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Author: Waisingrin One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 448  
Subject: Consider this, Actualy rate of inflation Date: 4/1/2011 7:48 AM
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I believe that bad things are happening soon with the US economy, so my thesis is not the same as regular folks. (please see Bill Gross' PIMCO April report about our actual deficit situation, and what he has done with his treasury bonds in March). As a joke, I compared Dinty Moore, maker is HRL, Hormel foods, against AUD, to deter my brother from buying silver. Hilarious, HRL and AUD tracked very well for the last 5 yrs.

As part of my thesis, that things are going to go bad fairly soon (but who am I? a relative nobody you have not heard of, you're better off reading Bill Gross because you cannot argue with his credentials), I have cashed out 72% of my total investments, transferred it to Hong Kong, and converted them into AUD, CAD, SGD (Singapore), and CHF (Swiss) in my HSBC account. I just did that again yesterday and today. If one were to examine the real decline of the USD from a global view, and this is where we all live, on the globe (me in Shanghai), and you were to plot USDSGD=x and USDCHF=x at Yahoo Finance, you will notice that our REAL rate of inflation is not 1.5% as the Fed wants to tell you, but rather, 8.5%/year average, depending on our choice of forex basket. A big portion of the $105 USD/bbl of oil, from $30/bbl in 2003 is due to the decline of the USD, and the other portion is due to increased demand from China and India bla, bla, bla. Reference, EUR hit parity with USD during the 2004 NE blackout. EUR is now at 1.41 USD and they got Greece, Ireland, and Portugal weighing them down. You do not hear about the part of the increase due to true drop in the USD, global inflation, but you hear a lot about the effects of China's and India's increased demand for oil. "Yeah, my kid is not bad, it is the kids he hangs out with who caused him to drop out of 3rd grade". Well, 1.06^7th power = 1.51, from 2003 to 2010, using a conservative 6% drop of the USD each year. And, what you will notice is that the jump into USD as a safe haven in times of crisis is less and less dramatic within the last 5 years. Foreigners are beginning to see jumping into US treasuries in times of crisis is not necessarily the safest thing to do, due to our legal license to print trillions of dollars. I belong to no party, but I am a pretty technical person. I design cars for a living, and have for 30 years. I treat everything as a technical issue, and address them that way. If I end up sounding like I support any political party or TV personality, it is only by coincidence, as I don't get foreign TV here, being here for 6th year now.

What this means, to me, is that, unless you are averaging at least 7%/yr gains buying stocks (I am not), it is safer and more robust to hold key foreign currencies because of the very strong tailwind that the Fed is providing, by purposely diluting our shares in the US economy (USD, which your stocks are denominated in). We keep pushing the Chinese to up the CNY, saying that it has a natural place around 5:1 or whoever else you ask. But, look at it from the Chinese POV. If much of our borrowing was done when CNYUSD was around 8:1, allow me to use round numbers here, and now, it is at 6.5:1, with the Chinese buying a lot of USD to maintain that rate, they will not like it if we propose to pay back that loan with a lower value. If I lent you 100x $5 bills, and propose to pay you back with 100x $3 bills, you will not accept that. But, that is exactly what Ben and Tim were publicly asking Hu JT to do. Of course they were pissed. We were trying to cheat them, and Wen Jiabao said so <making round eyed gestures with his fingers>. We borrowed when it was 8:1, why don't you up the CNY to 5:1, and then we pay you back the same amount of bills we borrowed? They are not stupid.

The Chinese are trapped. They must buy more treasury bonds to prop up the false exchange rate, but the more they buy, the more in the hole they get. But, if they stop, as rednecks on Yahoo post, we ain't got no more of our own money to buy dem cheap Chinese goods from WMT, millions of factory workers don't git no mo pay to send home, and the tanks go on the streets to control (I can't use that word cuz of the Great Firewall) and that's just on our side.
"Drug dealer lends money to drug addicts so dealer can sell more drugs"

So, in anticipation of a big dip coming when QE2 ends, I've cashed out and converted most of my holdings into CAD, AUD, CHF, and SGD. Together, they gain about 7%/year on the USD.
SGD being the least volatile.
CAD because they supply much of our oil
CHF has highest growth rate, but are exposed to our clones, Greece, Ireland, and Portugal.
I don't do EUR despite the last month's performance, cuz of the same reasons.
AUD, is risky. I hold some, but demand for their ores are driven mainly by the Chinese hoarding, so it is subject to govt decisions which don't always make sense to outsiders.

I don't trade forex, but look for big swings, like I said above, to protect what I've got. For the foreseeable future, I see the USD dropping faster than I can earn buying stocks denominated in USD. I ain't earning, but at least, I ain't losing from a global POV.

If any of you see flaws in my thesis, please feel free to comment. I make no pretense that I am an expert. I design cars, and use my technical knowledge, but I could be wrong.

Hoping to help,
WSR
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