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John Dalt is a retired small business owner who is now operates galtstock.com for stock investors and traders.
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  • Zimbabwe, Here We Come! 0 comments
    Jun 4, 2009 7:06 PM | about stocks: SLV, GLD, PTM, KOL, GDX, EBAY, ENY, EWZ, FXC, USO, UNG, UGA, FAN, NLR, PBW

     

    Asia Times has a great article by John Lee on what lies ahead for the U.S. dollar.  Mr. Lee studied economics and engineering at Rice University.  His credentials are better than mine.  His conclusions are the same.
     
    At the risk of sounding like a Town Crier that has worn out his welcome, you should read this article.  Mr. Lee paints a bleak picture and gives us a little history lesson on debt based economies.
     
    You can buy Zimbabwe money on EBay as a collector item.  I found a nice collection of 10, 20, 50, & 100 Trillion notes for sale, for only $14.95  If you don’t believe it can happen, click on trillion.
     
    Zimbabwe’s money used to be worth something, until President Mugabe endorsed taking land from the “rich” and giving it to the “poor”.  This redistribution led to land laying idol since the new owners didn’t want or know how to work.  Agricultural exports plummeted, spending continued, resulting in hyperinflation.
     
    The spending that Congress is passing and the Fed is funding are leading us down this path.  The dollar is sinking and oil, gold, silver, base metals and other commodities are heading higher, in many cases hitting six-month highs.  Commodities are one safe haven to protect your assets.
     
    Our trade balance will get worse as energy costs go up, and our government blocks drilling where the oil is, to increase domestic supplies.
     
    Oh! Bama promised not to raise taxes on anyone making less than $250,000 per year.  He did not promise that we would have a sound currency as he pursued his agenda.  This is the easiest way to steal wealth from retirees, investment funds, pension funds, endowments, and other citizen’s assets that will not adjust with inflation.
     
    I hope U.S. Dollars are not being sold on EBay as collector’s items in a few years.
     
    How do you mitigate the danger?  If your portfolio is full of long-term holdings that you have held through thick and thin, look to add some inflation hedge plays.  Mining companies are a great place to look, the price of their commodity is increasing and mining costs are down.  Base metals that are required by industry in an economic recovery are moving higher along with precious metals.  Some of the ETFs we use are SLV (silver), GLD (gold), PTM (platinum), KOL (coal), and GDX (gold miners).  Every investor should have at least 10% of their account in precious metals, or some exposure to them through stocks.
     
    If you like currencies, look to Canada, Brazil, or Australia.  These currencies enjoy an economy backed by strong commodity exports and should hold up and even move ahead of the dollar.  ETFs that follow these economies or currencies are ENY, EWZ, and FXC.
     
    You may also want to add some exposure to energy.  We like USO (oil), DXO (Ultra crude), UNG (natural gas), and UGA (gasoline).  As energy prices go higher, alternative energy becomes more competitive.  Look no further than FAN (global wind), NLR (nuclear), PBW (clean energy).  The added wind behind the backs of these plays is government funding and tax incentives.
     
    I do not mean to scare you, you probably already are.  If not, you will be shortly, as the dollar is heading lower as news gets worse.  We are careening down the highway of stagflation brought on by out of control spending by the government.  Unemployment is headed higher (everyone cannot work for Uncle Sam), interest rates going higher, and inflation is just around the corner.
     
    The stock prices of your long-term holdings may not keep up on an inflation-adjusted basis.  You need to adapt a strategy to hedge your portfolio against the probable future.

    DISCLOSURE: USO

    Themes: U.S. Market Inflation Stocks: SLV, GLD, PTM, KOL, GDX, EBAY, ENY, EWZ, FXC, USO, UNG, UGA, FAN, NLR, PBW
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