In addition to knowing it is going to be an election year in 2010, we also know that we have a President who has, step by step, been taking feathers out of FDR’s cap in dealing with this modern day depression. The one item that has yet to be utilized is U.S. dollar depreciation, and if memory serves us correctly, FDR snuffed out the worst part of the Great Depression when he unilaterally devalued the dollar to gold in 1933 by 40% (and fixing the price of gold at $35/oz). We’re not sure that President Obama is going to re-price the dollar price of gold. Then again, can anything be ruled out? But we are sure that as the unemployment rate makes new highs and increasingly poses a political hurdle in a mid-term election year, that it would make perfect sense, for a country that always operates in its best interest — even if it may not be in everyone’s best interest — to sanction a U.S. dollar devaluation as a means to stimulate the domestic economy.
Remember, this is a premise. We are just conjecturizing. But it is interesting that the dollar is the only financial metric that is at the same level today as it was two years ago, and we are of the view that the risks are high that the greenback will be on a significant downward path by this time next year. With that in mind, investors should be thinking of how to hedge or protect the portfolio against this not-so-remote possibility, namely:
- Commodities
- Gold
- Canadian dollar
- Resource sectors of the stock market
- U.S. sectors that have high foreign exposure (materials, industrials, staples, health care)
- Canadian sectors that benefit from lower import costs (consumer stocks) but lose export competitiveness (manufacturers)
- Canadian bonds (a higher Canadian dollar will keep inflation low, hence reinforcing positive fixed-income returns)
---Rosenberg 7.17.09
No comments:
Post a Comment