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If you knew the dollar was about to crash
Old 08-19-2009, 01:58 PM   #1
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If you knew the dollar was about to crash

what would you invest in?
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Old 08-19-2009, 02:06 PM   #2
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Depends on why it was crashing. Was it something specific to the dollar or were all fiat-based currencies about to crash? That would help determine whether I'd pick foreign currency plays or hard assets and natural resources.
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Old 08-19-2009, 02:06 PM   #3
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crash - GIM (international bonds) or some foreign currencies to some extent; foreign equity mutual funds for equities exposure.

crash crash end of the USA - just the foreign currencies and maybe a little GIM.

But I think crystal ball gazing of this sort if ineffective. I do have 1/2 my portfolio in international investments which own underlying securities priced in foreign currencies. So I'm pretty well hedged against a big drop in the USD should it happen.
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Old 08-19-2009, 02:22 PM   #4
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crash - GIM (international bonds) or some foreign currencies to some extent; foreign equity mutual funds for equities exposure.

crash crash end of the USA - just the foreign currencies and maybe a little GIM.

But I think crystal ball gazing of this sort if ineffective. I do have 1/2 my portfolio in international investments which own underlying securities priced in foreign currencies. So I'm pretty well hedged against a big drop in the USD should it happen.
I've never understood international funds that are priced in dollars..Do they really protect against a decline in the value of the dollar?
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Old 08-19-2009, 02:23 PM   #5
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Old 08-19-2009, 02:30 PM   #6
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I've never understood international funds that are priced in dollars..Do they really protect against a decline in the value of the dollar?
There are dollar-denominated and non dollar-denominated funds. The ones that are dollar-denominated "hedge" currency fluctuations out of it. The ones that are not dollar-denominated will rise and fall with changes in the exchange rate. For example, if you own the Freedonia Fund -- a mythical fund that holds assets denominated in foreign currency -- and Freedonia's currency rises relative to the dollar, the NAV of that fund (expressed in dollars) will be higher because you get more dollars per unit of Freedonian currency. The opposite is true as well; if the dollar rises against the Freedonian currency then the NAV will fall when expressed in dollars.

But I go back to what I said before -- there's a difference between the dollar falling in a vacuum and the dollar plunging in tandem with most other fiat currencies. In the former case, just diversifying in other currencies and buying something like the "Freedonia Fund" will help you, but if most or all fiat currencies are melting down together, you want hard, physical assets because Freedonia's currency (and many others) is following the dollar's on the way down.
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Old 08-19-2009, 02:33 PM   #7
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Good question. I'm puzzled too. I just now started buying SH a ETF for shorting the S&P.
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Old 08-19-2009, 02:33 PM   #8
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I've never understood international funds that are priced in dollars..Do they really protect against a decline in the value of the dollar?
Yes, at least the unhedged ones. As far as I know, all international funds at Vanguard are unhedged (that is where I hold most of my international investments).

Just as an example: take one share of JapanCo trading at 100 yen. That is roughly $1 USD. If the dollar tanks while JapanCo's price remains constant at 100 yen on the Japanese market, then my JapanCo share is worth more. If the dollar tanks and and only buys me 10 yen (down from ~100 today), then my one share of JapanCo will still be worth 100 yen, but due to exchange rate fluctuations, my one share of JapanCo is worth $10 USD (100 yen = $10 USD at a forex rate of 10 yen/USD).

Add up a couple thousand different companies' shares all priced in foreign currencies. When the dollar goes down, the foreign denominated share prices go up due to forex rates (assuming the underlying security value doesn't change in the foreign currency).

