The End of the Dollar Isn't The End of the World
By Money Morning Staff Reports
The U.S. dollar faces significant pressure these days. And it's not just because of what’s going on in the market.
There’s a good chance that in the next decade the USD may no longer be the world's reserve currency. And that's a big deal.
The government shutdown, tepid economic growth, and the threat of yet another debt-ceiling game of “chicken” are wreaking havoc on the world's confidence in America--and the dollar.
Yes, Congress decided to raise the debt limit, again... until late February when another political circus will ensue.
There’s a good chance that in the next decade the USD may no longer be the world's reserve currency. And that's a big deal.
The government shutdown, tepid economic growth, and the threat of yet another debt-ceiling game of “chicken” are wreaking havoc on the world's confidence in America--and the dollar.
Yes, Congress decided to raise the debt limit, again... until late February when another political circus will ensue.
Sadly, all the politicians care about is the limelight, which means all this drama is good for their careers. Unfortunately it's terrible for our economy.
The old saw “markets hate uncertainty” is playing itself out year after year. Washington can't create a predictable environment for investment (taxes, healthcare, regulation), so companies aren't investing (low capital expenditures in U.S., belt tightening, no or little hiring).
So while some Congressmen and Senators are becoming celebrities, the nation – and the dollar – suffers.
But just because the dollar is on the skids, doesn't mean your investments have to join the slide.
We talked to the Money Morning experts to get their best ideas on how to succeed in such a fragmented and challenging market.
What we've distilled from those in-depth conversations: There are four key sectors where your dollars will multiply in the months and years to come.
Before we get to those, let's explore just how troubled America's finances are.
In 2012, more than 40 states finished in the red, and more than half the country, 27 states, had deficits of 10% or more. In addition, the nation's debt now totals $17 trillion, and this year the U.S. government will end up paying close to $500 billion worth of interest on the debt.
What's worse is that in 2013, total public debt as a percentage of GDP was at a record 105.08%.
But when you take into account unfunded obligations - Social Security, Medicare, pensions - you end up with a total debt/GDP ratio above 1,355%.
Ben Bernanke and Janet Yellen know this but are too afraid – or smart -- to mention it publicly. Instead they continue to preach that growth will solve everything and ignore the fact that most Americans have felt few positive effects from quantitative easing.
That's been the Great Divide in this “recovery”. Stocks are up and home prices have rebounded. But for those of us living on Main Street, we know the truth. Companies are hoarding their cash, banks will only lend to the best clients and none of the recovery money got past Wall Street.
Regardless of government statistics that suggest inflation is under 2%, the fact is that prices are rapidly rising in this country, some more than 15% this year already.
You're feeling this in your wallet every day. The costs of education, medicine, and groceries are all up, up, up. Apparently, the government bean counters are the only ones who aren't feeling the squeeze.
The reality is that things aren't as good as stocks suggest. In fact, 93% of Americans have gotten poorer since the "recovery" started.
Now that the Fed is going to taper, things are going to get real ugly. That's because our markets are so addicted to quantitative easing that the removal of the monthly stimulus will make 2008-2009 look like a picnic.
But, it's not the absence of QE, or the threat of defaulting, or actually missing a few payments that will ultimately crash the dollar.
It's something that's already begun...
Even though the debt has escalated, interest payments as a percentage of GDP have not increased and are in fact near all-time lows.
That's about to change as rates continue to rise.
In fact, the fastest growing segment of federal spending from 2015 to 2021 is not expected to come from Social Security or Medicare, but from interest payments on the debt.
The Fed will try to slow the rise of interest rates as long as they can. But that will just delay and augment the coming crash. The numbers don't lie, America is already bankrupt.
Not even a 100% income tax would fix the debt. We are where Greece was a few years ago, yet our collapse will dwarf theirs.
Soon, the U.S. will have to admit it cannot return the money it borrowed and restructure its debt.
When that happens, one of two things will occur.
Either we will enter a period of massive inflation, or we will pay back only part of the debt.
Neither is appealing.
