How to protect against massive inflation and upcoming fall of dollar

[mixxalot]

I need to move funds to inflation safe investments. Besides gold bullion what are some good moves? I am concerned about massive run on banks, inflation and fall of the dollar. Should I move my cash reserves into gold Euro ETF funds?

[hipmatt]

yes.. fxe, gdx, gld, ..etc

[hipmatt]

http://www.abs-cbnnews.com/storypage.aspx?StoryId=93050

Almighty US dollar turns into ‘American peso’

Since 2001 the dollar has lost more than half its value against the euro. It now costs nearly $1.40 to buy one euro. And it isn’t just the euro that seems to be growing stronger against the US dollar. It has declined against many other major world currencies, and even including minor ones like our peso, reflecting the dollar’s loss of purchasing power.

The Philippine Star

There is this joke circulating in financial circles that the once “almighty US dollar,” is fast turning into the “new American peso.” Since 2001 the dollar has lost more than half its value against the euro. It now costs nearly $1.40 to buy one euro. And it isn’t just the euro that seems to be growing stronger against the US dollar. It has declined against many other major world currencies, and even including minor ones like our peso, reflecting the dollar’s loss of purchasing power.

As the Los Angeles Times reported, “in much of the world — from Brazil to Poland to Thailand — one dollar buys less than it did a year ago, and far less than it did four years ago. On Friday, the US currency hit a 30-year low against its Canadian peer.”

There isn’t a single explanation for why currencies rise and fall, the LA Times explains, but many experts believe that the sliding dollar is largely a function of the nation’s borrowing binge of the last two decades. That has left the US with a yawning trade deficit and the fact that it is deep in debt to foreigners.

Alan Greenspan, the former chairman of the US Federal Reserve, blames President George W. Bush for America’s current economic problems. Greenspan says Bush pays too little attention to financial discipline. In a book to be published this week, In The Age of Turbulence: Adventures in a New World, Mr. Greenspan says Mr. Bush ignored his advice to veto “out-of-control” bills that sent the US deeper into deficit.

In theory, a currency is supposed to reflect to some extent, the underlying health of the economy that stands behind it. “The basic thing is, we have been living beyond our means,” Ted Truman, a senior fellow at the Peterson Institute for International Economics in Washington told the LA Times.

A dwindling dollar is, in effect, the market’s attempt to slow those trends, Truman said. The flip side of a weak dollar is that it makes US goods less expensive for foreign buyers. America shipped a record $137.7 billion worth of goods and services abroad in July, 15 percent more than in July 2006, government data show. That’s good news for American exporters.

But even then, Americans still bought more from the rest of the world — including foreign oil — than they sold or exported. Imports reached $196.9 billion in July, up five percent from a year earlier.

The gap between imports and exports is the trade deficit. The broadest measure of a nation’s trade picture is the so-called current account, which includes investment flows. The deficit in the current account for the US reached a record $811 billion last year, more than twice what it was as recently as 2001.

The LA Times reports that “this year the deficit has been shrinking modestly, helped by the surge in exports. But the gap remains massive — another reason, many economists say, that the dollar is likely to keep falling in value… Some believe, however, that the trend could speed up.”

That’s bad for the world economy too. “If the dollar loses value too quickly, it could wreak havoc on the economy and financial markets — driving up interest rates and inflation and slashing Americans’ purchasing power, said Peter Schiff, who heads money management firm Euro Pacific Capital.”

The danger, the LA Times warns, is that a Fed rate cut could spark a much faster downward spiral in the currency. “That could occur if lower interest rates on dollar-denominated bonds caused foreign investors to balk at buying more, or encouraged them to sell US securities and invest their money elsewhere in the world. Worse, wholesale flight of foreign money from US bonds could drive up long-term interest rates if the Treasury and other debtors have to pay more to attract investors to their securities.”

No wonder John Gokongwei, the chairman emeritus of JG Summit told us over dinner in Shanghai last week, he is worried about rough times ahead. He is worried about the view expressed by US Treasury Secretary Hank Paulson that the ongoing subprime mortgage crisis is going to be worse than three of the worst things that ever happened to the global financial system — the Asian crisis of 1997, the $50-billion Mexican meltdown of 1994-95 and the $40-billion Russian default of 1998.

