Bottom Dollar / Where to invest if you believe in Fischer
By Eytan Avriel
The Bank of Israel recently intervened to strengthen the position of the U.S. dollar against the shekel. Anyone who believes in this effort can find a host of ways to turn a profit.
Israelis, or at least the country's corporate managers, do believe in central bank governor Stanley Fischer: A survey conducted by the bank and published last week found that local CEOs predicted the dollar would gain at least 5% in the second quarter of 2008.
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Not only is that forecast not panning out, but the dollar is actually weakening. To blame is its continued decline against the euro, to a record low of $1.60 per euro, as well as the sale of dollars by investors and Israeli exporters.
Last Friday the dollar was trading at NIS 3.453 - about 2% higher than its March 20 low, the day the Bank of Israel intervened and purchased $400 million, but 6% lower than the exchange rate two weeks ago, on April 8.
The CEOs' survey, of course, cannot be treated as a reliable gauge of the future. First, because although it was published recently it was conducted shortly after the central bank's dramatic intervention in March, and the interviewed CEOs were undoubtedly impressed by Fischer's moves. If that survey were conducted today, the CEOs might answer differently. Second, it is only a survey - an average of some businessmen's opinions and guesses. Such surveys do not have a particularly good record and have little success in foreseeing strong fluctuations and surprises.
Despite the strengthening of the shekel in April, however, there is a feeling in the Israeli money market that in the next two months the shekel will lose ground, and sooner or later Fischer's measures will bear fruit. Most market players are deeply impressed with his resolve not to do anything extroardinary to weaken the Israeli currency; they simply believe he will achieve his goal.
Let's suppose for a moment that you believe in Fischer and are convinced the dollar exchange rate will indeed rise by 5% in the coming year. What are the main tactics for winning such a gamble?
Thus a 5% increase in the dollar/shekel exchange rate would result in an annual shekel yield of 7.5% in the coming year, less purchase and sales commissions (about 0.5%), the bank's commission for holding an investor's securities (between 0% and 0.5%, depending on an investor's bargaining power) and income tax.
"In the money" options are a little more solid, but still run the risk of quick losses of tens of percentage points.
More daring investors can by ETFs on the indexes for oil, commodities, highly rated corporate bonds or junk bonds. If you really believe in Fischer's ability to change the direction of the local market, but not that of the dollar, you can buy securities in euros, pounds sterling or a basket of currencies. When purchasing financial assets abroad, however, the gamble is on something else altogether, and the linkage to foreign currency is simply a gift.
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