How can you profit from the U.S. dollar decline! A Simple Stragegy.

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The United States dollar is going down! The U.S. Government will be over 13 $Trillion in the hole by the end of this year. Unless something drastic is done to reduce the slide, by 2015 it will be 23 $Trillion in the hole. This summer rally , (some green shoots aside) was predicated on the back of a sinking u.s. dollar . Many American investors are so busy getting angry and waiving the flag to prop up King Dollar , that they are blinded to one of the best investment plays this year and probably through 2010.

Smart Canadians are ignoring the whining from their own Governments and businesses about a high Canadian dollar being bad for exports and they are taking advantage of a situation that Ottawa doesn't want to acknowledge. The Canadian buck will outstrip the U.S. buck over the next year. So how can you play this for the betterment of your Retirefund?

Back in January, when the Canada buck was trading for around .77 cents U.S. I traded my u.s. dollars into Canadian dollars. I have gained about 20% with this simple strategy, however there is another good market strategy that I, and many others, are making some money with. Commodities such as oil, gold, natural gas, are denominated in U.S. dollars. If you bought some of these commodities, with your Canadian dollars, back in March, you have no doubt made good money.

Now, many Americans, whose pride (and pocketbooks) have taken a big hit during this dramatic downturn in their economy, are championing the return of King Dollar. Can't blame them. If your house is losing value, and your dollar is losing value, and the Gluttons of Wall Street have swallowed a good portion of your retirement funds, you are definitely in jam. However, average Americans are once again being led down the garden path into believing their dollar will go higher over the next few years. Feeding those false hopes, every time the dollar goes up a bit (as it did on Monday) the talking bull heads on CNBC (Kudlow, Kneale etc) waive the flag and declare the return of King dollar. I believe they couldn't be more wrong.

In fact, I am so convinced of this that, when I see a rise in the U.S. dollar, and a corresponding drop in our commodities market, I see it as a great buying opportunity for those commodities, especially if you are paying for your shares in Canadian dollars. As I have pointed out before, we have had the best balance sheet of the G20 for the past 8 years (We've been in the black until the crisis hit this year) Our banks have stayed conservative, avoiding the toxic Derivatives debacle and have entered this summer rally strong. We have the second largest deposits of oil and natural gas in the world, the largest deposits of potash, lumber, gypsum, seafood, nickel, uranium and arguably, diamonds. We own 20% of the worlds entire supply of fresh water, with only .03% of it's population. We own the largest claim to the arctic, which is suspected to harbor 25% of the total world's oil supply, and finally, the largest consumer on the planet, is right next door.

Don't get me wrong though. The Canadian dollar and commodities market is by no means the only place with good value these days. They will go sideways for the next month or so, but by the end of the year the Loonie will approach parity. The BRIC countries , or at least two of them, are good investments. (Except China for the rest of this year) The Australian dollar, who's commodities feed into the Chinese economic realm may also be a good bet. We have some excellent, small Canadian companies that are basically overlooked south of the border, until they dominate a market (RIM). They are essentially, under the radar, so to speak. Find them, research them thoroughly, ensure they have good management, good science and technology , and then don't be afraid to invest. You could hit the RIM of 2010-2011!

If you are American, you should be in the stock market right now. Having cash, or cash equivalents sitting on the sidelines for any length of time is a recipe for losses, period! Sadly, the gluttons of wall street are the ones who will actually benefit from the dollar crisis they have caused. Stock Markets go up as currency devalues. It is actually that simple.

The Canadian Government and Canadian manufacturing don't want a strong Canada buck, but they won't have any choice in the matter. It is time our manufacturing and export companies grow because of innovation instead of a weak currency. Those days are gone.

A Canadian buck with a 5-8% premium over the U.S. dollar (a la the 1950's and 60's), is a Loonie I can live with. All of our retirement funds, and our travel budgets, have gone up over 20% this year because of it. The Loonie now buys 20% more than it did 6 months ago. It will go higher still. Here is a quote from Warren Buffett from his "The Greenback Effect"!

"The world "properly" worries about greenhouse emissions causing global warming", says Buffett. "Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress."

Previous articles: U.S. Dollar dives - Pigs at the trough

Update - Aug 18th from Bloomberg .

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An uneven economic recovery starts with a rare summer rally!

