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Posted: 2/23/2006 12:02:10 AM EDT
[Last Edit: 2/23/2006 12:03:54 AM EDT by BillofRights]
Comments and opinions greatly appreciated.

As the theory goes, we are in for a period of high inflation, and stock market losses. This will be caused by devaluation of the dollar resulting from our major debt holders switching out of US investments and the world economy switching to the Euro as the standard Petroleum currency.

I'm not saying that this is inevitable or even likely, but I am interested in your opinions on how to hedge against it.

It would not be all doom and gloom. There are always winners and losers. High inflation might be a good thing for those of us with a 6% fixed mortgage. The value of US commodities might rise in such a scenario. We would have a smaller trade deficit, and maybe more US manufacturing jobs.

What investment options would stand to gain or at least hold value during a market devaluation and inflationary period?

Personally, I would love to cash in my 401K and buy a Farm with some CRP income if I there is a way to do it without paying the penalties. Anyone know if something like that is possible?

This is clipped from a recent post. Some of it is pretty far out there, but this part follows a lot of remarkably similar theories that I have been reading in several various possibly credible sources.


"Now that China is diversifying their currency holdings into euros and other currencies, they can do significant damage to both the U.S. and Japan's economies. By dumping their dollars and Treasury bills, they can send the value of the dollar spiraling downward and seriously weaken confidence in Treasury bills and perhaps spur a dumping of those bills by other nations such as Japan and Saudi Arabia. Interest rates will shoot skyward, property values will soar, inflation will take hold, and the U.S. economy will screech to a halt, already stumbling along due to unemployment and low manufacturing statistics and high energy prices (not to mention a ballooning deficit and the war in Iraq). As goes the U.S. economy, so to goes Japan's financial markets. The combination of a bad economic downturn in the U.S. and Japan, coupled with China using all the amassed U.S. currency to purchase euros and send that currency skyrocketing, and finally added to Iran's already seriously strained relations with the U.S., could all tempt a handful of OPEC nations -- Iran and Venezuela, perhaps more -- to dump petro-dollars for euros. That could possibly be the straw that breaks the camel's back, and the U.S. might actually fall into a full-blown depression."
Link Posted: 2/23/2006 12:43:24 AM EDT
Gold.... Then again gold has risen tremendously as of late....
Link Posted: 2/23/2006 5:58:41 AM EDT
[Last Edit: 2/23/2006 5:59:09 AM EDT by raven]
What theory would this be? Why do you think the stock market's going to fall because of inflation? What exactly do you mean by inflation? If you mean the ordinary conventional CPI, you should be aware that

1. There isn't much inflation in that caused by the thingthat would make gold attractive, i.e. undisiplined money supply expansion

2. What inflation there is now, which is mainly a reflection of highr prices for energy and construction-industrial materials, stems from changes in supply and demand from times when their prices were lower.

There is no reason to think the stock market's going to be adversely affected by those sorts of things. If you think the market's imperiled by inflation, really need to read more about how stocks are valued, or show me where you read inflation's going to hurt the market.

But, setting that aside, if you think the market's heading south, the conservative straetgy is to simply go into cash. Pretty simple. You can try to play the downside if you know what you're doing, but for 90% of investors the better move is to just go into cash and wait until the trends change. But if there's a truly inflationary environment (and I dont think there is that is anything to be concerned about) being in cash ican be a losing strategy.
Link Posted: 2/23/2006 6:12:34 AM EDT

Originally Posted By raven:
What theory would this be? Why do you think the stock market's going to fall because of inflation? What exactly do you mean by inflation? If you mean the ordinary conventional CPI, you should be aware that

1. There isn't much inflation in that caused by the thingthat would make gold attractive, i.e. undisiplined money supply expansion

2. What inflation there is now, which is mainly a reflection of highr prices for energy and construction-industrial materials, stems from changes in supply and demand from times when their prices were lower.

There is no reason to think the stock market's going to be adversely affected by those sorts of things. If you think the market's imperiled by inflation, really need to read more about how stocks are valued, or show me where you read inflation's going to hurt the market.

But, setting that aside, if you think the market's heading south, the conservative straetgy is to simply go into cash. Pretty simple. You can try to play the downside if you know what you're doing, but for 90% of investors the better move is to just go into cash and wait until the trends change. But if there's a truly inflationary environment (and I dont think there is that is anything to be concerned about) being in cash ican be a losing strategy.




What he said.

What theory are you talking about? I have been hearing about all these downturns for the last 15 years. I haven't seen one yet. I know sooner or later things will move the other way, but this usually doesn't last too long. This sounds like that gloom and doom shit. Give it a rest. The market is going to do what it is going to do. There is nothing you can do about it.
Link Posted: 2/23/2006 6:35:23 AM EDT

Originally Posted By raven:
What theory would this be?