Weimar-style inflation could effectively allow the debt to be paid, while destroying the dollar's purchasing power at the same time. That means partial payment, or a default, might be the only way to unwind the biggest Ponzi scheme in history.
At that point our government must decide between which creditors to pay, 47% which are foreign investors, and which agencies and programs to fund.
Ultimately, the dollar will lose its global dominance, standards of living in the U.S. will sharply deteriorate, and the American Dream will cease to exist.
But, there are ways investors can survive, and better yet, profit in the coming mess.
In fact, one investment is about to prove much of Wall Street wrong.
Despite some impressive upside action in recent days, gold and silver are hovering near multi-year lows and pundits are screaming the bull market is over for commodities.
Oh, how wrong they are.
Those analysts have missed some extremely strong fundamentals regarding gold, and silver, which make the metals a fantastic investment today.
Not only will these investments keep your wealth intact as the dollar crumbles, one is primed for triple-digit returns within six months.
Peter Krauth, 20-year veteran of the metals market and Money Morning Resource Specialist, thinks the selloffs in both silver and gold have been exaggerated and are about to end.
We got a taste of that in recent weeks when gold rallied significantly in a matter of days.
He expects their rebounds to be both dramatic and fast. Gold will return to $2,000 and silver to $40 in 2014. And by 2015 we could see silver above $50 and gold over $2,300.
Besides silver and gold, Krauth also sees opportunities in platinum and palladium. And that says nothing about some of the mining stocks that have been hamstrung much worse than the metals they mine.
Oil
While oil prices have cooled, new forecasts show that will not be the case for long.
Bank of America expects inflation to double oil prices, sending them to $190 a barrel.
And there's a lot more to oil's price rise than inflation.
Money Morning oil expert Dr. Kent Moors outlined three key reasons other than inflation that point to higher oil prices:
For investors following Moors, an advisor to six of the world's top 10 oil producers, 2013 was a great year. His Energy Advantage portfolio closed out 28 stocks for an average gain of 33%. Plus, he netted average gains of 105% on three option plays. In 2014, he's off to a great start with a 65% winner already.
Dividends
Dividends represent the biggest source of returns you can get from stock investing.
Now, to a lot of people, dividends may not sound very sexy.
But, 90% of the U.S. stock market's returns over the last century have come not from share appreciation, but from the cash that companies pay their shareholders.
When you think about this, it's like having the thousands of people employed by these dividend-paying companies all working to make you rich.
But you can't just go for high yield. As we enter a period of slow economic growth, you have to find companies that not only have a long history of dividend increases, but can survive a U.S. recession.
That's why Emerson Electric (NYSE: EMR) and Procter and Gamble Co. (NYSE: PG) rank among our favorite dividend stocks. They have more than half of their business overseas. Both have raised their dividends every year since 1957 and 1954, respectively. Emerson yields 2.7% and P&G 3.1%.
Farmland
Legendary Wall Street trader Jim Rogers recently offered this unconventional, but sound advice: If you want to get rich, you should invest in farmland.
"It's the farmers, the producers, who are going to be in the captain's seat when the prices go through the roof," he stated.
Over the last 100 years farmland, based on income and capital appreciation, has consistently delivered positive returns -- with only three brief periods of negative returns (1930s, 1980s, and 2008).
And as the saying goes, they just aren't making any more of it. So a severe imbalance is developing in the supply and demand of farmland.
Farmland is also an opportunity to invest in an asset class not directly correlated to stocks and bonds, and one with significantly less volatility.
Rogers believes investing in farmland is "in its third inning." In other words, there's still plenty of time to get in.
One way is to invest in agricultural futures through ETFs like the PowerShares DB Commodity Index (NYSEArca: DBC). The fund tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs.
There's also Adecoagro S.A. (NYSE: AGRO), a Luxembourg-based company that owns significant farmland holdings in South America. It owns nearly 500,000 acres of farmland, consisting of 23 farms in Argentina, 13 farms in Brazil, and one in Uruguay.
