What the Demise of the Dollar Means for These Popular Investments
Monday, May 25th, 2009
By Michael Lombardi, MBA for Profit Confidential
— by Michael Lombardi, CFP, MBA
Okay, so I’ve been writing in the PROFIT CONFIDENTIAL for two years now that the U.S. dollar would start a free fall against other world currencies. My thought pattern was simple: Too much debt eventually leads to a weak currency for any government.
The U.S. federal deficit for this year is now estimated to be $1.84 trillion. The government’s fiscal year ends September 30, 2009. And by the time that year is over, the U.S. will have issued a record $3.25 trillion in debt instruments to finance itself. These are all staggering numbers putting pressure on the U.S. dollar.
So, the demise of our dollar, while not headline news in the media yet, is well underway. The euro is now at its highest level against the U.S. dollar in 2009. The pound is at this highest point against the U.S. dollar since November 2008. And the Canadian dollar is on rocket fuel.
Standard & Poor’s said late last week that it may need to cut the credit rating of Britain because its debt level is too high. Will the debt rating of the U.S. not also be eventually downgraded?
Here are the effects the demise of the dollar will have on two very popular investments:
Bonds will continue to decline in value, because interest rates will go up. To attract foreigners to our debt instruments (which finance us), the U.S. will eventually need to raise interest rates to make our bonds attractive to foreigners. Any investments you own that are interest-rate sensitive will be affected.
Gold bullion will continue to rise in price. Gold is already up $75.00 an ounce this year, or 8.4%. The more pressure there is on the U.S. dollar to decline against other world currencies, the higher gold bullion goes. Quality gold-producing stocks continue to be where the money-making action will be for investors in the months ahead.
Michael’s Personal Notes:
A news article I read this weekend reported that a Canadian provincial government was planning to indirectly help preserve the pensions of General Motors workers. I’m adamantly against
government loans to cover pension shortfalls. There are hundreds of companies that have closed their doors and their pensioners received nothing. I don’t believe it is fair to pick only one (or two companies) for the government to help with their pensioners, while others suffer. The help these mismanaged auto-makers are getting from governments is too politically motivated for me.
Where the Market Stands:
All major market indices have turn positive for 2009, except the Dow Jones Industrial Average, which continues to toy with the concept. The magic number for the Dow Jones to beat is 8,776.39. And every time the Dow gets close to that number, it backs off. Maybe too many analysts are turning bullish and the Dow is becoming contrarian. Maybe there is no steam left. Or maybe the market senses the longer term repercussions of a falling U.S. dollar. I still believe that the market has legs and that the bear market rally is not over. The Dow Jones in presently down six percent for the year.
What He Said:
“I personally expect the next couple of years to be terrible for U.S. housing sales, foreclosures and the construction market. These events will dampen the U.S economic picture significantly in the months ahead, leading to the recession I am predicting for the U.S. economy later this year.” Michael Lombardi in PROFIT CONFIDENTIAL, August 23, 2007. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.
Next Post: So What Is the Stock Market Looking for?Previous Post: A Different Kind of Thinking
Tags: bear market, dow jones, euro, gold, gold bullion, interest rates, investment strategy, U.S. dollar, U.S. economy, U.S. recession
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