The death of the petro-dollar and the corrisponding assention of the Euro as the primary world reserve currency.
Link Posted: 2/23/2006 6:39:45 AM EDT
With any luck, the EU will crash and burn, therefore devaluing the Euro into a non-entity!
Link Posted: 2/23/2006 6:49:17 AM EDT
The rest of the world could really stick it to us...yes...and we could be hurt by inflation or other countries switching to the Euro....But, it is not in other countries, specifically, China's best interest to hurt us to such an extent.

Everyone always bitches about WalMart selling cheap Chinese goods. If our economy took a nose dive China and other countries from whom we purchase billions of dollars worth of goods would be in big trouble themselves. It is not in their best interest to destroy out economy. Would their leaders like to put us in our place....probably...but completely wax our economy...I don't think that is the case.

More directly to you question. I don't think pulling all your money out would be wise on the "Sky is Falling," scenario. I think having a nice divesified portfolio is the way to go. Also, if you think they are going to make the switch and the Asian country economies are going to take off, try some emerging markets funds/stocks and international funds. T.Rowe Price International has done well for me in the last year or two.

Bottom line, talk to an investment guru you trust and listen to Bob Brinker.
Link Posted: 2/23/2006 9:13:01 AM EDT
If the USD is on the verge of collapsing, then I would suggest buying stocks in foreign companies instead. This lets you take advantage of the exchange-rate changes as well as allowing you to put your money into what is hopefully a growing business.

Mutual funds focusing on foreign companies are a good place to start. FLATX (Fidelity Latin America Trust) was up something like 56% last year, EUROX (an eastern European fund) was up by around a third, and EWJ, EWY, and other foreign ETFs also did quite well. I thinik EWJ (Japan) was up by a third and EWY (SKor) was up 40%.

Overall, I'm pretty happy with them. Unfortunately, EWT (Taiwan) has sucked for the last two years, but what the hell.

Oh yeah, then there are "closed end funds", which I must admit I have no clue what makes them closed-end or funds or anything else. All I know is that IFN (India) was up by about 60% and I'm pissed that I hadn't heard of it before. I'd been looking for an Indian investment for a while, but couldn't find any mutual funds specializing in the country, and didn't know enough about the stocks to buy any individual companies.

Anyway, if the U.S. undergoes hyperinflation, these funds and companies should keep pace with the collapsing exchange rate, thereby allowing me to languish in poverty in a reeducation camp right alongside everyone else after Hillary confiscates everyone's assets to pay off the national debt. W00t!
Link Posted: 2/23/2006 11:28:58 AM EDT
Thanks for all the replies.

The theory says that the US is on an unsustainable course. We are borrowing vast amounts from sources around the world, and they will eventually dump their US holdings.

The concerns are that our new Fed Chairman will intentionally devalue the dollar by printing more. Those holding the dollar (China, Saudi, etc) will respond by trading dollars for a more stable currency thus, creating a world market awash in dollars, resulting in rapid inflation


As stated by Yossarian, we currently have a symbiotic relationship with China. We borrow from them to buy from them thus fueling both economies. It works great as long as all parties feel it is mutually beneficial.

I don't pretend to have a deep understanding of Macro-Economics, but the the whole setup seems counter-intuitive to me. Our Dollar only has value today because it is trusted worldwide to be the most stable currency. We keep borrowing more and more, and one day the rich guys of the world are going to decide that the Dollar is not so trusted anymore. It could take 50 years, or it could be next month. The tricky part is that markets are irrational, so the changeover point may happen quickly.

Link Posted: 2/23/2006 11:55:33 AM EDT
Ummm, guns and ammo, best investmant for economic collapse. To hedge against inflation property is always a good bet, however most farm property where I live is very over valued at this time.
Link Posted: 2/23/2006 12:05:58 PM EDT
Ammunition, the currency of the new millenium. That and GOLD.