A US recession, Mr. John said, could nip in the bud the boom in the Philippine real estate market. We could end up with a lot of unfinished superstructures of skyscraping condos. Pinoy expats who are fueling all those grand condominium projects will be adversely affected by the US credit crunch. Mr. John said that under US laws, they have the right to ask for the return of deposits they made on local condo units sold to them in America.

Mr. John’s advice: stay liquid and borrow long term.

Mea culpa

I made a terrible mistake in my column last Monday. In the sentence that partly reads “Cebu Pacific’s daily flight to Taiwan will open the floodgates of travel between China’s business capital and the Philippines…” Taiwan should have been Shanghai. I don’t know what possessed me to put Taiwan when the whole column was about Shanghai and we all know China’s business capital is Shanghai. Worse, I missed that mistake when I edited my column.

This is what I get for trying to write a column on the run, while in an exciting city like Shanghai and after having had very little sleep. Good thing I am not a diplomat or that would have been a very serious faux pas.

Importing copra

I got this e-mail from a reader, Teddy Navarro.

I am literally teary eyed as I read your column today as you confirm our importation of copra. I know for a fact that it was inevitable because of how the coconut industry was handled by the government since 1986.

Fresh from college I worked for Mr. Danding Cojuangco from the mid 70’s up to his exile in 1986. I was with the special audit team who saw to it that every step of the industrialization of coconut was in place and functioning well.

We visited a state of the art coconut laboratory and research center in Bugsuk Island in Palawan producing hybrid coconut planting materials that were to be used for massive replanting programs to ensure constant supply of copra, copra buying stations all throughout the country even in far flung areas of Basilan and Sulu and Tawi-tawi, coconut oil mills and and the coconut chemical plant in Batangas.

I still remember Mr. Cojuangco saying that all these facilities were put up to produce chemicals out of coconut instead of exporting it in its raw form, maipagmamalaking sariling atin as he would always say.

Since Mr. Cojuangco left in 1986, I have never seen somebody who had the passion and vision for the coconut industry like he had. At the rate the coconut industry was mismanaged and neglected by the government for the past twenty years, I could only say SAYANG for a God-given opportunity.

Shared faith

This one’s from Lal Chatlani.

A priest and a rabbi operated a church and a synagogue across the street from each other. Since their schedules intertwined, they decided to go in together to buy a car.

After the purchase, they drove it home and parked it on the street between them. A few minutes later, the rabbi looked out and saw the priest sprinkling water on their new car!

The rabbi hurried out and asked the priest what he was doing. “I’m blessing it,” the priest replied. The rabbi considered this a moment, then went back inside the synagogue.

He reappeared a moment later with a hacksaw, walked over to the car and cut off two inches of the tailpipe.

[mixxalot]

How do I move 401k to these ETF?

Also how long do I really have to move money out of money market and CD funds to the ETFs before collapse? Just curious.

[mgubnyc1]

Yes, you had better sell everything, house, car T.V, computer etc… then move all that cash to gold bullion, and you had better hurray because you only about 48 hours until all that cash is worthless. I then strongly suggest you take hike into the N.M dessert and hide out in a canyon with all your other DOOM AND GLOOM buddies and wait out the fall of the U.S.A. When its all over you can trade all of your bullion for a nice house right on the ocean in SD. Dick!

[mixxalot]

American peso and reality

Hahah that last one gave me quite a chuckle. I have mix of investments and assets some liquid some in stocks and bonds. Heck I even have plenty of old silver dollars and some gold coins for collector value.

I am not sure what to make of the dollar fall- maybe I should ask my company to pay me in Euros?

[mgubnyc1]

I would ask for Canadian dollars, I know for a fact the Canadians are about to invade the USA. You see once the US dollar falls below .50 per Canadian dollar, (sometime before the end of the week) the canucks will pull a very hostile takeover one like wall street has never seen before and in the end when the dust settles there will be a new country, they will call it CanAm. The good thing will be everyone will have free health care, the bad thing will be gas will be 8.00 a gallon.

