Do you hedge against the possible devaluing of the US dollar?

[unclemick]

You better believe it. I hedge by having Index ETFs, especially International Index ETFs which go up with dollar going down.

I should had bought some gold. (Hindsight 2020)

+! My Target Retirement has International Index. Plus some gold, silver and platinum coins in the deposit box from ancient times when I collected coins.

heh heh heh -

 

[Koolau]

+! My Target Retirement has International Index. Plus some gold, silver and platinum coins in the deposit box from ancient times when I collected coins.s

heh heh heh -

Yep, I recall looking for the "bottom" before buying most of my (limited) stash of PMs. Didn't quite hit it exactly, but pretty close. One could argue that I would have done better in other investments, but the "sleeping through the market downturns" has been worth the price of admission. The added "crisis" (say, dollar devaluation) insurance has also added value. Not recommending this route, but it has made me feel better and allowed me to invest "normally" without sleepless night. YMMV

 

[NYEXPAT]

It would depend on one's future time frame,date of initial hedge and hedging vehicle. for example since April 2008 the dollar is up about 30% (based on the DXY),Since March of this year it is down 10%. Over the past 18 years Bitcoin is the obvious winner as a hedge. However, if you look at smaller fractals during the crypto winter of the past few years, it obviously under performed.

 

[OldShooter]

This is a very low probability scenario. ...

You've said that repeatedly. But low probability is not zero probablity. So if the cost to mitigate is low or zero then it's silly not to do it. That's our case. VTWAX and TIPS, not chosen in particular for protection against devaluation. And really not "hedged" either since VTWAX just holds the world at market cap.

Even significant devaluation (vs major currencies) is unlikely. For the US$ to devalue another currency needs to gain an equal amount, and none of the other major currencies have allowed that to happen. ...

-9% since March. What is "significant?" My straw man, totally arbitrary is 20%.

A more likely scenario is all the major currencies lose value as governments continue to spend and central banks monetize the debt. This would mean global inflation, and debt holders would suffer.

Another not-impossible scenario. Our portfolio protects us pretty well against that one too.

 

[NYEXPAT]

It would depend on one's future time frame,date of initial hedge and hedging vehicle. for example since April 2008 the dollar is up about 30% (based on the DXY),Since March of this year it is down 10%. Over the past 18 years Bitcoin is the obvious winner as a hedge. However, if you look at smaller fractals during the crypto winter of the past few years, it obviously under performed.

Tired last night, that should have said over the past 12 years!

 

[MichaelB]

You've said that repeatedly. But low probability is not zero probablity.

Yes, low probability, where the cost to insure against a collapse of the US$ or the loss of reserve currency status is not worth the benefit.

-9% since March. What is "significant?" My straw man, totally arbitrary is 20%.

The US$ lost 9% since March looks like cherry picking data to make a point. March was a multi-decade year high for the US$. Probably even longer, but the St Louis Fed data series only goes back now to '06.

Surely everyone agrees it is more useful to look at the longer term. The US$ is still stronger than it was a year ago, above it's previous high of last year and well above its midpoint value over the past 15 years. Here's a FRED graph showing the value of the trade weighted US$ since 2006. If one looks at the data and not the media reports, it's clear the US$ has strengthened in the past couple of years and continues to be quite strong.

This is still unanswered. What part of that statement is "not true"?

Neither Europe nor Japan (nor anyone else) want the role of reserve currency.

Actually not true.

“Not true”? Just to be clear, are you saying that Europe (or Japan) wants to be the global reserve currency?

Below is a graph from the St Louis Fed showing the US trade weighted dollar since 01/2006

 

[OldShooter]

Yes, low probability, where the cost to insure against a collapse of the US$ or the loss of reserve currency status is not worth the benefit.

That's your opinion. I got it the first time or two. We may differ on other opinions, too. For all I know you may like Brussels sprouts and turnips.

The US$ lost 9% since March looks like cherry picking data to make a point.

If using a headline from the last couple of days' news is "cherry picking" then I'll plead guilty.

Surely everyone agrees it is more useful to look at the longer term. The US$ is still stronger than it was a year ago, above it's previous high of last year and well above its midpoint value over the past 15 years. Here's a FRED graph showing the value of the trade weighted US$ since 2006. If one looks at the data and not the media reports, it's clear the US$ has strengthened in the past couple of years and continues to be quite strong.

Agreed, a longer term view is worthwhile but it is not necessarily predictive. Inductive reasoning has its risks.

Exhibit One: Taleb's Turkey: https://www.businessinsider.com/nassim-talebs-black-swan-thanksgiving-turkey-2014-11

Exhibit Two (exercise for the reader/Who said this?: “... in all my experience, I have never been in any accident … of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort.”

This is still unanswered. What part of that statement is "not true"?

