Tag Archives: Currency

Taleb: Everyone Should Short US Treasuries

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One of my favorite investors, Nassim Nicholas Taleb, founder of Empirica investment management funds and author of Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, was recently quoted on Bloomberg advising every single human being to short the US Treasury bonds. While this news is about a week old, I thought I’d still comment on it given the fact that it’s a pretty strong statement and that I recently exited a similar paired-trade.

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific. Nouriel Roubini, the New York University professor who predicted the credit crisis, also said at the conference that the U.S. dollar will weaken against Asian and “commodity” currencies such as the Brazilian real over the next two or three years.

The Fed and U.S. agencies have lent, spent or guaranteed $9.66 trillion to lift the economy from the worst recession since the Great Depression, according to data compiled by Bloomberg. Bernanke, who in December 2008 slashed the central bank’s target rate for overnight loans between banks to virtually zero, flooded the economy with more than $1 trillion in the largest monetary expansion in U.S. history.

President Barack Obama has increased the U.S. marketable debt to a record $7.27 trillion as he tries to sustain the recovery from last year’s recession. The Obama administration projects the U.S. budget deficit will rise to a record $1.6 trillion in the 2011 fiscal year.

“The problem we have in the United States, the level of debt is still very high and being converted to government debt”, Taleb said in an interview with Bloomberg Television. “We are worse-off today than we were last year. In the United States and in Europe, you have fewer people employed and a larger amount of debt”.

Moody’s Investors Service Inc. said on Feb. 2 that the U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.”.

Do I believe him? Absolutely. So why did I exit my highly profitable trade? Several reasons. During times of global economic uncertainity, there has always been a flight to quality. We saw this during the financial meltdown in 2008, where US Treasury prices soared and yields tanked. Right now, there is uncertainity in Europe regarding the debt of Greece, Portugal, Ireland, and Spain. People are worried this might have lasting consequences on the Euro as a viable currency. These fears are probably overblown, but until everything settles down and we have more clarity, there will be a flight to quality, which means that people will sell the Euro and flock to US Treasuries.

At least thats my hypothesis and I sold all my positions (except Berkshire Hathaway), shorted the Euro and also the S&P500. The one thing I didn’t do is go long the US Treasuries, since inherently I feel Nassim Nicolas Taleb is correct. At some point, I’ll most likely re-enter my short US Treasury trade, but in the meanwhile I happy to see how the European Union handles the issues of excessive debt.

Venezuela Devalues Its Currency

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Here’s an interesting article by Dominic Frisby about Venezuela’s devaluation, the effect on a country’s currency and the relation with gold prices.

Gold bugs are forever telling you to buy gold because it is ‘nobody else’s liability’. It’s become one of those hackneyed phrases that has almost lost its meaning.

But recent events in Venezuela give us a nice illustration of what that phrase really means. And there’s a stark, but important message for savers everywhere.

Inflation is currently running at 27% in Venezuela. That’s just the official figure. You can expect the real number to be considerably higher.

Earlier this month, the Venezuelan president Hugo Chavez, devalued the bolivar by half, from 2.15 per US dollar to 4.30 per dollar. There will be a second peg, subsidised by the government, of 2.60 bolivars per dollar for essential imports such as food, medicine and machinery.

This devaluation has effectively doubled the cost of imported goods and halved the Venezuelan people’s purchasing power in a single stroke. Savers – though I doubt there are that many given the country’s precarious situation – will have had half of their wealth effectively wiped out overnight.

Chavez is doing it, he said on state TV, ‘to boost the productive economy, to reduce imports that aren’t strictly necessary and to stimulate exports.’ But that won’t be the effect. All his actions will do is discourage people from working at all. Leaving aside the moral issue of whether government should have the power to do that (and, largely speaking, with our modern system of money and credit, they do), many Venezuelans will now ask themselves: ‘What is the point of my working at all, if the proceeds are going to be devalued so suddenly?’

But any Venezuelan who happened to have converted some of their wealth into gold would be protected from these government foibles – at least, as much as is possible under the circumstances. [LOD”s note: Not only gold and silver, but even real estate would hold its price in an event like this. Over the long term, real estate matches inflation, and to some degree population growth]. Chavez cannot suddenly devalue gold by half to ‘boost the productive economy’. So the proceeds of that individual’s labour would have been preserved. The purchasing power of gold against essential goods such as food, energy and shelter remains unchanged – in fact it’s probably risen.

