Currency management coming to the fore

We are seeing the market react as if a default in Greece is likely to happen this week. We always felt this was always going to be the necessary solution to remove the excessive debt load. The market talked about it, but we may see how it really reacts this week.

This would be difficult for the market. It would immediately fear that other European economies could be next, putting great pressure on the EURO and European equities and debt markets as money flows out of the European Union into supposedly safer hands.

It seems the USD has taken this role, no doubt EM debt will also enjoy decreasing spreads.

In our portfolios equities are within 40 - 50%. High quality is approx, twice the amount of cyclicals. We do not want to change this ratio at this stage of developments.

Value investors must be careful as we cannot think of this as a standard business cycle where liquidity is the main issue and a bit more time will help us. We are dealing with structural changes that affect solvency of economies - they are not only liquidity issues. Hence we are looking for companies that can survive and are cheap. Structural changes take time to be resolved. Hence the large cash load in portfolios.

Currency management is becoming more of an issue as large cash holdings must be kept in currencies where its purchasing power can increase. This is likely to be in EM, or countries whose GDP is correlated to these economies. This can include Canada.

We will be studying three different categories of economies to understand their currencies. The first 2 DM, and the third EM.