Saturday, March 29, 2008

Australian and Canadian - the Only Dollars Worth Holding

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

By the November 14, 2007 meeting of the New York Investing meetup, deterioration of the U.S. dollar had become pronounced. The trade-weighted dollar had fallen further through its long-term support level and hit a series of new all time lows. Not surprisingly, the euro hit a series of new highs reaching an exchange rate of 1.47 to the dollar. The rallies in the Australian and Canadian dollars (both economies are based on food and commodity production) were even stronger however. At one point, it had taken approximately two Australian dollars to get one U.S. dollar, by November of 2007 only around 1.1 Australian dollars were necessary to get an American dollar. In the early 2000s, one U.S. dollar got you 1.61 Canadian dollars, but by November you would only get 91 Canadian cents.

There were two talks that month at New York Investing that dealt with what was going on in the currency market and the implications for investing, "Investing Like It's 1979" and "How to Profit from the Falling Dollar" (see Currency movement don't exist in a vacuum of course, but affects the price of commodities because they are priced in U.S. dollars. By November 2007, Oil had gotten to $97 a barrel making a series of all time highs, although it first broke its nominal 1980 high of $39.50 a barrel in 2004. While oil was a leader in reacting to the value of a declining U.S. dollar (the dollar had been falling since 2002), gold's reactions were more coincident to changes in the American currency. Gold had reached $848 an ounce getting close to its nominal intraday high of $875 in 1980, but not enough to establish a new record. Of the three inflation-related commodities, silver was by far the laggard, reaching only $16 plus and ounce, not even near its $50 an ounce high from 27 years earlier.

The specifics of how to invest in currencies and commodities, such as ETFs (exchange traded funds) and foreign currency denominated CDs and accounts were not only handled in the talk, "How to Profit from the Falling Dollar", but in three videos produced by the New York Investing meetup. These videos represented an investing blueprint for the average investor on how to handle the new inflationary environment the Federal Reserve had created. Please see these video for more on this topic:

Currencies I – How to Profit From the Falling Dollar

Currencies II – How to Profit From the Falling Dollar

Commodity Investing – How to Profit From the Falling Dollar

Next: Sub-prime Housing Leads to Sub-prime Financial Institutions

Daryl Montgomery
Organizer, New York Investing meetup

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