I remember backpacking across South America in the early ’90s. Venezuela was one of the wealthiest, most advanced nations on the continent. It’s such a shame to now see the country on Hayek’s The Road to Serfdom, or, worse still, to Zimbabwe.

“Chavez”, writes Daniel Cancel on Bloomberg, “is trying to maintain spending for his 21st century socialist revolution as South America’s largest oil exporter fails to emerge from its first recession in six years. The government is seeking to stem its falling popularity and the highest inflation rate among 78 economies tracked by Bloomberg, ahead of parliamentary elections scheduled for September.”

Well, isn’t our own government doing the same thing? Haven’t they boosted spending over the last three years in an attempt to stem falling popularity ahead of an election? Isn’t quantitative easing an elaborate form of currency devaluation? The effect of their actions has been that sterling has been losing its purchasing power. It buys us considerably less food, energy, medicine, industrial goods and anything else you care to mention (except mass manufactured goods from Asia) than it did five years ago.

It even buys us less foreign currency, as the chart below – which shows sterling against a basket of foreign currencies – shows. (I’ve drawn on that white line highlight the market direction) The only reason sterling has not fallen further is that other foreign central banks have been doing the same things to their own money. It is a race to the bottom.

british-pound-against-basket-of-currencies.ashx

Our currency has devalued many times before. Anyone who remembers 1976 can tell you about the sterling crisis then. Financial markets were losing confidence in the pound. (I believe that loss of confidence is coming again. If sterling drops below $1.57 against the dollar, look out below).

The UK Treasury could not balance its books, while Labour’s strategy emphasized high public spending. The newly-elected prime minister, Jim Callaghan, was told there were three possible outcomes: a disastrous free fall in sterling, an internationally unacceptable siege economy, or a deal with key allies to prop up the pound while painful economic reforms were put in place. What will David Cameron be told should he win in the summer? The parallels to today are uncanny.

In more recent memory, we have had the sterling lows of March 1985 (when we almost hit parity with the dollar), then another crisis with ‘Black Wednesday’ in October 1990, when we were forced to drop out of the European Exchange Rate Mechanism.

What is worrying is that our current deficits, debts and spending are all at far greater levels than during any of the previous crises. So many toxic assets have been transferred from the balance sheets of banks to governments, that sovereign debt default – not just here, but throughout the Anglo-Saxon economies – is now a major risk.

You can read the entire article on moneyweek.

So Why should you care?
If you invest in US companies that do business with Venezuela, then your portfolio returns will definitely be adversely impacted. US companies that do business with Venezuela like Haliburton are likely to feel the impact of this currency devaluation. Haliburton CEO just announced that they may face a $30 million loss in the 1st quarter because of this.

While I liquidated almost my entire stock portfolio at the market open this morning (including Harvest Natural Resources which does business in Venezuela), I’m still keeping my gold and silver coins!  Talking the about market, its risen 50% since the March lows of last year. I might even go short some weaker stocks on any market bounces too.

Gold Hits Record High!

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Gold just broke the previous intraday record and touched $1,043 per ounce. It’s currently trading around $1,038.

 gold-hits-record-high

This spike may have been caused by a news report that appeared in the Independent today. It states that the Arab States in the Gulf have made secret plans with China, Russia, Brazil and France to stop using the US dollar for oil trading. While this isn’t immediate and it calls for a transition to occur by 2018, it seems to have set the stage for a pretty bad precedent – that gold will jump on these sort of rumors! Lets see if we get any official confirmation of this “news”.

So is this the beginning of the end for the US Dollar? I hope not, but I’m buying some silver and maybe some more gold, just to be safe!

Protecting Yourself Against Inflation

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While the debate between inflation and deflation keeps on going, I’m firmly in the camp of inflation. And so is Warren Buffett, as are many other investment advisors. So how do you protect yourself and your investments from the effects of inflation?

Investment newsletter editor, Keith Fitz-Gerald, recently had a post on his blog regarding the 4 ways to protect your investments against inflation. Here’s an excerpt:

What’s interesting is that many investors holding large cash positions view their money as an asset, when, ironically, it’s really more of a liability at this stage of the game.
Some might take issue with that statement. After all, even we at Money Morning have counseled readers that cash – correctly deployed – can allow an investor to sidestep the worst stretches of a financial crisis, like the one from which we’re currently attempting to extricate ourselves.

