U.S. Assets Getting Devalued as US Dollar Falls! What to do...
Currencies / US Dollar Dec 06, 2007 - 11:32 AM GMT
Larry Edelson writes: The subprime mortgage crisis and real estate implosion in America have created a debt debacle. Consumers and corporations are in debt up to their eyeballs. And the national debt is increasing at a rate of more than $7.4 billion per day !
As a result, the Fed has been forced to crank up the printing presses to flood the economy with paper money in an attempt to inflate away the debt and keep it from crushing the economy.
Meanwhile, on the other side of the planet three billion new consumers in Asia continue gobbling up natural resources at a rate Mother Nature has never before seen, creating huge shortages in commodities across the board, and igniting the biggest natural resource boom of all time.
As I've been telling you all along, these two forces are adding to inflationary pressures around the world.
And when you put them together with the falling value of the U.S. dollar, you have the biggest, strongest macroeconomic forces to ever hit the global economy at the same time.
Unless you're from Mars, I don't think you could disagree with me. Everything that I told you would happen IS NOW HAPPENING .
And there's another serious consequence that you need to be aware of ...
U.S. Assets Are Now On The Auction Block
The economy of today and the economy of the future will be as different as day and night. The changes will be more dramatic than at any other time in U.S. history.
Our country WAS the world's largest creditor nation a few decades ago ...
IS the world's largest debtor nation now ...
And WILL SOON BE the world's largest foreign-owned country!
In short, because of our debt-addicted society and the plunge in the value of the dollar — which will likely fall much further — U.S. assets are effectively being marked down in the international marketplace, and put on the auction block at fire sale prices.
This is very important for you to understand. It affects EVERY asset you own in the U.S. It will dramatically change the economy ... politics ... trade ... and more in the years ahead.
To show you this happening, I put together two charts of the Dow Jones Industrials Average.
The first chart is the Dow right now. As you're watching the market, you're probably feeling okay. After all, it's still near its record highs, right?
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On the surface, yes. Looking at chart #1, you can see that the Dow is down only about 7% from its record high. Not so bad, right?
But now look at Chart #2, which is the Dow Jones in terms of euros.
If you're in Europe and watching the Dow through the lens of your home currency, you are seeing losses on your investments. That's because the dollar is falling.
Of course, you're also seeing something else: The Dow is at as much as a 12% discount from where it was just a few months ago.
That might not be a bargain yet. But it goes to show you that asset prices in the U.S. are coming down for foreign buyers.
And that's exactly what Washington wants ...
The Government Hopes Foreign Investors Will Come Riding to the Rescue!
According to the latest data, 785 U.S. businesses were acquired by foreign investors for $129 billion this year through August.
Just some of the deals we've seen lately (some of which happened after that data was released):
- Abu Dhabi's bid to buy 20% of the Nasdaq
- Abu Dhabi's $7.5-billion bailout of Citigroup
- China's $3-billion purchase of the Blackstone Group
- Abu Dhabi Investment Authority's purchase of 9% of U.S. private equity firm Apollo Management for an undisclosed sum
- Citic Securities, a top state-controlled investment bank in China, announced a deal to invest $1 billion in Bear Stearns and form a joint venture with the firm in Asia.
Longer term, what's beginning to happen will probably end up rescuing the U.S. economy, which is a good thing. But it will also forever change the makeup of the U.S. economy.
Bottom line: As the subprime mortgage crisis and other debt nightmares in the U.S. unfold ...
Look for the dollar to fall further
Expect a tidal wave of foreign investment to flood into the U.S.
Expect national security issues and politics surrounding those purchases
Expect trade frictions to mount as well
In the end, it will be the mass foreign investment in the form of equity over the next few years that will help bail out the U.S. economy.
But as I mentioned earlier, it will NOT be the economy that you know today. It will be the future economy that's largely owned by foreign investors.
So, What Should You Be Doing Right Now?
As I just showed you, U.S. assets are being driven down in value. And the nation's currency will likely continue its decline.
What investments are immune to this onslaught? What investments will actually benefit from a falling dollar and the massive economic changes taking place around the globe?
My answer: Natural resources, especially gold!
On August 2, with gold trading at $664, and again on September 6, with gold trading at $694, I suggested you increase your gold holdings.
Today, gold is trading at roughly $803 an ounce, up more than 16% since I issued those alerts.
And the bull market in natural resources is far from over. Any pullbacks we see along the way are healthy and normal. So use them as an opportunity to buy new positions and/or add to existing ones.
With three billion people in Asia modernizing at a record pace and the shortages we are already seeing in natural resources, I expect much higher prices for gold, oil, gas — you name it.
Specifically, consider taking these steps to protect yourself — and profit — from the ongoing credit crunch and Washington's systematic devaluation ...
First, continue to keep most of your money safe. Stay away from longer-term bonds and opt instead for money market funds, preferably Treasury-only money market funds.
My favorites include: American Century's Capital Preservation Fund , U.S. Global's U.S. Treasury Securities Cash Fund , and our affiliate's Weiss Treasury Only Money Market Fund .
Second, hold your core gold positions. This includes gold bullion, gold shares, and gold mutual funds such as the Tocqueville Gold Fund (TGLDX).
Third, consider investing in currencies directly. As Jack and Martin explain in their 50-minute online video presentation , you can now conveniently buy investments that will not only protect you from a decline in the dollar, but also allow you to profit as other currencies soar in value. The upside? As much as 28 to 1! Their presentation is absolutely free, and available right now. Just turn on your computer speakers and click here .
Best wishes,
Larry
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