You probably saw the segment on CNBC yesterday about the BerkShares, a local currency being used in the Berkshires in Western Massachusetts.Despite a lot of chatter about this on the internet (found after I watched the segment) I had never heard of this. BTW that is Herman Melville on the $20 bill.
This idea is both concerning and intriguing. I can't really articulate much in the way of real concern other than I get a sort of Jericho versus New Bern vibe off of the whole thing which I'm sure is unfounded. I find it intriguing in the same way I find the idea of moving to New Zealand or Uruguay intriguing. I have no plans to move anywhere there is just something intellectually interesting about the idea.
Frankly in watching the CNBC segment and looking around the site, I'm not very clear on what the purpose is. People using the BerkShares benefit from a 5% discount when they convert "federal dollars" in for the new currency (maybe they make up for it on volume?). This begs the question of whether we will see more local currencies created. Will we be able to short the rust belt against Oregon? Will there be ETFs to let us do this?
Speaking of ETFs, IndexUniverse reported that iShares has filed for foreign sector ETFs. WisdomTree was the first in the space with dividend weighted foreign sector ETFs followed by capweighted funds from SPDR and now the iShares filing, also for capweighted. This strikes me as a threat for WisdomTree (not an aggressive move on the part of iShares just something that threatens WisdomTree). This part of the product line covers a lot of ground for WisdomTree but their total AUM is only a coupla few billion. iShares has several individual funds larger than all of WisdomTree. SPDR also obviously has much deeper pockets than WisdomTree.
If it turns out that the dividend weighting offers no performance advantage then many people will think it just makes sense to go with the larger provider. I'm sure iShares is doing this simply in an effort to offer a more complete product lineup, they don't really need to be worried about a $3 billion competitor. Maybe this will be the tipping point for WisdomTree to really move forward with some of the currency funds they filed for a couple of years ago but unfortunately I am skeptical.
I realize I harp on this a fair bit but if things do not go well for US assets over the next five or ten years then single country access to multiple asset classes would be a huge difference maker but I'm not holding my breath.
12 comments:
I share your sentiments exactly on local currencies, Roger. It's not exactly the same, but I had similar misgivings years ago when I shopped at a grocery on Maui and saw locals receiving discounts with their Hawaiian drivers' licenses.
O/T--there's an interesting article today at qvmgroup.com/invest/ on the use of moving average crossovers to identify long term trends. Unfortunately, they don't post any numbers, but the charts make it a worthwhile read.
Local currencies have been around a while. They make little sense. The discounts offered by local merchants is a marketing gimmick they use instead of competing on price with the bigger or cheaper competitors.
These currencies do not have a lot of affect and are backed by squat. But you will always find different opinions and it is one way for business to attract those with different views.
I'm kinda surprises I can't find any of these on Ebay.
"A lot of people don't realize that change is a two-way street. You can come in with sixteen quarters, eight dimes, and four nickels - we can give you a five-dollar bill. Or we can give you five singles. Or two singles, eight quarters, and ten dimes. You'd be amazed at the variety of the options you have."
"All the time, our customers ask us, "How do you make money doing this?" The answer is simple: Volume. That's what we do."
that was one of the best bits ever from SNL--The Change Bank (or some similar name)--an absolute hoot.
Simple, a local currency keeps the money in local circulation. In other words, it keeps the money out of walmart, wallstreet, and washington.
Not a marketing gimick any more than the greenback is a marketing gimick.
"Sound as a pound, baby."
Roger,
Do you ever recommend fixed income annuities to your clients as part of a diversified financial plan? I attended a seminar last night where the sponsor was pushing 5 year fixed income annuities (offered by Fidelity and ING)with a 1-3 year "bonus" of 10% and a guaranteed return of 6% backed by commercial real estate mortgages with the principal insured. I know, "if it's too good to be true" walk away; however, in this offering, the principal is allegedly insured.
i used to say that they are not for me but that i know people (not clients) that have them and love them. then the panic happened and most of them got the scare of a lifetime.
annuities are an expensive planning tool as opposed to a managed portfolio. my job is to manage portfolios.
Keeping money out of Walmart simply means you would rather pay more to a local merchant.
Keeping money out of Wall Street simply means you would rather pay more to a local merchant (but you got that extra jab at Walmart in :)
Keeping money out of Washington means either your simply paying your taxes with real US currency or you are evading taxes on the local currency. So if it is easier to evade taxes by using the local currency I guess there is an advantage, albeit an illegal one. It also helps point out how worthless government can be.
Maybe creating a local currency indicates that people in that corner of our country want to have the issueing entity operate within conservative financial parameters (as does the prudent individual or family unit). Frustration with the uneducated and power-hungry far left (sic....progressives) will lead to more of these schemes.
On a related point, I am very pleased to see more and more of my acquaintances implementing an Obamazation of their investment and employment program, which is designed to legally and dramatically reduce their tax burden as well as create multiple income streams. My personal goal is to knock Federal taxes down 80%,and I am confident that will be accomplished.
Perhaps some feel-good foundation will pick up my share of not-to-be-expropriated loot to help the victims wallowing in laziness and sloth.
Roger,
in Italy in the late 70's every one including stores were putting out currencies. Taxes were still being payed since everything has a tag of 20%(it is called iva). We have a gasoline tax were 70% of the price represents taxes. These non goverment lira's had no effect. At the end we went into EURO. So one if we waite another 20 years there will be a north american currency. When that happens every thing will double in price. In italy what used to cost 1000 lire when the conversion happend the samething cost one euro. The conversion rate is 1936 lira to a euro. So it seems that you are following the italian footsteps. Well, the dollars one day will be a museum piece.
Good luck.
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