But when the markets are as beat up as they as they have been, history suggests there’s probably more upside than downside – even if we haven’t bottomed out yet.
And there’s a broad body of research to support that contention – including our own newly created “LSV (LIBOR/Sentiment/Value) Index” (published as a part of The Money Map Report, the monthly investment newsletter that’s affiliated with Money Morning).

There’s also data sets widely published by others, such as Yale Economics Professor Robert J. Shiller. Shiller has found that when you look at 10-year periods of Price/Earnings (P/E) data dating all the way back to 1871, the markets tend to rise when the average P/E is low, as it is right now. Conversely, when the average Price/Earnings values are high – as they were in late 1999, and again in 2007 – a decline in stock prices is much more likely.

There are obviously no guarantees that history will repeat itself. But if it does, the same data implies we could see real returns of 10% a year or more “for years to come,” as Shiller noted in a recent interview with Kiplinger’s Personal Finance.

My own research seconds the general-market-increase theory, but I’m much more conservative in my expectations of returns and think that returns of 7% are more likely.

Perhaps what’s more important right now is that inflation typically accompanies growth – and with a vengeance. And that means that investors who are sitting on cash “until the time is right” may have their hearts in the right place but are relying on the wrong protection strategy.

My recommendation is a four-part plan that can help lock in the expected returns you want, while also protecting your cash from the ravages of inflation. Let’s take a close look at each of the four elements of this strategy:

  • First, protect your cash with Treasury Inflation Protected Securities (TIPs). Even though the trillions of dollars the Fed has injected into the system seem to be having some effect on the critically ill patient the U.S. central bank is trying to fix, we’re likely to pay a terrible price in the future. Forget the hyperinflation scenario so many people are hyping at the moment. While that’s certainly possible, it’s not probable. However, what is likely is a dramatic realignment of the dollar and a general increase in worldwide living expenses.

If you’re based in the United States and have mostly U.S. assets, you may want to consider something as simple as the iShares Barclays TIPS Bond Fund (NYSE: TIP) to offset this risk. The TIP portfolio is chocked full of inflation-indexed securities, but it also offers a healthy 7.46% yield. If you’ve got international exposure, you may also want to consider the SPDR DB International Government Inflation Protected Bond ETF (NYSE: WIP). It’s a collection of internationally diversified government inflation indexed bonds that provides similar protection. Make sure you talk with your tax advisor about both, though. Depending on your tax situation, you may find that because of the tax liability on inflation-related accretion, these are generally best held in tax-exempt accounts.

  • Buy gold but don’t go crazy. Despite widespread belief to the contrary, gold has never been statistically proven as an inflation hedge. But the yellow metal has proven to be a great crisis hedge because of the 10:1 relationship between gold prices and bond coupon rates – which obviously are directly related to inflation. Over time, the two move in such a way that having $1 for every $9 in bond principal can help immunize the value of your bond portfolio.

So to the extent that you own gold, do so not because you expect it to rise sharply, but because it will offset the inflationary damage to your bonds. A good place to start is the SPDR Gold Trust (NYSE: GLD) because it’s tied directly to the underlying asset without the hassles or risks of direct personal storage associated with bullion.

  • Consider commodities. It’s too early to tell if the so-called “green shoots” that everybody is so excited about are little more than weeds. Therefore, it makes sense to concentrate on picking up resource-based investments. History shows that these things are less susceptible to downturns, but more importantly, rise at rates that far exceed inflation when a recovery begins in earnest.

I prefer companies like Kinder Morgan Energy Partners LP (NYSE: KMP) that are less dependent on the underlying cost of energy than they are on actual growth in demand. That way, if energy prices don’t take off immediately for reasons related to deflation or stagflation, those still will benefit from demand growth. It’s a fine point, but one that merits attention for serious investors. KMP, incidentally, yields an appealing 8.68% at the moment.

  • Short the dollar to hedge your bets still further. Not only is the government going to borrow nearly four times more than it did last year, but when you add the complete federal fiscal obligations into the picture, our government owes nearly $14 trillion. This makes the dollar, as legendary investor Jim Rogers put it, “a terribly flawed currency” that could fail at any time.

To ensure you’re at least partially protected, consider the PowerShares DB U.S. Dollar Index Bearish Fund (NYSE: UDN), which will rise as the dollar falls. It’s essentially one big dollar short against the European euro, the Japanese yen, the British pound sterling and the Norwegian kroner, among other currencies.
In closing, there is one additional point to consider. You rarely get a second chance to do anything, especially when it comes to investing. So act now before the markets make it cost-prohibitive to protect yourself. When the economic recovery gets here, you’ll be glad you did.