The price of Gold varies inversly with the value of the dollar. The lower the value of the dollar the higher the price of gold and vice versa.
Link Posted: 2/23/2006 12:12:35 PM EDT

Originally Posted By BillofRights:

"Now that China is diversifying their currency holdings into euros and other currencies, they can do significant damage to both the U.S. and Japan's economies. By dumping their dollars and Treasury bills, they can send the value of the dollar spiraling downward and seriously weaken confidence in Treasury bills and perhaps spur a dumping of those bills by other nations such as Japan and Saudi Arabia. Interest rates will shoot skyward, property values will soar, inflation will take hold, and the U.S. economy will screech to a halt, already stumbling along due to unemployment and low manufacturing statistics and high energy prices (not to mention a ballooning deficit and the war in Iraq). As goes the U.S. economy, so to goes Japan's financial markets. The combination of a bad economic downturn in the U.S. and Japan, coupled with China using all the amassed U.S. currency to purchase euros and send that currency skyrocketing, and finally added to Iran's already seriously strained relations with the U.S., could all tempt a handful of OPEC nations -- Iran and Venezuela, perhaps more -- to dump petro-dollars for euros. That could possibly be the straw that breaks the camel's back, and the U.S. might actually fall into a full-blown depression."



This is just plain silly--either that or a paranoid delusion.

China cannot dump their hundreds of billions in US Treasury debt. The two largest foreign US debt holders are the Japanese and the Chinese. They cannot dump dollars or debt because they would hurt themselves far more than the USA.

Why? Because treasury bond and bill prices would plummet because of selling their massive positions (you cannot sell hundreds of billions in bonds in one day without crashing the market which would mean they would lose most of their money before they liquidated their position). I know this because I have bond trading experience.

PLUS-- they would lose their best customer for their products. How does your quoted statement make any sense in the real world?
Link Posted: 2/23/2006 12:14:05 PM EDT

Originally Posted By BillofRights:
Thanks for all the replies.

The theory says that the US is on an unsustainable course. We are borrowing vast amounts from sources around the world, and they will eventually dump their US holdings.

The concerns are that our new Fed Chairman will intentionally devalue the dollar by printing more. Those holding the dollar (China, Saudi, etc) will respond by trading dollars for a more stable currency thus, creating a world market awash in dollars, resulting in rapid inflation


As stated by Yossarian, we currently have a symbiotic relationship with China. We borrow from them to buy from them thus fueling both economies. It works great as long as all parties feel it is mutually beneficial.

I don't pretend to have a deep understanding of Macro-Economics, but the the whole setup seems counter-intuitive to me. Our Dollar only has value today because it is trusted worldwide to be the most stable currency. We keep borrowing more and more, and one day the rich guys of the world are going to decide that the Dollar is not so trusted anymore. It could take 50 years, or it could be next month. The tricky part is that markets are irrational, so the changeover point may happen quickly.



Hasn't that theory been floated for the last 20 years?
Link Posted: 2/23/2006 3:19:29 PM EDT
Beanie Babies. Seriously, there will ALWAYS be some dipshit broad living in a trailer somewhere....
Link Posted: 2/23/2006 3:21:37 PM EDT
[Last Edit: 2/23/2006 3:28:24 PM EDT by TRW]
I keep hearing the dow is going to be hitting 12K this year sometime.

Your doom and gloom information is shit I have been hearing off and on since the late 70's when inflation was 14%.

Same thing in the 80's when the libtards accused Reagan of bankrupting the country with defense spending.

The sky is falling, the sky is falling.....yet it's still up there........
Link Posted: 2/23/2006 3:46:43 PM EDT

Originally Posted By ThunderStick:

Originally Posted By BillofRights:

"Now that China is diversifying their currency holdings into euros and other currencies, they can do significant damage to both the U.S. and Japan's economies. By dumping their dollars and Treasury bills, they can send the value of the dollar spiraling downward and seriously weaken confidence in Treasury bills and perhaps spur a dumping of those bills by other nations such as Japan and Saudi Arabia. Interest rates will shoot skyward, property values will soar, inflation will take hold, and the U.S. economy will screech to a halt, already stumbling along due to unemployment and low manufacturing statistics and high energy prices (not to mention a ballooning deficit and the war in Iraq). As goes the U.S. economy, so to goes Japan's financial markets. The combination of a bad economic downturn in the U.S. and Japan, coupled with China using all the amassed U.S. currency to purchase euros and send that currency skyrocketing, and finally added to Iran's already seriously strained relations with the U.S., could all tempt a handful of OPEC nations -- Iran and Venezuela, perhaps more -- to dump petro-dollars for euros. That could possibly be the straw that breaks the camel's back, and the U.S. might actually fall into a full-blown depression."



This is just plain silly--either that or a paranoid delusion.

China cannot dump their hundreds of billions in US Treasury debt. The two largest foreign US debt holders are the Japanese and the Chinese. They cannot dump dollars or debt because they would hurt themselves far more than the USA.

Why? Because treasury bond and bill prices would plummet because of selling their massive positions (you cannot sell hundreds of billions in bonds in one day without crashing the market which would mean they would lose most of their money before they liquidated their position). I know this because I have bond trading experience.

