Thinking Outside the Box to Expand Investing Horizons

March 04, 2009 | By: Roger Nusbaum

In recognition of the possibility that we need to look to more outside the box investments I thought I would mention a couple of things I follow and maybe you can share a couple of things along these lines that you follow. Maybe we can have a collective expansion of horizons.

The New Zealand dollar is now below US $0.50, and based on its deficits galore, the likelihood is that the RBNZ has more work to do and a looming S&P downgrade the kiwi will probably go a little lower in the next few months.

In November 2000 the kiwi spent a few days below US $0.40 then doubled to $0.80 last March, albeit with a couple of hiccups along the way.

At some point the kiwi will go on the upswing again and someone will make a lot of money holding the kiwi. New Zealand is kind of an easy country to follow because there are very few moving parts compared to the US. It is a proxy for risk, a proxy for commodities (even though it produces more timber and agriculture than ore and the like) and NZ is growing trade with China. WisdomTree has a kiwi dollar ETF with ticker BNZ that makes access easy. To be clear: I do not own BNZ, don't know if I will< and think there is more downside to come.

The chart above compares iPath Platinum (PGM) with SPDR Gold Trust (GLD), which is a client holding. It shows PGM dramatically underperforming GLD last fall and over the last few months there has been a zigzag relationship.

You can usually find a current article making the case for platinum over gold. Sometimes those articles are correct and sometimes not. Some folks will have a knack for success with kind of pair trade or if going short is not your thing (either for comfort or account restrictions) then maybe swapping from one to the other for precious metals insurance.

I believe in PM insurance, realize that at times platinum will be the more effective insurance but have yet to sort out the extent to which I would be comfortable doing this.

Last one from me today is the Airshares EU Carbon Allowances ETF (ASO). It listed two months ago at $25, fell as low as $12.17 at one point and closed yesterday at $17.48. ASO seems to be a proxy for economic expectations. If the market sees a slowdown (obviously it does, and that is exactly what has been going on for the last few months) then ASO should be expected to go down. At some point the market will start to see expansion/recovery on the horizon and ASO would likely turn up at that point.

A proxy for trading the Baltic shipping indexes would do something very similar in terms of tracking expectations. The BDI had a nice bounce from early December to mid February but I should note that there are some who believe the BDI is not a good measure of expectations for the economy. For now there is no product on it and I would suggest you sort out for yourself BDI's utility in this regard.

You should also sort out for yourself whether this stands up for ASO or not. I think there is something to it but am still trying to sort it out. Broad-based equity indexes may now be skewed, (this is my opinion) because of the sector distortions that have occurred during this decade (first tech, then financials), in such a way that a bull market could start but not be reflected in the broad based indexes (a theory of mine that might be worth exploring in a little more detail on another day).

From a bigger picture standpoint, there are a lot of ideas like this out there. It only takes one or two to meaningfully help a portfolio.

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