Pretty sound advice. I was just thinking about converting my 401k into TIPS today when I came across this article. The rest of the advice I’ve followed in some form or another. Instead of directly shorting the dollar, I’m long FXA, which is the CurrencyShares Australian Dollar ETF and EDD which is an ETF of short-term foreign government and corporate bonds.

Another way to SHORT the dollar is buy going LONG foreign currencies. Everbank has multiple CDs you can open in various currencies. They also have some neat products where the principle is guaranteed against loss – there is no free lunch – the interest is used to hedge against loss – but you do get any upside appreciation of the currency. Check out their Marketsafe BRIC CD. Also check out their free newsletter, the Daily Pfennig, which is a good source of unbiased global macroeconomic/monetary and currency information.

Jim Rogers Expects A Currency Crisis

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I’m a fan of Jim Rogers. He wrote a book ten years predicting a run in commodities. He also wrote one of my favorite books, Adventure Capitalist, a fascinating story of his journey around the world where he talks about the macro-economy of each place he visits.

Here’s a recent video on Bloomberg. He thinks US stocks suck and the US Bond market is the last bubble left and mentions TBT. Here’s my post on my short bond trade. There may even be a currency crisis in the US and other countries. I still think its a good time to buy gold!

Mortgage Meltdown: The Worst Is Yet To Come!

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Check out this 12 minute video from 60 Minutes. There’s another wave of mortgage defaults on the way, this time from Alt-A & Option-Arm (also called Negative-Amortization or Neg-Am) loans. As opposed to the subprime loans which were worth almost $1 Trillion, these two groups make up nearly $1.5 Trillion.  According to Amhurst Capital, they expect a 70% default rate on the Option-Arms based on the current default rate which is occurring at 3% interest rates!

Right now there’s a 3-5 year overhead supply of housing inventory on the market. Along with these coming defaults and the fact that 10% of Americans are behind on their mortgage, you should expect house prices to be depressed for a very long time. I’ll think we’ll have more clarity when home prices actually hit bottom, which might be another 12-24 months from today.


I’m sure glad I sold my condo in summer 2005! The bank now owns and I’m thinking of putting in a very low-ball offer. An offer so low, it’ll cashflow well and at least break-even if rents drop 50%!
(Check out these cheap real estate deals).

If you’ve been reading the news, you know that at yesterday’s FOMC meeting, Bernanke dropped the interest rates to an unbelivable 0.25% (a cut of 75 basis points). Apparently he thinks that cheap credit will solve the problems facing the US economy right now. Unfortunately, its not the cost of credit but the availability of credit that is the issue. Credit is drying up and making it cheaper isn’t going to make any difference.

Last Monday, the Treasury was able to auction $35 Billion worth of 3 month T-bills at 0%, which means there’s a demand for liquidity and safety. Return of principle is more important than return on principle!

However, the government is using this money (and another few hundred billions) to bail out bankrupt financial firms, insurance companies, and auto manufacturers. It is running printing presses around the clock creating pictures of dead presidents and is inflating the money supply at a 17% annual rate. This is inflationary in the long run and will cause the devaluation of the dollar.

In the long term, Bernanke (or Bernie for short) is more worried about saving the economy than fighting inflation. (He’s not really concerned about the devaluing dollar either). And while the price of everything may increase, he’s hoping that real estate prices will stay flat instead of tanking, and that’s how he’s going to engender “a soft landing for the real estate market”.

Looking at the dollar index over the past few days, the dollar has started showing signs of weakness. Now that the interest rates in the US are even lower than in Japan, maybe people will start using the US Dollar as the new currency of choice for the carry-trade!

You could sell the US Dollar and buy the Australian Dollar or the New Zealand Dollar, both of which have a much higher yield than the US Dollar. (Note: this is not a recommendation, just an example of how to execute the new carry-trade). I bought some Australian Dollar ETF (FXA) yesterday morning in anticipation of a rate cut for my retirement account. The yield on FXA is currently 8%! It’s up nearly 5% since then and I’m happy to say my retirement account is down only 4% for the year – if only all my investments had fared so well this year!

Anyway, with interest rates close to zero I’m reminded of an 80’s song called “Turning Japanese“! Enjoy.

Why The Government Wants A Weaker Dollar

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As I stated in my last post, the government is bankrupting our economy. I asked Chuck Butler of Everbank.com “why is the government trying to weaken the dollar and if there was any advantage to having a weak dollar?”

