A prudent investor could very well decide to keep his powder dry until the next trend reveals itself. But thus is the big question raised… what powder?
An investor needs a baseline. He needs to be able to figure out whether he is making progress or backsliding. An American typically keeps score in dollars. But there’s the rub… the dollar is a baseline that keeps moving. When the euro came out in 1998, it quickly fell against the dollar – from $1.12 down to 88 cents. That was the era when the NASDAQ was flying and Americans were still the world’s most admired people. Since then, the tech stocks have crashed… the information age has proved a disappointment… the War against Iraq didn’t go as planned… housing has gone down… and Wall Street has shown itself to be as incompetent as the rest of us. (We all knew Washington was incompetent already.)
And now, as if to underline the point: Europe’s esperanto money has risen to $1.55. In terms of what a dollar will buy in the United States, a dollar is down around 25% so far this century. In terms of what it will buy in Europe, it is down by about 50%. In terms of gold, it has shrunk 75%.
So where should an American keep his money? This was a much easier question when gold was under $500 and the dollar was worth more than the euro. Of the three, the dollar was the last place you wanted to be.
But now the buck is already down. Will it go down even more? Or is it time for a dollar rally? Now we’re not only uncertain… we’re unsure too. It is still early in the credit crunch. If it crunches hard enough, the dollar will pop up… squeezed out like a pea from a peapod. On the other hand, there will probably come a time when the feds bring out the helicopters and begin throwing dollars out of the cargo hatch. Then, like Germany in the ’20s… Argentina in the ’80s… or Zimbabwe today (see below)… we’ll see some real inflation!
In the meantime, it’s probably best to play it safe. Here’s what we’re doing with our own money: we’re splitting our cash into three parts – and putting each third, equally, into gold (which we expect to double again from here)… Swiss francs, (because we fear the dollar could fall apart at any moment)… and the dollar itself (because you never know.)
*** Zimbabwe is back in the news. The inflation rate has risen from 100,000% to 200,000% since we last reported on the situation. But no one is counting very closely. Speaking of a cost of living increase in Zimbabwe is a like speaking of an increase in the snake population in Ireland. There isn’t much of living to be had at any price. The shelves are mostly barren.
The big question in Harare is not whether Mr. Mugabe will win or lose the election on Saturday, but how he will steal it.
The Daily Reckoning Australia