[bsrsharma]

Canadian dollars

Wrong currency! Select Chinese Yuan. Should easily double (against $, in real terms) in about 10 years.

[Coronita]

Canadian dollars

Wrong currency! Select Chinese Yuan. Should easily double (against $, in real terms) in about 10 years.

 

A country that has a government that has that much influence on it's economy and can change the rules overnight is to me is a sure sign of impeding disaster for speculative investments. That said, my wife a former citizen there, has put some speculative investments in the yuan and real estate there, with the understanding that it can all disappear the next day if the Commy government whimsically has a policy change the next day.

China lacks regulation and oversight. The the same time, the government has way to much power over what it can do to "fix" any perceived issues. That in my opinion is a recipe for foreign investors getting screwed. I'm surprised there is so much interest in investing in china from foreigners. Because it will take just one bad storm for everything to eat sh!t in my opinion. This mortgage fiasco here is nothing compared to the level of corruption and red tape that exists over there. Until that is fixed, I'd rather gamble on a depreciating U.S. dollar. Lawsuits are virtually nonexistent. As a foreigner, good luck recovering any losses (if there was fraud, corruption etc).

Just look at how all the product recalls are being handled? Why is the Chiness gov involved in the private sector of toy companies? What's astonishing is how much influence the government has in what a company can and can't do. And to some extent, the Chinese government was shifting the blame on U.S. Corporations for lack of oversight. Doesn't this bother anyone? Compare that to the way the Taiwanese and Japanese in the past have done business. It's a completely different ballgame.

 

 

 Maybe it's just foolish to think this way. But I think despite a lot foolish things about the U.S. financial systems, it definitely has more rules and regulation than China. And a contrarian viewpoint, I have faith in the system here, more so than overseas.

[bsrsharma]

For the average investor, instead of getting all excited and getting into risky Gold or foreign currency investments, you can do very well easily by just going to your 401(k) and allocating all your assets to a mix of diversified Global/International funds. If you max out your 401(k) and they are all invested in Global funds, you have enough protection against moderate inflation/devaluation. Any devaluation of $ will be fairly gradual. My guess is $ may lose 50%-60% (in real purchasing power parity over a basket of major currencies) over the next 10-12 Year period. This will be slow enough for most people not to notice. Only by 2020, will average folks start noticing that we are living less well, than, say 2000. (Only now, some smart piggingtonian like people are realizing that we are less well of in standard of living compared to 1960s)

[mixxalot]

Diversify is what Greenspan said

When asked on 60 Minutes about what the demon was investing in, he was laconic and said to diversify. Greenie the Satanic worshiper then responded to the credit crisis faced by US automakers GM and Ford said “They need to build better cars and sell more”.

I am mixing it up- short term, long term, liquid, non-liquid. Every major investor book points to Asset Allocation strategies which is basis for Modern Portfolio Management the finance wizard method to protect best against inflation and risk. I have 20% international funds, 15% treasuries, cash, large small and mid cap Fortune 500 stocks and rest in bonds. Very little debt. So kinda doing the best that I can think of to invest and hedge against risk and inflation based on the many financial books I have read lately.

Sheesh it nearly takes a finance MBA or banker to know what to do! Maybe I should get my MBA in Finance and become an undercover banker agent and find a way to destroy the world banker slime balls?

I think these world bankers are almost impossible to stop because of the power and chokehold they have on politicians and big business.

[bsrsharma]

I have 20% international funds

Why limit to 20%? I am 100% Global (Global includes US). With at least a 50% devaluation of US $ in next 10 years, what is the down side risk in going fully global? (Obviously you have to diversify and not fall in love with any country or region, but from any rational analysis, being 80% in US $ based investment is just plain nutso)

[Coronita]

Because unless you understand how some of the international laws in other countries work, you'll realize that despite all the wacked things about U.S., it probably is one of the countries that offers the most stable legal and financial systems. Coupled with the plethora of lawyers and litigation, you have recourses if there is fraud or foul play. Countries like china will be the wild wild west for average investors. Good luck getting anything back if the government whimsicially decides they don't like you.