He was gracious enough to answer my question:

It’s a political thing… If the Gov’t can show that they are doing what they can for Manufacturing, that equals votes. The main thing though is the dollar is used to attract foreign investment. I’ll explain.

The Gov’t is running a huge deficit, and as long as they are running a huge deficit, they are in need of foreign investment to finance that deficit. The amount of financing needed each day is over $2 Billion.

When a Gov’t needs to attract investment, they can do 1 of 2 things.
1. They can raise interest rates aggressively to attract investment, or…
2. they can allow a debasement of the currency, which acts as a clearing mechanism for investments. When a foreign entity buys a U.S. asset, they need to convert their currency for dollars… If dollars are cheap vis-a-vi the foreigner’s currency, they are in essence buying that asset at a discount.

Given these two choices, a Gov’t will always choose #2… raising interest rates would bring an economy to its knees… so #2 is the always the choice… and that’s where we are today.

There you have it folks! Debasing the currency is always the better choice! I’m so glad I bought some gold. There also seems to be some evidence that foreign countries are finding the US dollar cheap enough to bring manufacturing jobs back to the US!

An added bonus to debasing the currency is that the 30 year bond, which pays less than the current rate of inflation, will be worthless in 30 years. In other words, the government will be repaying its debt with worthless currency. Suddenly the $57 Trillion of future debt obligations (Social Security and Medicaid) doesn’t seem so bad!

The Weakening Dollar – II

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Now we’ve seen some reasons for the Dollar’s continued weakening, how do we profit from this knowledge? Here’s a compendium of worthwhile investments that I’ve been researching.

  • Invest in foreign currencies and foreign bonds

If your bank allows you to make foreign currency deposits, that may be the simplest solution. You should avoid the sterling, as Britain is already facing many of the same problems as the United States (a hyper-inflated real-estate market, and an over-abundance of financial services). European euros and Japanese yen are probably the best bets in individual currencies, although there’s also a case for Canadian dollars, which have eclipsed parity with U.S. currency thanks to Canada’s powerful natural resources sector.

One possible international-bond mutual fund is the no-load T. Rowe Price International Bond Fund (Nasdaq:RPIBX), which invests in high-quality, non-dollar-denominated bonds.Let us issue two warnings. First, don’t buy bond funds investing in foreign junk bonds (because you’ve then put yourself in the same position as the asleep-at-the-switch German banks that invested in subprime mortgages – you don’t know what you’re getting). Second, don’t buy an emerging-markets bond fund, because emerging-markets bond portfolios, unlike stock portfolios, tend to be dominated by the countries with the most debt, which are consequently are the countries most in danger of defaulting.

  • Invest in large-cap stocks with foreign exposure

The stocks will benefit from the weak dollar in three ways:

  • First, if they do business as local companies overseas, their assets and income in foreign countries will be worth more in dollars.
  • Second, if they export from the U.S., their income will go up relative to their costs – a wonderful position to be in.
  • And third, the falling dollar actually makes the price of their exported products go down in foreign-currency terms, which makes these U.S. wares more competitive in foreign markets and against rivaling products. That could boost sales outright.

There are lots of these companies. Three terrific choices would be The Coca Cola Co. (NYSE:KO), which does business all over the world, The Boeing Co. (NYSE:BA), which is the United States’ largest exporter, and restaurant-operator Yum! Brands Inc. (NYSE: YUM), which boasts such great brands as KFC, Pizza Hut and Taco Bell. Both Coke and Yum! are going great guns globally, and both boast excellent brand recognition in such key markets as China. Boeing will benefit from a huge upswing in air travel as global markets develop: It recently forecasted a need for $340 billion worth of commercial aircraft in China alone over the next 20 years. All three stocks are currently trading at Price/Earnings (P/E) ratios greater than 20, but the earnings should be strong.

  • Look at Eastern Europe

In Europe, the rising euro is likely to make Western Europe increasingly uncompetitive, by boosting its costs. In addition, several Western European countries – most notably, Britain, Spain and Ireland – have recently had housing bubbles even larger than the United States in relative terms, and as a result may suffer accordingly. A much better bet is the emerging growth area of Eastern Europe and Turkey, the latter benefiting from the improved political links and growing trade with the EU. Since Eastern Europe has much lower labor costs than the EU, as well as solid educational systems, the synergies are obvious. There are very few American Depository Receipts (ADRs) from the region, so the best bet for emerging Europe investors is the Spider Standard & Poor’s Emerging Europe ETF (AMEX:GUR), which invests in the share indexes of the Czech Republic, Hungary, Poland, Russia and Turkey. However, this ETF was founded only in March 2007, and currently has a market capitalization of only $29 million.

