Euro vs. Dollar?

This post on OilPrice.com explores what I consider a grossly overlooked question.  Sure, Greece (and the rest of the PIIGS) make the euro a scary prospect these days, but are we in the U.S. so much better off?  I appreciate the value of having the world's reserve currency, but how long can that last, and does it merely make our leaders more reckless in the meantime?

Am I glad I earn in dollars vs. euros?  Yes.  Do I want to store wealth in dollars in this environment?  Not so much.

How then can the USD be seen as a safe haven from the Euro? The two currencies have similar sized economies and there is no trenchant difference in their health when viewing GDP and inflation data. Yet the debt situation in the US is worse than in Europe and the USD is the most over-owned currency on the planet.

Selling Euros to buy dollars is sort of like exchanging your ticket on the Titanic for a ride on the Hindenburg. The answer is not to sell one sinking currency and jump on another one that is drowning as well.  The only truly safe currencies are those that can act as a store of wealth, that cannot be diluted by fiat and whose purchasing power cannot be corrupted by a government. Investors the world over should seek the safer harbor that is derived from owning commodities and precious metals rather than to believe the USD can offer any real protection.

This is not to say that the dollar can't or won't do well short-term.  Who could predict that to a certainty?

I am confident that the dollar wil suffer long-term.  Can anyone name a fiat currency that hasn't?

PS  Don't you love the Titanic/Hindengerg quote?



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Is gold in a bubble?

"Tex Norton" writing for Whiskey and Gunpowder has some interesting thoughts on that subject.

Is gold in a bubble? Possibly, but if so, it still has a long way to go before the top is reached. The top will make itself known if you simply watch the market actions. In the meantime, what else can you do, if not invest in gold, to help protect your accumulated wealth?

Indeed, what else can you do?  Shorting stocks might be one reasonable possibility.   It just makes me very nervous.  How high can stocks go when the money supply is potentially unlimited?

Another idea that I'm currently considering is the purchase of 2 or 3 leveraged inverse ETFs.  The idea is appealing.  These ETFs are designed to achieve a return of 2 or 3 times the opposite of the benchmark they are based on.  (FYI, I'm considering small investments in EUO, SRTY, and TBT.)

I really don't like the idea of leverage.  Truth be told, I think these leveraged ETFs are built on the house of cards that is our financial system.  I wonder though, if a person whose investments are largely weighted towards precious metals might be well served to have a small (maybe 10%?) investment in one or more of these.

If you decide to, please be sure to research thoroughly before you invest.  Even the people at Proshares include this warning, among others:

ProShares ETFs may be appropriate if you intend to invest in them as a portion of a portfolio, not as an entire portfolio.

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China cuts holdings of U.S. Treasuries

This headline says it all for me.  Still, I did enjoy the following: 

WASHINGTON - The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

 ". . .could force the government to make higher interest payments at a time that it is running record federal deficits."

Really?  Do you think so?  And hey, what will the Chinese be doing with their money now?  I don't see the Euro is offering much appeal.  Other than gold, where do you put big money now?



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