Look Out Below .. The U.S. Dollar Is Coming

you MUST be seeking ways to protect your money, because the U.S. dollar is losing a breath taking amount of value in a short period of time. For many months, I have been concerned that it was a matter of time that the U.S. dollar would decline, possibly in a serious way.  It appears that this slide has come in earnest.  The Canadian dollar has risen more this past week against the U.S. dollar than it has in over 50 YEARS.  Other resource-based currencies such as Australia are seeing similar trends. Oil is now over $65, which is largely a U.S. dollar story.  When the U.S. dollar declines, oil prices appear to go up .. but that’s because it takes more U.S. dollars to buy that same barrel of oil.   It’s not really the value of oil going up — it’s the value of the money you’re pricing it in going down. Gold, a key barometer of inflation, is now threatening to break through $1,000 for the 2nd time this year (and if it does, it likely will remain above that threshold).  I believe gold is going to move up to the $1,200-1,300 range before the end of the year. Now all of this could be psychology that is temporary, and we’re going to see a reversal .. but I don’t think this is the case.  Several long-term trends and resistance points have been broken this past couple of weeks, and I believe we’re seeing the next move in the leg of the U.S. dollar decline, and the revival of the commodities sector. In part, what is also driving these changes is that the approximately $12 TRILLION dollars that the U.S. government has thrown at the problem is now starting to take effect.  You cannot introduce trillions of dollars into the system without creating significant inflation, and now that some of the unusual and one-time pressures on prices are clearing out, I think the door’s opening for inflation to take off in the U.S. So what do you do as an investor? Well if you are in the U.S., GET OUT OF THE U.S. DOLLAR.  Frankly, there’s almost no good argument to stay in U.S. dollars right now, given all of the massive risks and trends.  This means trying to move some capital out of U.S. dollars.  You can do that by simply purchasing assets denominated in non-U.S. dollars.  For example, you could invest in real estate in another country (Canada is your best bet), or perhaps buy equities traded on a foreign exchange (yes I am a homer, but why not consider Canadian oil trusts, since oil prices are headed much higher?) If you are NOT in the U.S., it is absolutely INSANE to be converting your dollars into U.S. dollars in order to buy U.S. based assets.  In my opinion, any Canadian going into the U.S. right to buy real estate is NUTS.   Period. The currency risk is huge (you could see the U.S. dollar drop 25% in a matter of a couple of weeks, which WIPES OUT your returns on the real estate), plus the U.S. housing market is NOT finished going down.  Most markets will not see real recoveries until at least into 2010.  The next wave of foreclosures is just starting to hit now, so we’re going to see another decline wave before the end of the year. Don’t believe what real estate agents are trying to preach – the bottom has NOT come in most markets, and will not until next year.  Just because there are some more sales occurring doesn’t mean prices will go up.   Most markets have a MASSIVE inventory they have to clear out before prices will stabilize. Look back through my posts over the past year or two.  My message hasn’t changed.  The fundamentals don’t lie. You may think that I hate the U.S. for investing, but that’s not true at all.  It is all about reading the market, and understanding the cycle.  It’s also about understanding the currency risk. I believe that 2010 is going to be one of the GENERATIONAL investment opportunities in the U.S., in many markets.  That means I think we’ll see opportunities that we won’t EVER get to invest in again this generation (ie: for the next 20-30 years).  You can bet that I’ll be loading up and trying to buy as much real estate as I can, once the planets line up as I want them.  But they’re not yet.  It’s still too early.  Most of the people buying today are doing so well before the market is giving buy signs.  “But Greg, I can buy a $50,000 house that rents for $600“.  Ok, great.  But wouldn’t you be better off buying it when it’s $40,000?  Or $35,000? And don’t forget, rents are NOT going to be kept high if you are in an area where the unemployment rates are rising (which covers a lot of markets in the U.S. right now).  The belief that rents will continue to go higher through this entire mess is just a poor assumption. The point — there are going to be BETTER deals coming down the pipe, so don’t jump in too early.  And believe me, when that time comes, I’ll be focused on the U.S. as a key investment market. And I’ll have the market fundamentals and experience on my side, while I’m buying properties from other distressed investors who jumped in a year too early. I anticipate that we will create another Limited Partnership fund that will allow individual investors to become involved in the investments we’re doing in the U.S.   We’ll go into the U.S. market once the U.S. dollar decline has hit, and we’ll get more bang for our buck. So I absolutely think that there are going to be great deals in the U.S., but as a smart investor, you have to read the market and understand cycles. Until then .. look out below .. because the U.S. housing market, and the U.S. dollar, are not finished their unpleasant drop from the sky.]]>