Why You Should Stay In That Awful US Dollar

This last year you would have had to be partly in US dollars or you would have lost out. Yet, the USD is where you really don’t want to be. The fundamentals for the USD are awful and are getting worse by the day, every new initiative they come up with in Washington D.C. is bringing the USD so much closer to it’s inevitable collapse and intrinsic value of zero. Your great great great grandchildren will with your saved USD 100 bill be able to buy exactly nothing, nothing. An ounce of gold will in 2109 still buy a months rent, a week in the sun or whatever they will want to buy a hundred years from now.
So you will need to be vigilant and be ready to make a move out of dollars on short notice. The big question now is how long the dollar will last, mind you not “if” the dollar will crash – when. You could make a case for it collapsing in five minutes, or last another decade. As the depression sets in it has been proven again and again that the market forces favors the USD in the downbeats. So the market might need to be done with it’s hammering, the DOW down to 3500 where it belongs. We can be back to the early 90’ties. It seems to me the dollar strength might continue as long as the markets collapses further and they still have years to go to reach bottom.

So, from our desk here at Farmann we have been advising our readers to BUY US dollars for some time. This is contrary, it is exactly the opposite of what our friends in the US are telling their readers, yet we both make sense.
For a US based person you are invested in USD any way you look at it. Your destiny is closely interlinked with the destiny of the dollar. So for you it makes sense to get out. Most Farmann readers however are international, and are not inherently exposed to USD in their portfolio, so for them it makes sense to add dollars.
Here at Farmann we have recommended to keep some dollars in cash, but more importantly in dollar denominated assets – mainly gold, silver and gold mining shares. These recommendations have done very well, especially as measured in foreign currencies.

So we keep up this recommendation, with less emphasis on cash and more into physical gold and gold mining shares. We have personally been dealing in gold mining shares for close to twenty years, and it is extremely volatile. Yet, right now – as a non US investor some shares will give you double diversification, double hedge and thus double protection.
US based, US denominated mining shares will lift you on the gold rise we expect and keep you in dollars as the dollar strength continues and even intensifies. Should the dollar turn around and collapse the fundamentals should fundamentally work in your favor as gold will soar and the mining companies profitability soar with it.

So, counter to what many contrarian writers are recommending we still recommend buying and holding a diversified portfolio of US based, USD denominated gold mining shares – if you are based outside the USA.

We like Goldcorp (Symbol GG).

Oslo, Norway. March 6. 2009
Hans Lysglimt

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10 Comments

  1. goldfinger
    Posted 6 March, 2009 at 3:09 pm | Permalink

    This is real interesting. The CDS spreads on the dollar have been going parabolic for some time, at around 100 BPS now, picking up speed since November. Bear Sterns went bust at around 250 BPS, Fannie Mae at around 150 BPS, Lehman and AIG at around 370 BPS.

    It’s really a contradiction that treasuries is increasing in value at the CDS spread is increasing. The only rational move, is that of gold, however it’s somewhat irrational that gold bullion have disconnected from gold stocks (that follow the TIPS bonds), indicating that gold are somewhat irrational.

  2. Kris
    Posted 6 March, 2009 at 4:40 pm | Permalink

    You wrote you had alot of knowing in gold stocks.

    Do you people know of any swedish high quality gold mining stocks? Companies that actually has had positive cashflow the last 10years etc. IGE, etc, is not one of those.

    We can’t find any? … the weak SEK is a nice opportunity to buy swedish stocks.

    K

  3. Kris
    Posted 6 March, 2009 at 4:50 pm | Permalink

    Or if some of you can give me name of some good canadian miners, please let me know. I really want to buy them. Canadian dollar will go up along with the NOK. The swedish might not.

  4. Posted 6 March, 2009 at 4:58 pm | Permalink

    I have to say that it really makes you wonder if the federal reserve contract the money supply just to enable the US to sell it’s debt, or create demand for treasuries, as Libor rates are going up and up. If they did more, Libor rates would go down further. So as it stands now, the federal reserve is causing deflation.

