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Reserve Currency Questions
With China and Russia making noises about a change in the World's Reserve currencies, I question whether even cash is a safe investment right now. If the dollar starts diminishing in value, domestic inflation may not be our only problem. Ultimately I feel like investing in gold through ETFs is a good hedge as well as inflation adjusted government treasuries. ETFs like this are great for strategies like Investing Every Month.
Still the question lingers as to whether the seeming antipathy towards the US dollar is something additionally to be concerned about. I have a lot of cash right now, and that's seeming like a less and less safe option by the day.
Still the question lingers as to whether the seeming antipathy towards the US dollar is something additionally to be concerned about. I have a lot of cash right now, and that's seeming like a less and less safe option by the day.
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Comment by Willie on April 2, 2009 at 7:34am
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Gold certainly has been a good investment the last few years. Some people are saying that the market may bottom when the Dow to Gold ratio is 1 to 1 or at least something like that.
It all matters what happens in the near future. If everything stays the way it is, I think the market will continue to rebound. If the trend is anything like it was during the Great Depression, then this bear market rally will fizzle out and we are set to go off an even bigger cliff in the market which will send gold prices soaring.
There are a lot of things different about our modern situation compared ot the Great Depression era, but anything can happen.
That is the nature of the markets. You just never know. Gold could be at the height of its popularity or it could be poised to go much higher as it did during the Great Depression.
One thing for sure, people are sitting on a lot of cash right now. Our savings rate hasn't been this high in a long time. If people get some confidence, then consumer spending and the market could shoot up.
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Comment by Vitaly Indinko on April 3, 2009 at 10:19am - I'm not sure how you overcome the leverage in the US economy right now. I simply fear you HAVE to unwind. What's particularly tricky is that while that unwinding is a deflationary force, the stimulus will lead to inflation as soon as the money gains any velocity. I wonder if inflation hedges are a good candidate for dollar cost averaging right now.
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Comment by James Scott on April 3, 2009 at 3:35pm -
"inlation hedges for dollar cost averaging" is an interesting idea.
I think too many people think "invest every month" & "dollar cost averaging" just means to invest in the stock market on a steady basis, but I agree that monthly investments should go to where they are best suited to do well.
There is some risk of trying to "play" the market like this because in the end we never know what will happen. However, people who switched their monthly investments into gold the last couple of years have done pretty well.
For me personally, I invested more money into the business I am building while also saving more money into cash which I invested in a lump sum last month when the stock market was near 7,000. I took a risk trying to time the market, but so far it looks like I made the right decision. I am now back to making monthly investments since I have no other reserves than what I have automatically saved in my monthly paycheck.
I worry about inflation, but the example of Japan and how they reacted to their financial crisis and the inflationary problems leads me to believe that hopefully we have learned something from that example. Howeve, printing money at the rate we are will lead to inflation problems no matter what solutions are found. I just hope the problem can be minimized as much as possible as we unwind from this crisis.
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