Canadian citizens can invest in Agcapita Farmland Investment Partnership, a farmland private equity fund, with significant holdings in Saskatchewan, Alberta and Manitoba. Jim Rogers is actually an advisor to the fund, currently open to retail investors for a minimum investment of $10,000.
As resources become increasingly scarce farmland will spike in value. But the next crisis, brought upon by Bernanke's cheap and phony money policies, will really send commodity prices soaring.
The old saw “markets hate uncertainty” is playing itself out year after year. Washington can't create a predictable environment for investment (taxes, healthcare, regulation), so companies aren't investing (low capital expenditures in U.S., belt tightening, no or little hiring).
So while some Congressmen and Senators are becoming celebrities, the nation – and the dollar – suffers.
But just because the dollar is on the skids, doesn't mean your investments have to join the slide.
We talked to the Money Morning experts to get their best ideas on how to succeed in such a fragmented and challenging market.
What we've distilled from those in-depth conversations: There are four key sectors where your dollars will multiply in the months and years to come.
Before we get to those, let's explore just how troubled America's finances are.
Weak Growth, Growing Debt, The New Normal
What's worse is that in 2013, total public debt as a percentage of GDP was at a record 105.08%.
But when you take into account unfunded obligations - Social Security, Medicare, pensions - you end up with a total debt/GDP ratio above 1,355%.
Ben Bernanke and Janet Yellen know this but are too afraid – or smart -- to mention it publicly. Instead they continue to preach that growth will solve everything and ignore the fact that most Americans have felt few positive effects from quantitative easing.
That's been the Great Divide in this “recovery”. Stocks are up and home prices have rebounded. But for those of us living on Main Street, we know the truth. Companies are hoarding their cash, banks will only lend to the best clients and none of the recovery money got past Wall Street.
Regardless of government statistics that suggest inflation is under 2%, the fact is that prices are rapidly rising in this country, some more than 15% this year already.
You're feeling this in your wallet every day. The costs of education, medicine, and groceries are all up, up, up. Apparently, the government bean counters are the only ones who aren't feeling the squeeze.
The reality is that things aren't as good as stocks suggest. In fact, 93% of Americans have gotten poorer since the "recovery" started.
Now that the Fed is going to taper, things are going to get real ugly. That's because our markets are so addicted to quantitative easing that the removal of the monthly stimulus will make 2008-2009 look like a picnic.
But, it's not the absence of QE, or the threat of defaulting, or actually missing a few payments that will ultimately crash the dollar.
It's something that's already begun...
We're Bankrupt
That's about to change as rates continue to rise.
In fact, the fastest growing segment of federal spending from 2015 to 2021 is not expected to come from Social Security or Medicare, but from interest payments on the debt.
The Fed will try to slow the rise of interest rates as long as they can. But that will just delay and augment the coming crash. The numbers don't lie, America is already bankrupt.
Not even a 100% income tax would fix the debt. We are where Greece was a few years ago, yet our collapse will dwarf theirs.
Soon, the U.S. will have to admit it cannot return the money it borrowed and restructure its debt.
When that happens, one of two things will occur.
Either we will enter a period of massive inflation, or we will pay back only part of the debt.
Neither is appealing.
Weimar-style inflation could effectively allow the debt to be paid, while destroying the dollar's purchasing power at the same time. That means partial payment, or a default, might be the only way to unwind the biggest Ponzi scheme in history.
At that point our government must decide between which creditors to pay, 47% which are foreign investors, and which agencies and programs to fund.
Ultimately, the dollar will lose its global dominance, standards of living in the U.S. will sharply deteriorate, and the American Dream will cease to exist.
But, there are ways investors can survive, and better yet, profit in the coming mess.
In fact, one investment is about to prove much of Wall Street wrong.
Precious Metals
Despite some impressive upside action in recent days, gold and silver are hovering near multi-year lows and pundits are screaming the bull market is over for commodities.
Oh, how wrong they are.
Those analysts have missed some extremely strong fundamentals regarding gold, and silver, which make the metals a fantastic investment today.
Not only will these investments keep your wealth intact as the dollar crumbles, one is primed for triple-digit returns within six months.