In reality, who knows? If the USD collapses by losing 90% of its value, world economic downturn can't be far off.
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Old 08-19-2009, 02:42 PM   #9
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Old 08-19-2009, 02:45 PM   #10
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What's the liklihood of all currencies falling in tandem?....Is that possible?
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Old 08-19-2009, 02:52 PM   #11
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Old 08-19-2009, 02:54 PM   #12
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There are dollar-denominated and non dollar-denominated funds. The ones that are dollar-denominated "hedge" currency fluctuations out of it. The ones that are not dollar-denominated will rise and fall with changes in the exchange rate. For example, if you own the Freedonia Fund -- a mythical fund that holds assets denominated in foreign currency -- and Freedonia's currency rises relative to the dollar, the NAV of that fund (expressed in dollars) will be higher because you get more dollars per unit of Freedonian currency. The opposite is true as well; if the dollar rises against the Freedonian currency then the NAV will fall when expressed in dollars.

But I go back to what I said before -- there's a difference between the dollar falling in a vacuum and the dollar plunging in tandem with most other fiat currencies. In the former case, just diversifying in other currencies and buying something like the "Freedonia Fund" will help you, but if most or all fiat currencies are melting down together, you want hard, physical assets because Freedonia's currency (and many others) is following the dollar's on the way down.

If you were going to invest in hard, physical assets what would you buy?
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Old 08-19-2009, 03:06 PM   #13
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What's the liklihood of all currencies falling in tandem?....Is that possible?
If all currencies fall equally in tandem, then the exchange rates remain the same.
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Old 08-19-2009, 03:13 PM   #14
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If you were going to invest in hard, physical assets what would you buy?
In the crash scenario - Probably real estate and then pay the mortgages using tomorrow's almost valueless dollars
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Old 08-19-2009, 03:34 PM   #15
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What's the liklihood of all currencies falling in tandem?....Is that possible?
It is possible (but unlikely). If the dollar did crash, more likely "Developed" nations would follow more closely then "Developing" as some of these countries are on sounder financial footing!
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Old 08-19-2009, 03:35 PM   #16
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What's the liklihood of all currencies falling in tandem?....Is that possible?

You can either go with Fuego... but I think he is wrong...

Currencies fall in relationship to other currencies..... one can not fall if another does not go up...

Now, inflation can hit all currencies at the same time... like oil going up for everybody and making it hard to purchase other things with the money you have, but that is not (IMO) the definition of a falling currency....
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Old 08-19-2009, 03:39 PM   #17
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You can either go with Fuego... but I think he is wrong...

Currencies fall in relationship to other currencies..... one can not fall if another does not go up...

Now, inflation can hit all currencies at the same time... like oil going up for everybody and making it hard to purchase other things with the money you have, but that is not (IMO) the definition of a falling currency....
What I mean is that if every currency went up or down in tandem, you would see no change in foreign exchange rates. Inflation or deflation could affect the underlying real value of currency. Oil goes to $500 a barrel and gold goes to $5000 an ounce, or to 50,000 yen a barrel and 500,000 yen per ounce of gold.

In reality, some currencies would be stronger relative to others (hence all currencies would by definition NOT move in tandem in that scenario).
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Old 08-19-2009, 04:13 PM   #18
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what would you invest in?
Soy beans.
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Old 08-19-2009, 05:29 PM   #19
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Old 08-19-2009, 06:26 PM   #20
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I think that there are so many variables that unforeseen consequences are sure to abound in case the world's single reserve currency were to crash. So it's very difficult to know in advance what kind of protection will or won't work, even if they look good on paper right now.

For example, foreign stocks might look like a good hedge for US-based investors, but if, at some point, you need the money, you have to sell your foreign stocks and what do you get in exchange? A wheelbarrow full of worthless dollars.

I think that it's darn near impossible to know for sure what will hold its value and what won't in case of such a dramatic event. Gold? Foreign real estate? Euros? Swiss Francs? I really don't know.

But personally, I think that the best protection would be to get out of Dodge before it's too late. Simply avoid all US-based assets, move your money offshore and follow it. But even that might not offer much protection. As a Swiss banker once told me, if the USD crashed, there would be nowhere to hide.
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