Friday, September 24, 2004
Something you should know about your dollars
"The US dollar is going the way that [the British pound] went as it lost its place as the world's reserve currency," said Jim Rogers, the Wall St wizard who in 1973 co-founded the Quantum Fund, one of the first and most successful hedge funds, in a recent interview. "I suspect there will be exchange controls in the US in the foreseeable future ... Whoever is elected President is going to have serious problems in 2005-06. We Americans are going to suffer."
This wasn't really news to me, since I'd been following the exploits of multibillionaire investor Warren Buffett out of the corner of my eye.
From a money column, Jubak's Journal, written this past March:
Buffett has become even more bearish on the dollar in the last year. In 2002, for the first time in his investing career, Buffett took Berkshire Hathaway into the foreign currency market with a bet that the dollar would weaken further against a basket of five currencies that included the euro, yen and pound.
Berkshire Hathaway increased that foreign currency position in 2003. By the end of the year, the company owned $12 billion in foreign currency contracts, and it owned $1 billion in euro-denominated junk bonds. Total pretax realized and unrealized gains from the inception of these foreign currency contracts in 2002 is about $1.1 billion, Morgan Stanley calculates. The pretax rate of return is about 10%, which, Morgan Stanley points out, helped offset the low yields on the company’s cash position.
The point is that these guys are betting that the dollar is going to fall, and fall hard. And since almost nothing is made in America anymore, life is going to get a great deal more expensive. If you think you're poor now, you ain't seen nothing yet.
A dollar drop also has implications for the purchase of foreign real estate. If you're considering such a purchase, now or in the future, you might enjoy reading an article at EscapeArtist.com—"Buying International Real Estate," which discusses some of the currency issues.
Buying a used Mercedes (2/8/05)