Debate has raged since the economic implosion last year about US inflation versus deflation as the ultimate outcome. Knowing that inflation was well underway for ten years into the 2008 implosion, it was a given for many that inflation would resume its multi-decade march. Since last year, the full-out FED and Administration pump priming with interest rates close to zero has guaranteed inflation, and gold has long since caught on. Gold is up $440 per troy ounce, nearly 65%, from the low a year ago.
The only confusion was about why US interest rates were going to be held close to zero seemingly "forever". The has fog lifted this month. "On November 2nd 2009, President Obama called for a new "post bubble growth model" with a greater focus on exports, and referenced thefact that Germany, which he called "a wealthy, highly unionized industrial nation," has been a very successful exporter. It does not take a rocket scientist to understand that his goals include more unionization and more exports. And because U.S. union workers are in general much more generously compensated than non-union workers, we believe that the only way that the U.S. can achieve higher exports is to devalue the dollar. We therefore believe that it is a goal of the Obama administration to see the dollar decline." ( Guild Investment Management )
We can, and will, debate if this is simply an explanation by his advisers/handlers for President Obama to relate to for his own political (re-election) purposes: "We are trashing the dollar to help exports and the unions." It sounds better in some quarters than trashing the dollar ignorantly or trashing it to reduce the pressure of US Treasury debt. It also sounds better, in some quarters,than keeping rates down ostensibly to keep the economy from totally coming apart. Ignore the fact that there are a lot of reasons why trashing the dollar will not automatically make us into a 1980's Germany. The UK trashed its currency in the 1970's and didn't end up as a successfully greater exporter.
What's far more important than theory for personal and business planning is that this new admission by the President underpins the reality that the dollar is going, by design, to very low levels, say 40-50, from current levels near 75. The dollar index is already down 15% since last November. If your US dollar-denominated total portfolio is not up over 15% since a year ago, even before tax, you are losing on the year.
Gold, up nearly 65% in a year, is running at about fourfold leverage or gearing to the dollar loss, so gold should be at least 25% of your portfolio. My own gold percent was only about 12% and I am up across all accounts including cash about 14.5% on the year, so I have much more work to do, as do we all. Gold is up over fourfold since 1999-2001, but it could easily do the same same again if the dollar falls to 40. Keep in mind that most traditional alternative currencies are not in very good shape either, and emerging country currencies are not deep and liquid enough to serve as alternatives nor would their central banks want to. Many central banks in emerging markets have been buying dollars in the past week to prevent their currencies from flying up too high.
Think it through and get busy!
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