PLUS-- they would lose their best customer for their products. How does your quoted statement make any sense in the real world?



I'm definitely no financial wiz but I was under the impression the majority of our debt was actually owed to we the people. True?
Link Posted: 2/23/2006 4:02:42 PM EDT

Originally Posted By pale_pony:
That and GOLD.


Gold would just be a hedge. It's price may rise against the dollar, but you are not "making" money since gold is not moving relative to other currencies.
Link Posted: 2/23/2006 4:05:27 PM EDT
Link Posted: 2/23/2006 4:10:02 PM EDT
This sky is falling
Link Posted: 2/23/2006 4:25:13 PM EDT

Originally Posted By HeavyMetal:
The Euro is a joke. Europe is stagnant and the US is growing. That is why the Euro will not superceede the Dollar.



Frankly, I give the Euro 10 years at most before it collapses, especially if they try to make it a worldwide reserve currency. Hint: it is the ulitmate fiat currency, concocted by a web of agreements regarding a variety of ratios. When they stop making allowances to deviate from the required ratios for constant "emergencies" it's gone, and possibly a European war will result.
Link Posted: 2/23/2006 4:37:59 PM EDT

Originally Posted By ThunderStick:

Originally Posted By BillofRights:

"Now that China is diversifying their currency holdings into euros and other currencies, they can do significant damage to both the U.S. and Japan's economies. By dumping their dollars and Treasury bills, they can send the value of the dollar spiraling downward and seriously weaken confidence in Treasury bills and perhaps spur a dumping of those bills by other nations such as Japan and Saudi Arabia. Interest rates will shoot skyward, property values will soar, inflation will take hold, and the U.S. economy will screech to a halt, already stumbling along due to unemployment and low manufacturing statistics and high energy prices (not to mention a ballooning deficit and the war in Iraq). As goes the U.S. economy, so to goes Japan's financial markets. The combination of a bad economic downturn in the U.S. and Japan, coupled with China using all the amassed U.S. currency to purchase euros and send that currency skyrocketing, and finally added to Iran's already seriously strained relations with the U.S., could all tempt a handful of OPEC nations -- Iran and Venezuela, perhaps more -- to dump petro-dollars for euros. That could possibly be the straw that breaks the camel's back, and the U.S. might actually fall into a full-blown depression."



This is just plain silly--either that or a paranoid delusion.

China cannot dump their hundreds of billions in US Treasury debt. The two largest foreign US debt holders are the Japanese and the Chinese. They cannot dump dollars or debt because they would hurt themselves far more than the USA.

Why? Because treasury bond and bill prices would plummet because of selling their massive positions (you cannot sell hundreds of billions in bonds in one day without crashing the market which would mean they would lose most of their money before they liquidated their position). I know this because I have bond trading experience.

PLUS-- they would lose their best customer for their products. How does your quoted statement make any sense in the real world?



That is correct. If the Chinese stay pegged to the dollar, they commit suicide if the dollar goes down. The relative prices will stay the same between them and us, and goods other than US will be more expensive because of the cross-rate. If they unpeg, then we stop buying their crap. No, the Europeans won't buy much of their junk. For investment, will they invest in Europe and support their social welfare programs any more than ours? The Japanese probably learned their lesson: they created a virtual depression for themselves by their currency games. Without our flexibility, Japan and others can get to a point they can't give away enough moneyu to get their economies going. Japan almost reached it.

If the euro becomes the petroleum standard and, implicitly a reserve currency, I suggest that the dollar will go down temporarily - this has happened before and what followed was a period of unprecedented growth - and then start back up. Money will be made by those playing the derivatives. (As an aside comment, the derivatives are our big risk and monster in the closet). One thing that will happen is that interest rates will rise significantly. Worst case, live like we used to before instead of airheads slightly beyond whoopie. Indeed, it might even have the result of strengthening things because people will have to live within their means. I don't even see a lot of bank collapses because the banks don't want to foreclose on all this junk people bought on credit, whether excess on houses, cars, or just toys. What will they do with it. They'll stretch out the payments because it will just work better. SO, if you live like someone with a grain of sense, all will be well. The nuts will have to get their comeuppance.

Then, the Europeans will find out about Euros all over the world, just like we have with the Eurodollars. There's more dollars out there than here, and the Fed can only control what's here. Wait until the silly people in Brussels try to tell the rest of the world how to do things, and deal with all the cheating (already) going on in the EU.
Link Posted: 2/23/2006 4:45:01 PM EDT

Originally Posted By BillofRights:
Thanks for all the replies.

The theory says that the US is on an unsustainable course. We are borrowing vast amounts from sources around the world, and they will eventually dump their US holdings.





