| You've heard it said before, "Hope for the best, but plan for the worst."
That's what today's musing is about. It's about planning... for the best and the worst.
Though we have plenty of reason to think the U.S. dollar's best days are long gone, we don't expect to wake up tomorrow and find it stricken from the public ledger altogether.
True, each and every dollar in existence has lost roughly 95% of its purchasing power since the introduction of the Federal Reserve, back in 1913...
True too, the recent and current Fed policies are expansionist to a degree unseen in modern history...
The Federal Reserve, through its "quantitative easing" campaigns, has been openly and aggressively debasing the dollar since 2008. And while the full "faith and credit" of the backing of the U.S. government still stands behind the dollar, massive mountains of debt are standing behind the U.S. government.
After a while, America's mighty "full faith and credit" begins to feel like a feeble "coin toss."
Once upon a time, a specific weight of gold stood behind every U.S. dollar. So no one needed to worry about the U.S. government's faith or its credit. But that chapter of the dollar's history ended in 1971.
Prior to that fateful year, the dollar was said to be "as good as gold" - a phrase owing to the fact that U.S. dollars were, indeed, redeemable for the shiny metal. But the Nixon administration severed that tie for good, leaving the dollar and gold to part ways... And part ways they did.
Since 1971, the dollar has lost a staggering 97% of its value, relative to gold.  This spectacular loss of value was not simply the one-off result of ending the dollar's convertibility into gold. Losing value is simply part of the dollar's DNA. In fact, the dollar has lost at least two-thirds of its value against gold during the last 10-, 20- and 30-year time frames.
All that being said, the dollar is, for now at least, the world's reserve currency. And, in all likelihood, it'll remain the world's reserve currency next month... and next year too. Maybe even 10 years from now.
But the dollar seems likely to continue gradually losing its value against gold and other hard assets.
In fact, it is not unimaginable that the dollar could, one day, go to that great currency graveyard in the sky... And there it would meet its predecessor, the U.S. continental, which was inflated out of existence toward the end of the 18th century.
Whether that day comes a year from now or 10 years from now, it pays to be prepared.
Here are Free Market Café's three best non-dollar assets to own... just in case.
1. Something Shiny: Platinum and Palladium
When it comes to hedging against dollar debasement, few things have performed better than gold. Holding some physical gold might just qualify as the very definition of "preparing for the worst."
But even though the historical case for gold is strong, the raw supply/demand case for platinum and palladium might be even stronger.
Two countries - Russia and South Africa - hold an incredible 80% of the world's platinum and palladium reserves... and both are struggling to maintain output. In fact, global supply is severely tightening as production declines in these two geopolitically volatile markets.  In South Africa alone, strikes have resulted in the loss of 550,000 ounces' worth of production in the first quarter of this year. To put that figure into perspective, that's more than the production lost from strikes in all of 2012 (544,000 ounces). And far from finding peaceful resolution, the situation in South Africa appears to be deteriorating rapidly.
Likewise, escalating tensions along the Ukraine border threaten to roil markets in Russia, which accounts for a hefty slice of the world's platinum and palladium production. Last year, Russia provided 44% of the world's mined palladium supply and 14% of the world's mined platinum, according to Johnson Matthey.
This instability in South Africa and Russia all but ensures that the platinum and palladium markets will see yet another supply deficit in 2014.
Meanwhile, demand continues to rise... and it's unlikely to wane anytime soon. Platinum and palladium deliver high utility to end users. Primarily, these metals are used in catalytic converters, the mechanism in your car's engine that helps reduce noxious gas output and keep the air clean. As more and more cars hit the roads - particularly in developing nations - the demand for cleaner air looks set only to rise.
And yet the price of both metals languishes. The palladium price has been flat for the last three years, while the platinum price has been drifting steadily lower.  Now, from the "hard assets" to the digital ones...
2. Something From the Future: Bitcoin
Put simply, no single asset has come close to matching Bitcoin's performance since its inception five years ago. From the very first transaction - two pizzas purchased for 10,000 bitcoins - through to its record high of more than $1,100 for a single bitcoin in late 2013, the rise and rise of the world's largest "cryptocurrency" has been nothing short of meteoric.
Even today, after having tumbled to the $400 range, Bitcoin is still up 300% against the dollar during the last 12 months.  Another way to look at the relationship between the two currencies, however, is to view the dollar's depreciation against Bitcoin. In a world where Bitcoin can buy more and more things, U.S. dollars are buying fewer and fewer bitcoins.
Yet, despite Bitcoin's massive increase in value, most people still view this cybercurrency as a nerdy speculation, rather than a sound store of value. Maybe these people are right... for now.
There's plenty to unpack when it comes to the controversial, and oftentimes confusing, subject of Bitcoin... and we don't expect to make any converts in these brief paragraphs. That's why we've put together a comprehensive report.
If you'd like to learn more, you can check it out here. It's free: "Bitcoin: The Future of Money."
3. Something Foreign: Foreign Real Estate
Ultimately, if the U.S. dollar goes into a freefall, it would likely happen during a time of serious civil unrest at home. Something so disruptive as a complete currency meltdown doesn't typically occur against a warm and fuzzy backdrop.
What's more, when faced with an imminent currency crisis, governments tend to do everything they can to stave off total collapse. This usually means drastic currency controls (such as those already creeping into the U.S. system) and sharply higher, "soak the rich" taxes.
Either way, this is a scene best viewed from afar... with land under your feet that the U.S. government can't take away from you... and which affords you a safe viewing platform from which to watch the U.S. empire's monetary and fiscal pyrotechnics.  You might consider, for example, a beachfront lot south of the border... with West Coast sunsets, insanely cheap seafood and the kind of luxurious living that is simply out of reach for 99% of Americans who reside in the U.S.  But even if the dollar doesn't go away anytime soon... even if it remains the stalwart of the fiat world for decades to come... a greenback will still go a lot further on the Pacific blue coast of Nicaragua than it will in the U.S. of A. Something to consider...
Cheers,
Joel Bowman
for Free Market Café A Note from Eric: As you can see from the photos above, Nicaragua's Rancho Santana is a beautiful place, complete with First World amenities. Joel and I both try to spend time there whenever we can. In fact, I recently purchased a home on the hillside overlooking Rosada Beach. If you'd like to learn more about the place, please direct your questions to us at the following email address: efry@oxfordclub.com. |
BANNED IN AMERICA: The World's Safest Investment
Have you heard about the strange bans cropping up from California to New York? Government offices, churches, even restaurants are getting onboard. The target isn't smoking, drinking or guns. We're talking about outlawing the world's safest investment... right here in the U.S.A.! But why would anyone want to do that? And why do all serious people need to understand what's happening, in time to prepare? This special presentation reveals everything you need to know. Please click here now. And prepare to be shocked... | |
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