Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

If the U.S. Dollar Collapses, What Happens to Your Portfolio?

Currencies / US Dollar Jun 21, 2011 - 02:40 PM GMT

By: Jeff_Clark

Currencies

Best Financial Markets Analysis ArticleJeff Clark, BIG GOLD writes: Have you considered what will happen to your portfolio - and all the other areas of your life - if the dollar fails? The ramifications will be widespread, painful, and inescapable if you're not properly diversified.

Last month, I attended the Global Currency Expo sponsored by EverBank. The overarching theme, as you might expect, was that diversification out of one's home currency is paramount. While there were plenty of traders on hand, it was the big-picture talks that had the most pressing messages.


I came away feeling that I needed to reexamine my exposure to the dollar. Have you considered what will happen to your portfolio - and all the other areas of your life - if the dollar fails? The ramifications will be widespread, painful, and inescapable if you're not properly diversified.

With that in mind, I want to pass on some highlights from a few speakers, along with their investment recommendations... many of which were framed as the "trade of the decade."

Frank Trotter of EverBank Direct stated that the U.S. dollar "will see a significant decline in the next 5-10 years." His five favorite currencies for the next decade are the Swedish krona (which he thinks is better than the Swiss franc), the Norwegian krone, the Australian and Canadian dollars, and a surprise, the Brazilian real.

Eric Roseman of Commodity Trend Alert warned that we'll see a food crisis within three to five years. He's convinced China will become a net importer of agriculture, which will have major ramifications around the globe. His trade of the decade is the exchange-traded note for grains, JJG.

Sean Hyman of World Currency Watch said his trade of the decade is the Singapore dollar (SGD). "Buy it and forget it."

Doug Casey also spoke; he laid out five "sure things" for the next ten years:

  1. Short bonds/bet on rising interest rates
  2. Short the yen/go long on Japanese small- and mid-cap stocks
  3. Borrowed money: "It's an excellent way to short the dollar, and you get a tax deduction."
  4. Gold: "It's not cheap, but it's going higher. Buy it and store it abroad."
  5. Small-cap mining stocks

Rodney Johnson, president of HS Dent, got some audible groans from the audience when he claimed the trade of the decade was the U.S. dollar versus the euro. He's convinced that deflation is coming and that inflation hedges will get hurt. He predicted that the dollar will rebound and that interest rates and prices will fall. While it's always healthy to check one's assumptions, I heard no reason to change my mind about the dollar's long-term woes. Interestingly, most of the speakers do expect the dollar to temporarily strengthen this summer, though they have no doubt the currency is ultimately headed to the graveyard.

But the most thorough and convincing presentation by far came from Chuck Butler, president of EverBank World Markets and a 35-year currency analyst. If anyone knows currencies, it's him. It's been said that he's advanced awareness of the currency markets more than almost any other banker working today.

Chuck outlined the case against the U.S. dollar with damaging conviction. He pointed out that the pound sterling was the world's reserve currency until WWII, and "we became the reserve currency by financing England because they couldn't pay their debts and had diluted their currency... They needed assistance from other countries to service their debt and had overextended their military." Sound familiar?

He noted that China, with little fanfare, started signing swap agreements in 2009. To date, they've signed agreements with much of Asia, the European Union, Canada, Russia, Brazil, Belarus, Argentina, and will soon with Japan and Korea. There are even rumors of them working on currency swaps with the Arab nations. He reminded us that China's president recently stated publicly that the U.S. dollar is a "product of the past."

The scary ramifications of this were couched in a stark warning: "The U.S. dollar will lose its reserve currency status sometime between 2014 and 2020. There will be no trumpet; it will just happen."

He said SDRs (Special Drawing Rights) from the IMF may be used first, but that it won't matter since the dollar losing its reserve status is "inevitable." He, too, felt there will likely be some strength in the greenback this summer, but that this will change nothing in the long-term picture.

When it comes to preparing one's investments for this eventuality, Chuck stated that "94% of investment return is based on the asset-class selection, and a low covariance with other assets." On a practical basis, this means owning an investment that is not correlated with U.S. stocks, and one that is not denominated in U.S. dollars. He said the key to diversification is applying the same logic you would to stocks: "You wouldn't buy just one stock, so why would you own just one currency?"

He likes the renminbi, which can be played via CYB or CNY. He also likes the Singapore dollar, the Norwegian krone, and the Swedish krona.

The point of the weekend was to examine one's portfolio from the point of view of a failing currency. It won't matter too much how diversified your stocks are if they're all exposed to the same currency. If this outlook turns out to be correct - and I see no way around it - then the U.S. dollar will undergo a sea change that will erode and ultimately destroy any investment backed by it.

So, how much exposure do you have to the U.S. dollar? And what happens to your portfolio when the greenback reaches its ultimate resting place? Even if you think it avoids becoming fancy green toilet paper, prudence suggests that you at least consider preparing your investments for a prolonged erosion. By the time you carry your investment "bucket" to retirement, the persistent leak from dollar devaluation could buy half of what it did ten years earlier. Will this be acceptable to you and your family?

Gold and silver are one of the easiest and simplest ways to diversify out of the dollar, regardless of one's portfolio size. They are a confidential, personal, and immediate purchasing-power protector. Pretend your financial life depends on it, because the abuse continually heaped upon the dollar doesn't come free of consequences.

FREE Special Report : Learn all about how, when and where to buy silver… which forms of silver are the best to own… and why we could soon be running out of silver altogether… in Casey Research's 2011 Silver Investing Guide . Read and download it for free here.

© 2011 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in