  • Invest in Brazil

At first glance, Latin America offers only modest potential to benefit from a declining dollar, because that region’s economies are so closely tied in with the United States and its currencies generally follow the dollar – albeit with a few crises all of its own. However, since non-U.S. growth is a powerful driver of global-natural-resource prices, it is desirable to take advantage of Latin America’s huge base of natural resources [although the populist tendencies of the local politicians can make this risky]. Currently, the most-economically-sound countries in that region are Brazil and Colombia, both of which have recently shown signs of better government and genuine economic growth. Therefore, it well worth considering either, or both, of two Brazilian ventures: Either mining company Companhia Vale do Rio Doce, sometimes referred to as CVRD (NYSE:RIO), or the oil company Petroleo Brasilero S.A (NYSE:PBR), more commonly referred to as Petrobras. Both companies are trading at reasonable earnings multiples (15 for CVRD and 13 for Petrobras), and each stands to benefit both from local economic and population growth, as well as from the insatiable-and-growing world demand for commodities and energy.

  • Invest in India

Asia is most certainly the world’s most dominant growth region – not only for the last five years, but also for the next 25. Unfortunately, both of the two fastest-growing Asian markets, China and India, are richly valued at present. Both countries are also dependent on exports to the United States, so would suffer margin erosion in the event of a very weak dollar. Indeed, China equities are somewhat pricey at the moment, but India is somewhat cheaper, with a P/E ratio of around 20, very reasonable given the Indian economy’s persistent 8% growth rate.Picking individual stocks is difficult, and there are not many with ADRs that U.S. individual investors can trade. Fortunately, there is an ETF that invests in the Indian portion of the Morgan Stanley Capital International share index – the iPath MSCI India Index fund (NYSE:INP), which is satisfactorily large at $366 million.

  • Invest In Japan

In Asia, take a look at the four most developed economies: Japan, South Korea, Taiwan and Singapore. All of these countries have living standards close to that the of the United States, while Korea, Taiwan and Singapore still boast exciting rates of economic and productivity growth. However, if your intention is to hedge your holdings against a declining dollar, Taiwan and Singapore may not be the best bets, because they are both relatively small domestic markets with high export dependence on the U.S. economy.Japan, on the other hand, is the world’s second-largest economy, and has only recently gotten back on the growth track after a decade of recession caused by its late-1980s speculative bubble. A weak-dollar strategy should focus on the smaller Japanese companies, since they would benefit from domestic Japanese growth, meaning their profits are not tied to exports. Hence my recommendation would be the streetTracks SmallCap Japan ETF (AMEX:JSC), an index fund devoted to smaller Japanese companies.

  • Invest in Korea

South Korea is a rapidly growing economy whose stocks are currently selling at a very attractive multiple of around 12 times earnings. And there are a number of waves to catch in that market, as the country is a major global player – if not an outright leader – in such areas as telecommunications and heavy manufacturing.There’s one other point that’s worth noting – and it’s a significant one. In late October, U.S. investing guru Warren Buffett, chairman of Berkshire Hathaway (NYSE: BRK.A, BRK.B), paid his first visit to South Korea, where the billionaire has invested in 20 of that countries companies, including a 4% stake in the country’s leading steelmaker, (NYSE: PKX). Buffett definitely sees Korea as a worthwhile market.

Two ways to invest in Korea is either through the Korea Fund (KF) or the iShares MSCI South Korea Index Fund ETF (EWY).

  • Buy Gold

After Gold’s recent surge to over $800/oz, you might think its run is over. But with the global liquidity crisis and all major currencies inflating the currencies, gold has become a safe haven for risk-averse investors. During the last gold-bull market in the early 80’s, gold peaked at $850/oz. Adjusted for inflation, that works out to $2,200/oz today. Gold still has a long way to run.

  • Buy Canadian Resource Companies

While the oil produced in Canada isn’t as cheap as that produced in Saudia Arabia ($30 vs $2), with oil hitting nearly $100/barrel, its still very profitable.

These are some of the multiple ways you can hedge your portfolio against the falling dollar. Remember, the worst thing to do is to ignore it and do nothing!

The Weakening Dollar – I

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There’s been a lot of talk regardimg the weakening US dollar and its effect on your wealth. Many people believe it can’t last and the dollar will rebound. Others think that it still has more room to fall.

