Converting U.S. Dollars into foreign currencies

[PANDA_IHB]

It seems that with all the bailouts with Bear Sterns, Freddie&Fannie, Lehman, and AIG, there is no other choice for the FED except to printing more dollars allowing our dollar to continue its long term fall. I am debating if I should convert most of my U.S. dollars into Euros, Swiss Francs, London Pound, and Canadian on Monday leaving only expenses up to 6 months in U.S. dollar? Do many of you think this is a wise move?

Here are my concerns and i would like to see what others think?

Two or three months ago, I would have said that you can preserve some of your money by avoiding the currency that is being diluted. Now, we have seen that the central banks are coordinating their moves and supporting the dollar. Things have become more complicated. In the long run, the currency of the country that produces the most per capita should end up as the strongest. However, the long run may be very long indeed if the central banks keep intervening.

It seems that moving dollars into Gold and Strong Currencies is the right move with everything going on right now, but how do we know that this is the right move as the Central Banks and the FED will continue to intervene?

 

[jefa_IHB]

Because of who Bernanke is we're likely to see inflation over the long term. It won't matter though, if everyone else inflates along with us. Even the Deutsche Banks have tied their money into these problems. (the Mark used to be the second most stable currency compared to the dollar, but it doesn't exist any more). I know the Swiss, the Brits, and most other European banks have had their banking industry interlaced with all the weird stuff that is giving us so much trouble. Not positive about Canada, but I can't imagine why, being so close to us, they wouldn't have done so as well.

You could try Everbanks Gold CDs, however, you would have to trust that Everbank continues to exist and I'm not so positive their underlying fundamentals are sound. You could go into TIPS, which I'm considering. You'd have to hope they don't change the rules on you in terms of what they base inflation on. You could do a diversified food commodities scheme, but we're likely to see some very large political manipulation in food, so the price could go up wildly or down wildly depending on what the political machinations are.

If you put your money in stuff like wood or nickel or oil, then you're counting on people having the money to purchase it. Which they may or may not have. It's all a gamble.

Everything is a government and banking game. The psychology of who is in charge, and who will check them, and who will become ascendant if the populace gets angry at them is what you're trying to predict. Bernanke is pro-inflation, but that doesn't mean Gold will go up. I'm leaning towards TIPS.

Or you can follow my grandparents advice: own your house outright for cash. Dig a well. Try and find someone who you can buy the food you need in advance at today's prices (and hopefully they won't cancel the contract and return your money if the deal goes bad for them.) See if you can build yourself enough electrical generation to take yourself off the grid. Then the rest won't matter.

 

[PANDA_IHB]

I'm not sure why you want to buy currencies so much though. Currencies are slow-as-molasses investments (normally) and since your income is in USD$ you're just running in place anyway. Currencies are also prone to all sorts of nasty governmnent interventions that make them hard to predict.

Muzie, if and when the U.S. Dollar collapses, the currency that will appreciate the most is Asian Currency, especially "Chinese". I invest in Asian currencies, not to make money, but more for wealth perservation and insurance purposes.

Graph, I have one question for you. You mentioned to me several times not to bet against the dollar. Can you please explain your logic and fundamentals on why you think that the dollar has now bottomed and will now start to appreciate against other foreign currencies?

Panda

First, I need to address that you contradict yourself in so many ways. It is why your strategy is so confusing to me.

1. You say this is your down payment fund, IRA money, and non-retirement money, which should be placed into low risk investments, but everything you are investing in is extremely high risk. On a scale of 1-5 investing in Asian currencies is a 10.

2. You say you don't do shorting, or options. So then why the hell are you betting against the US and the dollar? You are short the US and you are short the dollar. It isn't literally short, but in a way it is. Why don't you invest in the short or ultra short US ETFs if you are so confident that the US will underperform Asian markets?

3. Your purchasing power shifting towards the East vs. West makes it so they buy more of our crap, increasing our GDP (thanks China for keeping our GDP from being insanely negative), and we support their economies less because it costs more. Plus they buy commodities from us which have been rising way faster then the dollar has been dropping. And, now that the dollar is rising the scenario is vis versa. But, our economy isn't doing well, so it will effect their economy and their GDP, combined with awful inflation Asian countries have, it makes for a wonderfully horrific slowdown.

Now, why I wouldn't bet against the dollar. Well... as history has shown us time and time again, the ones that do get burned and burned hard. Ask the Japanese about how the rising dollar against the Yen crushed their economy for several years with awful stagflation. Couple that with Europe's economy headed into the same toilet as ours, and theirs will be worse because they always seem to screw it up more than us, then the Asian economies will suffer even more. The arrogance I see coming from China and their fake inflation numbers, is the same arrogance I remember of the Japanese.

And... at the end of the day Buffett said he was long the dollar. The last time I checked he was at the top of fortune 500's list of richest people. I would rather follow him rather than try to catch the falling knife you are probably going to catch. I will bookmark this thread, so I can come back to it six months from now and post more charts to see how well you did, er didn't.

The dollar will never collapse, but if the Renminbi is pegged to the dollar like it is, then it would collapse too and so would all the paper money of ours they hold.