Also, everyone right now is probably think the same thing you are and rushing either into international funds and/or gold.  Iwould say this will push the prices of those instruments up beyond fair value, making domestic equity relatively cheap again in the long term. But that's just my contrarian viewpoint. I think the time to get in to international was 2 years ago. 

[one_muggle]

If you want international exposure for the more conservative portion of your portfolio, take a look at American companies with broad international reach, and/or some foreign companies with the same.
JNJ, BUD, Motorola, Coke, McDonalds, Toyota…
Part of the reason for the quick rise in the blue chips yesterday was the devaluing of the dollar, which made the international income from the big boys worth more dollars.
Companies like JNJ–all other things being equal (big assumption!)–likely will keep their US business steady, dollar for dollar, during a downturn. While their Euro income, and international growth will give you some hedge against the falling dollar.
While you are waiting for the recovery, learn a Chinese dialect Dongyi, you’ll be set for the new, new economy ;^)
Joi wooi

[Coronita]

Motorola

from an investment perspective is gamble right now. There product mix stinks, Nok and the Korean handset manufacturers are kicking their ass, and after the razr, they have no really new revolutionary phones. The CEO lacks vision and people want him to be removed.

 

That said, I recently picked up some MOT shares on the news that Carl Icahn took a sizable portion and on the hopes that MOT's next quarter will be bad enough that the CEO gets the boot.

Other thing I'm considering is BEA software, which Icahn also took a 8.6% stake. Unfortunately, the BEA's management is saying, BEA isn't for sale. Too bad, because their app server is actually pretty good, better than jboss, websphere, or the oracle crap. Icahn wants it to be sold to a larger company.

Also, I think Tibco is prime candidate for a takeover (all it's previous competitors have been bought).

 

 

 

[mixxalot]

What about S&P US Index funds?

Most of these companies are large US multinational corporations anyways. They have trillions to make and lose. I do invest international but dont need to do 100 per cent yet.

[(former)FormerSanDiegan]

As for US companies, I like the large, dividend paying companies with significant foreign sales. These tend to benefit somewhat from a weaker dollar. Examples … PG, GE, JNJ.

[g2006]

Is there a simple method to short the US dollar like ETF or a mutual fund.

[(former)FormerSanDiegan]

Is there a simple method to short the US dollar like ETF or a mutual fund.
Yes. UDN is an ETF that shorts the dollar.
However, foreign stocks may offer more upside because you presumably get both the growth in the company, plus a boost from a declining dollar.

[mixxalot]

Cool! I need to put 20-50k a year into this fund and make some real hedge against losing money with the plans of the world bankers. I say if you cant stop the criminal cartel called the FED and world bankers, might as well cover your bases.

[bsrsharma]

short the US dollar

Dangerous game to play, in my opinion. If the Iranians explode a nuke or throw a missile at Israel, the whole world will jump back on $ and you are toast. Or if Al Queda gets control of nukes in Pakistan (there is only a weak dictator standing between them now), the markets will just discard other currencies in favor of $. Currency speculation is for grown ups. You should understand the global dynamics far too well to play and win.

[(former)FormerSanDiegan]

bsrsharma –

I agree. I would not hold a huge portion in UDN. The dollar has been on a decline for a significant period. At some point it may turn around. That’s why it is a fraction (less than 5%) of my portfolio. The Euro-zone is at a different point in the business cycle. The US is in slow-down/recession mode well ahead of Europe. Consider what happens when the US is recovering from recession as Europe heads into one. What happens to the Dollar vs Euro when that happens ? US rates going up while Euro rates going down means a strong dollar vs Euro. It will happen again …

[poorgradstudent]

European and Chinese stocks seem the way to go, along with the usual BRIC investments (ok, technically China is the C in BRIC). I fully expect my shares in DEO to kill the S&P in the next couple of years.

[asragov]

The Economist’s Big Mac Index is a classic for looking at over- and under-valued currencies:

http://www.economist.com/finance/displaystory.cfm?story_id=9448015

Choices like FXE are not likely to be available in a 401k. You’ll have to wait until you roll over your 401 to an IRA.

[Author]

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