    Obama is starting to look more and more like Herbert Hover.

  5. Posted 6 March, 2009 at 5:01 pm | Permalink

    I think Bernanke’s Academic Career is a big problem, Like when Nixon was president he knew what a problem tight money was as it caused him to loose the election against Kennedy, and got his own fed chief, to take charge and provide easy credit, the same did Jimmy Carter. An Academic, with a reputation to think of, is surely not the best fed chairman in a time like this, when what you need is someone more reckless to print lots of money.

  6. Farmann
    Posted 7 March, 2009 at 5:14 pm | Permalink

    I will not say I know at lot about gold mining stocks. I have made, and lost enough money in them to be very humble. My recent recommendation to stay diversified, including in dollars has however paid off and seems to continue doing so.

    In Sweden you might look into Lundin Mining, it rallied yesterday.

    goldfinger;
    The FED is not contracting money supply, it is expanding it at astonishing speed.

  7. Kris
    Posted 7 March, 2009 at 9:10 pm | Permalink

    Farmann = Lysglimt?

    Thanks for tip, I will have a look at the P&L and balance sheet. But regarding the stock priced at 1, it seems like same type as IGE. You know, no serious company wants a 1 stock.

    We are diviersified, own the Ford stock btw.

    But the issue I have with mining and metal stocks is that history shows that under hard times, depression,etc.. They just stop mining. They are not able to extract and work at all because of lots of external problems, even if prices are high.

    Secondly, Jim Rogers talked about IMF about to sell all their gold. That will kill the gold price for a period of time. That will be the buying opportunity. Not now, as everyone is embracing gold, and everybody talks about it.

    Still, regarding the US depression. I would also think US drops into a depression, but I think the right answer is not definetly YES, or definetly NO, warren buffets answer would probably be “We don’t know”.

    Also, the US has alot of farming, vast lands can be irrigated. It has alot of gold, and it has alot of other stuff. Europe on the other hand, has nothing.

    If Obama had let the market work, I mean, if even Bush had done it. I would have sold my house and bought US stocks in this downturn. It would then only be a recession like 1907. A hard one, but they would make it..

    Now it might be something else?? Still amazed by those norwegian real estate prices. The people buying the apartments, what do they think they can do with them? Rent them out? It might not be that easy. But this is Gjedrems fault, cutting rate to 2%. If he had let the rate be at 6%, people wouldn’t be forced to buy apartments. Rate at 2% it barly covers the capital(formue) tax and gives no return when adjusting for inflation. That guy is such a disaster.

  8. Farmann
    Posted 8 March, 2009 at 10:42 am | Permalink

    Farmann is more than just me Hans J Lysglimt, we are a team of about a dozen people, might need to be more clear on that.
    Our heritage goes back to 1891 (yes 1891) so we aim to live up to the spirit of the magazines more than 100 year history.

    IMF selling of gold is a wildcard.

    Norwegian real estate will go down, significantly.

  9. Kris
    Posted 8 March, 2009 at 12:52 pm | Permalink

    But how will it go down? Stay flat in price, but inflation up 20-30%. Or a 20-30% drop in prices?

    I am sitting on alot of cash now, in NOK. Also some stocks though, which I will keep, incase the world does not go under ;)

    But this cash will be a waste if we enter a inflationary period at once in Norway. Do you think that 2009 actually could be a year of deflation, even though Gjedrem keeps expanding the money supply through low rates + selling goverment bonds etc? and that inflation in NOK terms won’t accellerate until maybe 2010?

    If the goverment just would let deflation work, everyone that has not been dumb enough to buy 4 apartments would be a big winner. Everyone with savings would be richer and richer without doing anything.

    K

  10. Posted 16 April, 2009 at 2:52 am | Permalink

    Investment advice on the stock market and other investing options to hedge against inflation and a falling dollar.