You said "Neither Europe nor Japan (nor anyone else) want the role of reserve currency." I don't think that is true in the case of the EU. Maybe Japan. Russia was even angling to get into the game a few years before Crimea. Such a move would be of huge benefit to a country's banking system and it would reduce or neuter the weaponization of US megabanks.

 

[MichaelB]

We each have a different understanding of what the reserve currency is, so there’s no point in continuing this discussion.

 

[copyright1997reloaded]

For all I know you may like Brussels sprouts and turnips.

Funny, I hated Brussels Sprouts as a kid and for most of my life as an adult. For some strange reason, under COVID I someone ended up with some and made them using my convection toaster oven. Quite tasty with Mrs. Dash (soon to be just Dash) and now I find myself getting some with just about every grocery order.

Regarding the US $ as reserve currency, while I hope it remains so I can't believe the rest of the world will just sit and watch as the buying power of dollar reserves get destroyed by our actions. I also believe that if the run against the dollar happens, it will occur much quicker than most could believe.

As someone (you?) earlier pointed out, it isn't just the United States doing actions to debase the currency, it seems like it is almost all of the major countries in a race to the bottom. Perhaps this keeps things as they are for a longer period of time.

As a saver and investor I don't have a lot of options, other than to hold my nose and buy precious metals, try to have some fixed income hedged in some way (e.g. TIPS, iBonds), have some investments in companies who I think either have secular growth or pricing power, and at the bottom of the needs pyramid have a good supply of those things in the "basics" category. On the PM front, I had a little pre-COVID (slightly under 1% of my wealth), in April/May bought a number of things to increase this. With the updraft in PM prices it is now about 2%. I'm not happy with myself in that I should have been much more aggressive legging in purchases over the last few months.

 

[RenoJay]

Though I had always thought goldbugs were tinfoil hat folk, I joined their ranks in late 2018 and became a silver bug in 2019. Though these asset classes are very volatile (silver plummeted 15% yesterday after rising 50% in a month!), my research showed that over long stretches gold mostly keeps up with the increase in M2 money supply. Silver tends to follow gold within a reasonable realm. At this point I’ve got more precious metal exposure than I have cash, and it’s because of concerns about debasement. I’m not religious about precious metals...if the Fed start making noise about shutting down the printing press I’ll quickly exit my positions.

 

[tenant13]

I don't think that USD will become obsolete any time soon but one cannot ignore all the unlimited printing that we are witnessing lately. We already see the inflationary results in equities' prices - it's not where one would normally look for the signs of inflation bit it's one of the more plausible explanations for the raising stock prices during severe economic downturn.

So I do hedge against the possible $ devaluation by investing in individual companies with solid balance sheets and good survival potential (in other words not in airlines or cruise lines lol), international funds and equities, cryptocurrencies and precious metals. Ah, also a few k's in teak farms. These are all semi-small amounts that I can afford to lose but if things go well (or terribly bad depending on the POV) they may pay off. I'm debating more real estate but that wouldn't be in US and with traveling on hold it may have to wait. Plus it's a pain to manage.

 

[skipro33]

Nah, I don't worry about the dollar losing value.

Ditto. I really don't need that much and that will only continue as I grow older, have more of what I already need purchased or no longer need to purchase to remain happy.

Actually, to be happy, all I need is my paid for home, some groceries and enough to keep it heated and cooled. I'd easily get by on 50% of my current expenses, cutting down on gifting and charities alone. Another 10% or more to thrift shop for those items I require instead of spot buying at what ever market prices are at the moment. Quit buying new cars every 4 years, etc.

I'm pretty sure most who are FIRED have a lot of headroom in their budgets as well as I do. Rare and probably foolish, is the person who FIRE'd and didn't plan for a 50% haircut as at least a possibility before telling their boss to take this job and shove it. Ha!

 

[Starsky]

Right now I'm trying to hedge against everything - inflation, deflation, hyperinflation, anarchy, war with China...who knows what's coming next?

I just sold one rental property to build our cash reserves; and if the market goes down in 2021 we'll buy back in or maybe get a new place to escape. We have seven-figure holdings in rental real estate (w/no debt), and six figures in stocks, gold, and annuities in addition to the cash from the home sale (and five figures in guns and ammo for the anarchy option), so whatever happens we'll win some and lose some. My biggest concern is what life will look like for the next 5 years. The clock is ticking and we're not getting younger...

(FWIW, when we sold our rental last week, we received multiple above-market offers and accepted an offer within 5 days of listing - a first for me. RE supply is very low, so demand is very high. I think that will change as people lose their jobs - supply will definitely increase with the forced sales and foreclosures.)

I'm expecting a period of asset deflation in 2021 based on a reduction in consumer spending as people exhaust their savings. For the increased dollar supply to cause inflation would require a much higher money velocity than we see now. I don't see demand (pull) or supply (push) being inflationary either b/c of the excess capacity in our system. I do think certain basic necessities will become more expensive by a lot, but it will be offset by a reduction in other costs like rents, energy and wages.