Monday, October 8, 2007

A Store of Value (and I am not talking about Target)

I hate the U.S. Dollar. If you have been reading my stuff you know I have for years.

Hating the U.S. Dollar does not mean I “like” other currencies. I don’t. I like commodities, and I like certain agricultural land. I even like the equities of companies in certain commodity businesses. When I say I hate the U.S. Dollar, I don’t mean that I would want to own the Euro here, or the Mexican Peso (Ha!), or the Ruble, etc… Now there might be some currencies that I do like, but not more than commodities and I am precluded from giving specific investment advice in this forum and that would include specific currencies.

To get to the point… in 1979 the world’s currency basket lost roughly 15% of its purchasing power. In other words, all currencies lost value. There is no easy fix to this issue like “buy gold!” or “buy silver!”. After all, gold peaked in 1980 only 1 year after the “79 currency debacle and took 27 years to recover.

No, there is no silver bullet (pun intended), the rules still apply: diversify, do your homework, believe half of what you see and nothing that you hear, remember that markets zig and zag, they do not zig and zig and zig, and stay the hell away from the $#%%! Bond market. How much is the coupon yield? And what was the money supply increase? Your total real return is negative. If you need clarification, just email me…

Which brings me to China. China, China, China! I remember when it was: Japan, Japan, Japan! (I am dating myself here). Look what happened there. Now be careful. China is nearly as much at risk due to energy constraints as the U.S. is, and their banking system is a Friday the 13th sequel waiting to happen.

Meanwhile, back at the currency ranch… our trading partners will at some point try to protect their export markets, and will do so by increasing their money supply and devaluing their currency. While this might be relatively good for the dollar in the ForEx markets, it is extremely inflationary, devaluing the purchasing power of ALL currencies.

And this is your store of value?

Yours for a better world,

Mentatt (at) Yahoo (dot) com

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