I'm betting that this theory originated from somewhere "left of center" shall we say. Not talking about you, BOR, I'm betting it came from some network news economy editor or something.
Link Posted: 2/23/2006 4:48:02 PM EDT
Too late to buy gold...I think that boat left the dock many moons ago......
Link Posted: 2/23/2006 4:56:12 PM EDT

Originally Posted By JDeere_1530:
Beanie Babies. Seriously, there will ALWAYS be some dipshit broad living in a trailer somewhere....



Link Posted: 2/23/2006 8:19:12 PM EDT

Originally Posted By gus:

Originally Posted By BillofRights:
Thanks for all the replies.

The theory says that the US is on an unsustainable course. We are borrowing vast amounts from sources around the world, and they will eventually dump their US holdings.





I'm betting that this theory originated from somewhere "left of center" shall we say. Not talking about you, BOR, I'm betting it came from some network news economy editor or something.




Well considering one of the authors was French, and another was Chinees, it's safe to assume you are correct. However, Just because they are anti Bush leftist dirtbags does not automatically mean they are 100% wrong in this particular case. I have also read variations on the theme in Forbes, etc.

There is no question that every economics writer has an agenda. They all have a vested interest and an ax to grind.

True or not, perception becomes reality. If enough people believe it, that alone could be enough to start a downward spiral. There is a reason that gold has been rising so dramatically.

The anti American sentiment of some of the authors is why I came to Arfcom for opinions. Unimpeachable patriotism to balance the leftist rhetoric. The economic truth lies in the middle.
Link Posted: 2/23/2006 8:57:12 PM EDT

Originally Posted By ThunderStick:

Originally Posted By BillofRights:

"Now that China is diversifying their currency holdings into euros and other currencies, they can do significant damage to both the U.S. and Japan's economies. By dumping their dollars and Treasury bills, they can send the value of the dollar spiraling downward and seriously weaken confidence in Treasury bills and perhaps spur a dumping of those bills by other nations such as Japan and Saudi Arabia. Interest rates will shoot skyward, property values will soar, inflation will take hold, and the U.S. economy will screech to a halt, already stumbling along due to unemployment and low manufacturing statistics and high energy prices (not to mention a ballooning deficit and the war in Iraq). As goes the U.S. economy, so to goes Japan's financial markets. The combination of a bad economic downturn in the U.S. and Japan, coupled with China using all the amassed U.S. currency to purchase euros and send that currency skyrocketing, and finally added to Iran's already seriously strained relations with the U.S., could all tempt a handful of OPEC nations -- Iran and Venezuela, perhaps more -- to dump petro-dollars for euros. That could possibly be the straw that breaks the camel's back, and the U.S. might actually fall into a full-blown depression."



This is just plain silly--either that or a paranoid delusion.

China cannot dump their hundreds of billions in US Treasury debt. The two largest foreign US debt holders are the Japanese and the Chinese. They cannot dump dollars or debt because they would hurt themselves far more than the USA.

Why? Because treasury bond and bill prices would plummet because of selling their massive positions (you cannot sell hundreds of billions in bonds in one day without crashing the market which would mean they would lose most of their money before they liquidated their position). I know this because I have bond trading experience.


PLUS-- they would lose their best customer for their products. How does your quoted statement make any sense in the real world?




First let me say, the quoted snippit (I did not write it) is an extreme worse case scenario, and not entirely credible. However, I think it does contain some areas of concern. The Chinese are using us, as we are using them. I can't see how the status quo can endure long term.

Here is a bad analogy. Let's say I get a credit card from Wal-Mart. I use it to buy a house full of nice gadgets from Wal-Mart, and then I use it to finance my car, and my house. Everybodies happy as long as I can pay the minimum. However, I just keep borrowing and buying until one day I can not even afford the minimum payment. What happens then? Do I default? Does Walmart call in the loan? Do I fire up my InkJet and print more money?

How far off is the day when the US cannot make the minimum payment?

Allow me to address the part in red: We are all betting that you are correct. I certainly hope you are. In fact one of the reasons for this post is to receive that exact kind of warm and comforting reassurance.

The only way they are going to sell their positions is if they decide that selling at a slight loss is better than selling at a total loss. The concern is that all at once, the Japanese, Chinese, Saudi's, etc. decide that the risk of US stocks and bonds is greater than the reward. The first ones off preserve their capital, and the last ones off lose big time. Is the irrational stampeed effect that we have seen in the stock market crashes possible on a global scale?

I agree with you that it's not going to happen overnight. Do you think it's possible in 10 years? 20?
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