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Stratfor Global Intelligence is forecasting an uneven recovery in the world's economy. Back in June, Liz Ann Sonders, the chief economist at Charles Schwab, called the Recession over (she was one of the first to see it coming back in 2007) Yesterday, Michael Hartnett, chief global equity strategist with Bank of America Merrill Lynch (yes that's the new name) also declared the recession is over. So has Finance Secretary, Timothy Geithner, as well as just about every talking head on CNBC

Problem is, the talking heads would have you believe it is the beginning of a bull market that is going straight up. My money is on the Stratfor intelligence report, because they are quite thorough in their research and have no real ulterior motive for promoting the recovery story, and their report is tempered by where the recovery won't happen (Japan for instance).

To give credit where credit is due, the CNBC crew, (Kudlow, Cramer , Fast Money) have all along been saying that the country that led everyone into the Recession, the USA will be the country that will lead the way out. Got to give them credit, it is the general consensus. However, this was not a hard call to make, as it is what has occurred in every major recession in the past.

So, what now! Well, as most investors have fled the market since the spring rally, many of them will miss the summer rally which is starting now. A summer rally is an anomaly. It doesn't often happen as many investors still cling to old habits and standards like "sell in May and go away". The problem with that mentality is the recent and powerful introduction of electronic trading systems that can be accessed from anyone's blackberry. In this new era of international investing, you can't just go on vacation and forget about your portfolio, because you stand to lose much of the gains for the year. (or losses, depending on the situation).

If you are coming back to the market in the fall, you may miss most of this years buying opportunities which exist right now! Yes, buying opportunities! Remember this:

1. Bull markets always climb a wall of worry.

2. No one sees a bull market until it is in mid to late stages.

3. Most profits are made in the first weeks/months of the bull market.

4. Bull markets "love" inflation.

5. A weakening currency always causes inflation.

6. Banks always lead a bull market rally. (Goldman Sachs just made their largest quarterly profit in history)

Some words of warning here. The United States will be fighting the Deficit Dragon for years to come, thanks to the Dubya's tax cuts and the gluttony on Wall Street. The jobless ranks now approach 10% and will go higher. Manufacturing in North America is still decreasing. Banks have been rescued by massive inflows of Government stimulus money which still has to be flushed out of the system. The Derivatives Debacle is still not solved and won't be anytime soon. As bad as this sounds, Europe's banks are in worse shape and their Governments are either in denial or are hiding their heads in the sand. Britain's Banks have virtually been nationalized. Japan is sinking further, and has been for over 10 years. The BRIC countries may be a bright light in all of this as wall street starts another glutenous party on the backs of U.S. Citizens.

Many companies will report great third quarters, due mainly to the massive job cuts, because they have already completed most of their write downs.

How all of this will affect your retirefunds is between you and your financial adviser. Hopefully you are talking to him/her this week.

Maybe a simple Index Fund which costs less than every other fund out there, and usually beats 60% of all fund managers, will do. Whatever you chose to do, DON'T sit on the sidelines, or you will miss a great party.

Now let the jobless recovery begin!

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Half of a BRIC may be more valuable, Than a whole BRIC !

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The BRIC countries, (Brazil, Russia, India and China) are once again looming large on investors radar screens. For the average, retail investor, there are a number of mutual funds which highlight good companies in, what are considered, four strong, emerging markets. Some of these funds include companies from other Asian and South American countries (Indonesia and Argentina come to mind), but concentrate their portfolio on the BRIC block as they are seen as the emerging tigers of the worlds future economy for various reasons. There is, however, a serious problem with two of them.

No matter the last 15-20 years of supposed free market reforms, China is still a communist country with democracy only a distant dream! Time and again, they have proven that the rule of international law does not apply to their country. Copyright infringement is rampant and far reaching, graft is still part of local and national government business, and as for human rights, well, they don't apply. Lately, the country's leadership has been working, through the proxy of it's nationally owned companies, to soak up much of the worlds raw material, from oil and gas, to fertilizer, coal, and ingredients for making steel.

No supposed "free marketer" dares to challenge policy in China, for fear of being ostracized by the great, red, business machine. Just ask Google! Ominously, the recent run up in the Chinese markets is driven mostly be inexperienced Chinese investors, with visions of sugar plums dancing in their uneducated investment heads. That can only end badly with many of them learning the hard way that what goes straight up, always comes down. In the final analysis, will the rules of business, be guarded by the rule of law? Maybe, but, contrary to many other wide eyed investors, I'm not putting my money on it, or into China.

