Monday, July 23, 2007
Currency of the Day
So today, in honor of the Federal Reserve Chairman's Humphrey Hawkins testimony, the Fed's release of the FOMC minutes, the rising cost of everything except those things included in core inflation, the $2 trillion worth of dollars put in circulation between 1776 and 1990, the $2 trillion more dollars that were added between 1991 and 2000, the $2 trillion more dollars added between 2001 and 2003, the $2 trillion more dollars added in 2004 and 2005 and the $2.8 trillion more dollars added from 2006 through the first half of this year, then yes, let us by all means embrace the Weimar Aesthetic! —Kevin DePew writing in his column of July 19
Kevin Depew is the managing editor of Minyanville.com, which is described in Wikipedia as "financial infotainment." It attempts to inform the public about the world of finance, and does it admirably. Depew's column "Five Things You Need to Know" is one of the few I would recommend reading on a daily basis even if you don't have a dollar in your pocket—because if you don't, you may find yourself without a pocket.
It's through Depew that I was alerted to the latest New York arts fad dubbed the "Weimar aesthetic." This is a vaguely retro style alluding to the Weimar culture, that amazing artistic period that followed Germany's defeat in the First World War and lasted till 1933 when Hitler rose to power. There was sex and decadence and creativity and despair—all the things you'd expect before a fascist takeover. Most Americans know of it, if at all, through the musical "Cabaret."
The Weimar period may be better known among financiers for its hyperinflation. At one point one U.S. dollar could purchase 80 billion German Marks. The only currency in the running these days is the Zimbabwean dollar, which went from Z$1.50 to the U.S. dollar in 1980 to Z$255,090 as I write.
The dollar, of course, is not facing such a drastic loss of value. But by jerks and spurts the loss of value must and will continue.
What to do?!
If you're a major investor you've already diversified overseas and are sitting pretty right now. But what can a person with a small savings do?
Here are several possibilities—
- Buy stocks or bonds in corporations with major overseas subsidiaries. (The success of those subsidiaries plus the rise of other currencies against the dollar account for a not insignificant portion of the stock market's continued gains.)
- Buy into a mutual fund focused on overseas investment.
The Chinese yuan, of course, is artificially undervalued. If the Western powers ever convince the Chinese to let it float (or even permit a slow rise against the dollar), anyone holding Chinese securities or currency will be looking at a passel of dollars. "Yahoo Answers" has some advice on that here.
But my favorite is the Certificate of Deposit (CD), which is where many conservative savers keep their money anyway. Most people don't realize that they can buy CDs valued in other currencies. And the CDs are guaranteed up to 100,000 US dollars by the FDIC!
As I write, Everbank.com is offering a one-year CD valued in Australian dollars ("Aussies") with an annual percentage yield (APY) of 4.97%. Any investment banker will tell you that the Aussie is "sound." Today's top CD rate in dollars, according to Bankrate.com, is yielding 5.46%. While the APY may be slightly lower, the gain of the Aussie against the USD stands to cover more than the difference.1 Around a quarter of Australia's exports are to China, which is desperate to spend its depreciating US dollars somewhere, anywhere.
Well, at this point don't say you haven't been warned. I've been harping on the topic for three years and hope to leave it alone for awhile. On the other hand, if you should take any of the options I've mentioned above and lose your ass, don't sue me. Not only do I not hold any of these investments, I also don't hold any money.
Something you should know about your dollars (4/24/04)
More comment on the dollar (10/11/04)
Yet more news about the dollar (and the global economy) (10/21/04)
Buying a used Mercedes (2/8/05)
What's hot? Loonies and dongs (4/23/07)
Bubble of the Day (4/26/07)