I’ve already jumped on board with Buffet’s predictions and diversified into funds held in Euro, Swiss Francs, and Canadian Dollars, as well as a multiple Asian currency CD through Everbank.
Although many on these boards call me crazy, here is the background info, along with Buffet’s predictions, as to why I am diversifying in other currencies.
Note: This is purely for information purposes, do your own due diligence and make your own conclusions.
Recently, the dollar hit an all-time low against the euro. The dollar has dropped 47.5
percent from its high six years ago and is down a whopping 93% in the last 65 years. As a
result, the U.S. current account deficit, the broadest measure of foreign trade, has risen to
nearly $600 billion, or around 6 percent of gross domestic product, as Americans buy more from overseas than U.S. businesses can export. We’ve seen the bottom dropping out of the U.S. currency for over a year now, the victim of questionable decisions on interest rates from the Federal Reserve, record high oil prices, and the uncertainty over the war in Iraq has sent the dollar on a downward spiral.
Worse, the US dollar is no longer backed by gold or silver of anything else for that matter. The only thing backing it today is the “full faith and credit” of the US government.
Yet that government now has over $8.2 trillion in outstanding debt (!) …trillions more
in “off-balance sheet” obligations (like Social Security and Medicare)…and it’s adding to its unproductive debt at the rate of more than $1 billion a day!
At the same time, foreign central banks and investors have kept the dollar
afloat over the last few years. They’ve bought nearly a quarter (23.2%) of the
national debt! But the latest currency reports show foreigners are now selling US government bonds.
As foreigners see a US twin deficit (fiscal and trade) climbing over the $1
trillion mark a year…and national debt on track to hit $10 trillion in the next
two years…their appetite for dollars (and dollar debt) is disappearing. And this is putting heavy downward pressure on the dollar.
In the last four years, it’s down 47% against the euro, 15% against the pound, 23% against the Swiss franc, and 29%, and 31% against the Canadian and Australian Dollars.
These decreases include the rallies we have seen in 2005 of 13%, 10%, 12.5% and 6.5% in the Euro, pound, Swiss franc, and Australian Dollar respectively.
With the problems of the Federal and Trade deficits (twin deficits) continuing to grow,
with no end in site, the recent strength in the dollar is most likely a short-term aberration,
setting the stage for further declines in 2006 and beyond.
But if you still think this is only a concern for currency traders and tour operators, think
again…
● Dollar devaluation in the 1930’s coincided with the biggest bear market in history.
● After the US went off the gold standard in the ‘70s, a 10-year bear market
followed.
● The Crash of ’87 was preceded by a35% devaluation of the dollar against
major currencies in the previous 18 months.
In short, the continued debasement of the US dollar will affect the value of all US investments. It could drag down US stocks, bonds and real estate in a dramatic way.
But it’s not all bad news…As the dollar falls, by definition, other
currencies and markets must rise.
I also heard on CNN about Russia, Saudi Arabia and another country (Can’t remember?) that hold a large portion of dollars, are now beginning to switch to the Euro for their reserves. Not to mention that countries are also switching to selling oil in Euro instead of the dollar and OPEC has suggested selling oil in Euro.
As much as I am a patriot of the USA, things don’t look good for the dollar but then again things and markets always have a way of surprising us.