I personally think that it will continue to fall so long as the government does nothing to stop the reasons for the weakness. Here’s a good explanation by Mark Hutchinson.

The U.S. greenback will remain generally weak for two key reasons:

* First, the United States is still running a $700 billion balance-of-payments deficit with the rest of the world. Asian central banks have been financing this by buying U.S. Treasury bonds. As we now also know, German regional banks have also been financing it by buying subprime mortgage debt. [It’s particularly good for the balance-of-payments ledger when foreigners buy subprime mortgage debt, helium-filled dot-com stocks, or the Brooklyn Bridge, because the profit that domestic shysters make from selling worthless assets to foreigners counts as income.] Nevertheless, both these once-favorable trends are showing signs of ending. This means the United States has to export more, which means the dollar must drop still more against the euro, sterling, yen, renminbi and the currency of anyone else that might be persuaded to buy U.S. products if they’re cheap enough.

* Second, the dollar will remain weak and probably get weaker – at least in the short run – because U.S. Federal Reserve Chairman Ben S. Bernanke has twice recently cut short-term interest rates: a half-percentage point [from 5.25% to 4.75%] on Sept. 18, and a quarter point [from 4.75% to 4.50%] on Oct. 31. Since the Bank of England, the European Central Bank and the Bank of Japan are all closer to raising interest rates than reducing them, Fed rate cuts make the even less attractive by comparison. And many analysts see additional rate reductions to come.

So assuming you agree that this trend is likely to continue, how have you positioned yourself to either hedge against or profit from this?

The 35th Carnival Of Money Stories

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Welcome to the 35th edition of the Carnival of Money Stories. This edition is pretty big with 50 entries, so pour yourself an extra-large cup of hot cocoa and sit down for some serious reading.

Debt

Reggie presents Why Money is Debt – Part 1 posted at Reggie, the black kid with good credit.

Millionaire Mommy Next Door presents What Would You Do? saying “Sleepless in Seattle” and her husband have acquired a substantial debt load and are considering whether or not to sell their home, pay off their debt and rent. They love their house, but they are tired of living on the edge financially. She asks, “what would you do?” .

Ted at Campus Grotto provides a Student Loan Consolidation FAQ saying I just recently consolidated my student loans. Here is what you need to know to ensure you don’t get scammed.
Eric at A Penny Closer laments Ahh, How I’ve Missed Consumerism…

James at Payday Loan Cheapskate presents How to Escape the Payday Loan Debt Cycle.

Linsey Knerl presents Confessions of a Former Payday Loan Junkie posted at Wise Bread.

Investing

Living Off Dividends presents Why Low Interest Rates Are Bad For You, while wondering If Its A Good Time To Invest In Milk!

Thomas Humes presents Simple Habits That Lead To Wealth posted at Wealth Building World saying Wealth creation is a combination of rules and habits. Here’s the number one rule, if you want to be wealthy, its not how much money you earn, its not how many cars you drive, it is how much you can save and invest and that’s the key.

The Dividend Guy presents 5 Things Dividend Investors Should Do To Make It Through Volatile Markets posted at The Dividend Guy Blog.

Matthew Paulson presents How to Plan for Retirement If You Don’t Get a 401(k) or a 403(b) at Work posted at American Consumer News.

Market Poetry presents Ode to All Struggling Value Investors posted at Market Poetry.

The Skilled Investor presents Where’s Waldo? – The illusion of superior professional mutual fund manager performance, saying The effort to find those few supposedly superior money managers willing to sell their services sufficiently cheaply is a costly, time consuming, and futile, “Where’s Waldo?,” searching exercise for the individual investor. Many money managers will claim to be superior and few or none actually will be. If such superior money managers did exist, then there should be dozens or hundreds of them who prove their superiority year after year after year. Unfortunately, the scientific finance literature indicates that this is not the case. This year’s star money manager tends to be next year’s average or laggard money manager.

Living Off Dividends wonders whether the fact that Even Supermodels Don’t Want Dollars is an indicator that The US’s Economic Strength Is In Permanent Decline?

Retirement

Phil presents I moved to Indianapolis for the money! posted at Queercents, saying One day, Phil and his partner went to Indianapolis to look at some properties and it dawned on them. Indy was a lot less expensive than Chicago. Could they live here? .

My Wealth Builder presents Our Journey To Financial Freedom #7 – How Luck Played A Role.