Thanks for your post Jefa,

If i know that the government and the central banks will not interfere, going 100% into gold and hard currencies is a no brainer. It is the Government's regulations and Central Banks' intervention that puts me in fence with half of my assets tied to commodities, gold, and hard currencies and the other half in U.S. dollars. Many of us on the IHB believe we are safe having all our U.S. dollars tied up in CDs and money markets making 4% APY, but are we really safe if the inflation rises much higher than that? Bernanke and the government calls it inflation, but I call it deception. I can guarantee that Bernanke will choose inflation over deflation and gold is the ulitmate hedge against inflation. I will not be a bit suprised , in the near future, if the government makes ownership of gold illegal for amercians as well converting dollars into other hard currencies. They have already passed the line that i thought they can never pass. The deeper meaning to all of this is how do we protect our family, parents, and loved ones if the worst case scenario comes to pass.

Graph, do you still feel strongly about the continued appreciation of our dollar like you did one month ago from today? Have your thoughts changed any after seeing that trillions of dollars will need to be printed to rescue Freddie/Fannie, Lehman, Bear Sterns, and AIG and more major banks folding in the near future? Many believe that all of this is coming from our taxes. I highly doubt that this is the case.

Panda

 

[movingaround_IHB]

Jefa - what are your concerns about everbank?

 

[jefa_IHB]

movingaround,

I think we have learned that there is no such thing as "no risk". Everbank Marketsafe CDs (I forget the exact name, I'm so fried right now), offer a scheme where your money will go up with the index you choose (such as gold) but will never go below it's deposited value and is FDIC insured.

So you have their promise that you will never lose, you can only win.

I just don't see how that's feasible to do in the long term. I need to look over their balance sheets to see what I think of their true risk and I haven't had time to do that yet. So not knocking them, but I don't know enough to say they are reliable.

 

[graphrix_IHB]

Thanks for your post Jefa,

If i know that the government and the central banks will not interfere, going 100% into gold and hard currencies is a no brainer. It is the Government's regulations and Central Banks' intervention that puts me in fence with half of my assets tied to commodities, gold, and hard currencies and the other half in U.S. dollars. Many of us on the IHB believe we are safe having all our U.S. dollars tied up in CDs and money markets making 4% APY, but are we really safe if the inflation rises much higher than that? Bernanke and the government calls it inflation, but I call it deception. I can guarantee that Bernanke will choose inflation over deflation and gold is the ulitmate hedge against inflation. I will not be a bit suprised , in the near future, if the government makes ownership of gold illegal for amercians as well converting dollars into other hard currencies. They have already passed the line that i thought they can never pass. The deeper meaning to all of this is how do we protect our family, parents, and loved ones if the worst case scenario comes to pass.

Graph, do you still feel strongly about the continued appreciation of our dollar like you did one month ago from today? Have your thoughts changed any after seeing that trillions of dollars will need to be printed to rescue Freddie/Fannie, Lehman, Bear Sterns, and AIG and more major banks folding in the near future? Many believe that all of this is coming from our taxes. I highly doubt that this is the case.

Panda

Yup! If you could join the pandaless challenge you would see that my dollar long position has hardly moved. But if you were dumb enough to invest in currencies where the inflation exceeds their GDP, especially when the governments lie about their inflation, like China's Rembini and the Korean yuan, then you look like a complete investing fool right now. Especially when they have been doing the bailout thing for some time being communists and all (excluding Korea, there government collusion doesn't make them fully socialist). Then check out the inflation in India compared to their GDP, whoops... their GDP is actually negative in real terms. Your conspiracy theories of banning buying gold as a hard asset is ridiculous when you compare it to countries that have banned internet sites from their people. I just keep watching all the countries you invest in do everything we do but 10 to 100 times worse, which will mean their markets and currencies will fall 10 to 100 times worse. Just look at the 2 year chart on the Hang Seng, about 100 times worse compared to our drop in the Dow. Then go see those poor saps protesting about how they lost their ass on Lehman bonds, just wait until they realize how much they have lost on all kinds of other bonds. If a country has a large surplus of our bonds and those bonds become worth next to nothing, what happens to that country? They lose a sh*tload of money and buying power. Welcome back to the third world. Keep up the pessimism on America panda, you know that country that has given you most of what you have. Don't worry, you can thank China, India, and Korea when you lose it all to them. I'm sure they will appreciate a knife catcher to keep them afloat for a while longer.

How did the FXI do again today? I dunno, but my puts were looking mighty green today.

 

[Daedalus_IHB]

I think we have learned that there is no such thing as "no risk". Everbank Marketsafe CDs offer a scheme where your money will go up with the index you choose (such as gold) but will never go below it's deposited value and is FDIC insured.

So you have their promise that you will never lose, you can only win.

I just don't see how that's feasible to do in the long term.

I can't speak for their financials but I'm sure they're using bond-call strategies for their CDs, which means the risk taken is that of missed opportunities. They put most of the money in bonds to guarantee a minimum 100% return, and use the remainder to buy call options. I bought the commodity CD 2 years ago, so hopefully they stagger the contracts such that they'll show some good gains despite the recent downtrend.

 

[movingaround_IHB]

jefa - you are right in the sense that at some point you really can't trust any bank completely - Everbank has said that they had no exposure to sub-prime problems but as you say there are so many other issues to look at...

If you have any more insights after you look over stuff I would love to hear whatever you are willing to share....