strong as the dollar and Swiss franc compared to others.
SIMON BROWN: OK. The Norwegian krone. There is one that has never been on my list. Allan Gray’s Jacques Plaut, making us all a little smarter and taking us on a journey through the currencies of the world, [to] the Norwegian krone, I appreciate the early morning insight.