General

Christine presents GoogleAds, Keywords and Website Content: Making Money Online Using Web Content, Keywords and GoogleAds posted at Me, My Kid and Life: An American Single Mom Living in France.

Mr Credit Card presents Digital SLR Camera Shopping with Reward Points (Ask Mr Credit Card’s Blog) posted at Ask Mr Credit Card’s Blog.

Doris Chua presents Are Loans Good or Bad? posted at Home Office Women.

Kyle James presents Frugal or Cheap? – When To Spend The Extra Money posted at Rather-Be-Shopping.com Blog discussing the things in life that are worth spending a little extra money on in order to save money and time in the long run.

Wealthy_1 presents Bill Me Later posted at collectingmycash.

FIRE Finance presents FREE Land & Handsome Living Allowances! posted at FIRE Finance.

Pinyo presents I Just Saved A Bunch Of Money On My Insurance posted at Moolanomy explaining how he saved money on my home and car insurance by switching.

Paidtwice presents Experiments in Frugality: Disaster Number 2 posted at I’ve Paid For This Twice Already….

FMF presents Internships are Great for Your Career/Life posted at Free Money Finance.

Nivek presents FSA End Of The Year Spending Spree posted at Money Clipped.

Ashley presents Graduating Without a Full-time Job Lined Up posted at College of Cash.

Mark Runta presents Open A Door posted at Smart Investing & Money Management saying Switch off the TV, get off the couch and do it.

The BagLady presents My First Holiday with a Huge Family posted at the baglady.

Stephanie presents They’re Out to Sabotage My Plan posted at Stop the Ride!.

Glblguy presents 1 Year Ago Today – 10 things we’ve done to regain financial control posted at Gather Little By Little.

Cashmoneylife presents I Bought a New Car, and Why it Was Good Idea For Me posted at Cash Money Life.

Kevin at Satellite TV Guru presents How to Get Satellite TV if You Have Bad Credit.

The Digerati Life presents The Financial Task I Dread The Most.

Raymond at Money Blue Book warns about How I Got Scammed By a Seller On Alibaba.

The Happy Rock wonders when Do We Earn The Right Not To Budget?

Becoming & Staying Debt Free presents How to Become a Stress-Free Shopper, saying Have you ever gone into a store with the intention of only buying one (1) item and you walked out with several bags full of stuff? I can remember one time back in about 1990, I carried a cart load of groceries for a customer. Her husband and kids were waiting in the car. The first comment that was made when the door was opened was, “I was going to say, if you had to milk that cow.” It is a comment I have heard my own dad say when I was younger to. I knew instantly, that she had said she was just going to grab a gallon of milk. Instead she did her weekly grocery shopping.

Christine at Me, My Kid and Life presents Film vs TV, Why We Opted to Turn the TV Off, plus Frugal Tips for Movie Buffs, France on the Cheap: Traveling in France for less than $200 per day for Two – Traveling Cheap in Europe, and The Exchange Rate – The Euro vs The Dollar – The Declining Dollar.

The Dough Roller presents How To Find Healing From A Deep Financial Wound, saying Many of us have been hurt over money. Here’s my story and how I’ve coped for the past 30 years.

Jason at A Bankruptcy Lawyer’s Blog presents Five Top Alternatives To Personal Bankruptcy, saying If you are considering filing for personal bankruptcy, stop, think and consider the following.

Allen at Investing World Today presents Business Investment Strategies That Work Every Time : The secret to investment success is the consistent application of time-proven strategies, not the use of complex, hard-to-understand investment vehicles created by investment bankers out to take your money!

Madison at My Dollar Plan presents My Personal Story: Background, Taxes, First IRA : My introduction to money, working, taxes, and retirement accounts has all influenced where we are today and how I handle money.

Thomas at Wealth Building World presents Money Doesn’t Grow On Trees, saying How is your money flowing? How are you feeling about money? What do want in relation to money? Do you think about how much you have, or don’t have, often? What kind of statements were made about money while you were growing up? Why is it that people who have a lot of money can make it so easily and those who don’t have it, continue to go without?

Matt at How I Will Be Rich offers advice for increasing your pay at Make More Money at Your Day Job.

The Frugal Duchess presents How I’m Conquering My Bag Lady Fears: My 10-Step Program saying, What keeps me up late at night? In addition to worrying about past mistakes and my kids and my work, I worry about becoming a bag lady. And I have plenty of company; a lot of women (and I imagine some men also) have secret fears about living on the streets without money or sanity. Even Oprah and other successful women have ‘fessed up to bag lady fears.