Peter Krauth, 20-year veteran of the metals market and Money Morning Resource Specialist, thinks the selloffs in both silver and gold have been exaggerated and are about to end.
We got a taste of that in recent weeks when gold rallied significantly in a matter of days.
He expects their rebounds to be both dramatic and fast. Gold will return to $2,000 and silver to $40 in 2014. And by 2015 we could see silver above $50 and gold over $2,300.
Besides silver and gold, Krauth also sees opportunities in platinum and palladium. And that says nothing about some of the mining stocks that have been hamstrung much worse than the metals they mine.
Oil
While oil prices have cooled, new forecasts show that will not be the case for long.
Bank of America expects inflation to double oil prices, sending them to $190 a barrel.
And there's a lot more to oil's price rise than inflation.
Money Morning oil expert Dr. Kent Moors outlined three key reasons other than inflation that point to higher oil prices:
- Demand continues to rise in those parts of the world most directly affecting price. Those areas are not North America or Western Europe, but are markets in which unconventional oil will not have an effect for some time.
- Oil production costs are rising and the cost of extracting a barrel of unconventional oil will increase the overall price of crude. Energy research experts Bernstein Research said that the average marginal cost of oil around the world today is $92 a barrel, and is set to rise because it is more expensive to lift, process, refine, and distribute these new sources of crude oil.
- Oil prices are affected by the regionalization of supply for both crude and refined oil products. As we move toward 2015 and beyond, the demand curve will dictate pricing premiums for regions where imbalances of supply are present.
For investors following Moors, an advisor to six of the world's top 10 oil producers, 2013 was a great year. His Energy Advantage portfolio closed out 28 stocks for an average gain of 33%. Plus, he netted average gains of 105% on three option plays. In 2014, he's off to a great start with a 65% winner already.
Dividends
Dividends represent the biggest source of returns you can get from stock investing.
Now, to a lot of people, dividends may not sound very sexy.
But, 90% of the U.S. stock market's returns over the last century have come not from share appreciation, but from the cash that companies pay their shareholders.
When you think about this, it's like having the thousands of people employed by these dividend-paying companies all working to make you rich.
But you can't just go for high yield. As we enter a period of slow economic growth, you have to find companies that not only have a long history of dividend increases, but can survive a U.S. recession.
That's why Emerson Electric (NYSE: EMR) and Procter and Gamble Co. (NYSE: PG) rank among our favorite dividend stocks. They have more than half of their business overseas. Both have raised their dividends every year since 1957 and 1954, respectively. Emerson yields 2.7% and P&G 3.1%.
Farmland
Legendary Wall Street trader Jim Rogers recently offered this unconventional, but sound advice: If you want to get rich, you should invest in farmland.
"It's the farmers, the producers, who are going to be in the captain's seat when the prices go through the roof," he stated.
Over the last 100 years farmland, based on income and capital appreciation, has consistently delivered positive returns -- with only three brief periods of negative returns (1930s, 1980s, and 2008).
And as the saying goes, they just aren't making any more of it. So a severe imbalance is developing in the supply and demand of farmland.
Farmland is also an opportunity to invest in an asset class not directly correlated to stocks and bonds, and one with significantly less volatility.
Rogers believes investing in farmland is "in its third inning." In other words, there's still plenty of time to get in.
One way is to invest in agricultural futures through ETFs like the PowerShares DB Commodity Index (NYSEArca: DBC). The fund tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs.
There's also Adecoagro S.A. (NYSE: AGRO), a Luxembourg-based company that owns significant farmland holdings in South America. It owns nearly 500,000 acres of farmland, consisting of 23 farms in Argentina, 13 farms in Brazil, and one in Uruguay.
Canadian citizens can invest in Agcapita Farmland Investment Partnership, a farmland private equity fund, with significant holdings in Saskatchewan, Alberta and Manitoba. Jim Rogers is actually an advisor to the fund, currently open to retail investors for a minimum investment of $10,000.
As resources become increasingly scarce farmland will spike in value. But the next crisis, brought upon by Bernanke's cheap and phony money policies, will really send commodity prices soaring.
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