Russia has a shrinking population, a suspect banking system and clings to a Government structure of "strong man rule" under the guise of democracy. Russia has proven time and again, that they have more crime bosses, than CEO's. Just ask any of a dozen good companies who have arrived from the west during the past 15 years, only to be cheated out of billions in real estate, oil, gas, you name it. The names of these business are too numerous to mention, but they certainly know who they are. Or ask any of a number of honest journalists who have challenged the status quo in that country (Oh, sorry, you can't ask them, because they are dead).Until a proper democracy and the rule of law replace King Putin, I won't be risking any of my meager Retire funds there either.

That, my friends, leaves us with half a BRIC!

India is the "largest democracy in the world", and it just elected a very pro business government that cannot be voted out of office for the next five years. Companies like Tata Motors, Taj Hotels and Resorts, Bajaj Holdings & Investment, Nadir Godrej-led Godrej Industries and lender "Yes Bank" may well be the Microsoft, P&G or Google of the 21st century. Business Week certainly seems to think so! India has a disproportionate number of the worlds software engineers as is evidenced by the number of Indian nationals who emigrated to Silicon Valley during it's heyday, and who now are back in India leading cutting edge companies. Does India have it's problems? Sure it does, but during this global recession, what country doesn't? Exactly! Many believe that India is right now, where China was 20 years ago with regard to business development. Does this sound like a good prospect for your retirefund? It does to me. You can buy a pure Indian Fund on the NYSE.

Brazil is already, so far ahead of the rest of the world in green energy production that it is entirely self sufficient. Besides owning great reserves of oil, almost 50% of it's energy is derived from locally produced ethanol, and they are, far and away, the world leaders in this technology. In Aerospace, Embraer, is a world leader in the building of regional jets in competition with Canada's Bombardier. Banco do Brasil is not in nearly the jam that many American Banks find themselves in, and other companies such as Brazil Telecoms (telecommunications) and Braskem (chemicals) are now on international investors radar screens. Yes, they also have their problems, but they are a growing phenomenon, and Brazil is also a democracy.You can buy a Brazil Fund currently on the NYSE.

Now if we can just get the fund managers to come up with a basket of great companies from these two emerging powerhouses, you might be able to throw just half a BRIC into your Retirefund, and reap the rewards.

Are you listening IShares?

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Will King Dollar be dethroned? Not right now, however...

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From Kudlow to Cramer, there is a hue and cry throughout the United States investment community (or most of it) for the propping up of King dollar. The King has reigned supreme for over 50 years as the most accepted currency worldwide, and a safe haven for value. Now, however, perception and reality maybe beginning to diverge.

Russia today went public expressing the benefits of a strong U.S. dollar, while quietly trying to divest what is left of their international reserves into other stores of value.

China, while using it's substantial foreign reserves (1.4 Trillion) to prop up it's own domestic economy, is also quietly seeking international input into developing an international currency or bank of currencies, possibly set by the world bank. Is there a Prince in waiting? The answer is no! At least not now!

The BP and the Euro have been trashed by their own economic mismanagement and the spillover from America. The Gold standard has been essentially abandoned over 40 years ago, and there is no other currency with the same acceptance level as the usd. China has it's currency directly tied to the usd (which causes all kinds of related problems), the Russian Ruble is, well, the Russian Ruble! The Japanese yen has had a severe case of the money flu for 10 years. India, Brazil, not even close! The renmimbi? Not hardly!

However, with the u.s. economy going 10.7 Trillion into debt by the end of this year, it's economy suffering from so many other ailments in housing, jobs, infrastructure and the big banks Derivatives debacle, we may be seeing the first serious cracks in the throne. Many money managers see serious inflation 2-3 years out. That can only mean more devaluation of King dollar.

Americans should be aware of a wake-up call that occurred this year. The members of the BRIC Countries (Brazil, Russia, India and China)held their first joint meeting as a group of rising economic powers. Can the King get hit by a BRIC?

How can this affect "your retirefund"?

That is between you and your financial adviser. Get good advice, make a plan, follow the plan. Putting U.S. dollars in your mattress is far and away, the worst plan you could have at this point, unless, of course, your mattress is the size of Philadelphia!

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