Addison Wiggin

The US dollar has been rallying strongly for several months. That’s what we call a “gift horse.” And just as the saying goes, “Don’t look a gift horse in the mouth.” Instead, look for ways to exchange your strong dollars for other currencies and investable assets that don’t fly out of Federal Reserve Chairman Ben Bernanke’s printing press.

For many Americans, foreign investments are more of an accident than an objective. They might own a few foreign stocks through a global mutual fund. Or they might have some exposure to foreign economies and currencies through the shares of an American multinational corporation like Johnson & Johnson or GE.

But American stocks and bonds remain the steak and potatoes of traditional American investment portfolios. Foreign stocks and bonds are merely the spices and sauces. This provincialism — epitomized by the spectacular success of Warren Buffett’s Berkshire Hathaway — has served American investors very well for several decades. But a reassessment may be in order.

Simply stated, the America of the future may not reward investors as handsomely as the America of the past. For example, despite doubling from its lows of March 2009, the S&P 500 index has produced a negative total return during the last five years… and only a miniscule return during the last 10 years.

The US dollar’s role as the ultimate “safe haven” currency is also due for a reassessment. While the dollar may be safer than the euro, for example, the dollar is hardly safe in any absolute sense. The dollar is safer than the euro… just as a rabid squirrel is safer than a rabid wolf. But you don’t really want to cuddle up at night with either one.

America’s federal debt has exploded to more than 100% of GDP — an astonishingly large Greek-like debt load. Yet none of America’s political or financial leaders seem to have any plan for reducing the nation’s debt… except maybe to add a graveyard shift to the dollar-printing production line at the Philadelphia Mint.

Our advice: Spend your strong dollars while you can. Reallocate them into other currencies and asset classes.

Throughout the eurozone crisis of the last few months, the US dollar has been attracting widespread “flight to safety” demand. But the dollar is not merely rallying against the euro; it is rallying against almost every investable asset on the planet. For example, a dollar buys 36% more silver today than it did six months ago. A dollar also buys 20% more wheat, 13% more corn… and even 2% more “American house.”

If we broaden out our analysis to include stocks and currencies, the results are similar. A dollar buys 32% more French stocks today than it did six months ago… as well as 34% more Indian stocks and 18% more Japanese stocks. Among world currencies, a dollar buys 11% more Norwegian kroner today than six months ago… as well as 15% more Swiss francs and 8% more Canadian dollars.

It is that last financial asset — the Canadian dollar — that we find particularly compelling as an alternative to holding US dollars. The Canadian dollar, known affectionately as the “loonie,” possesses many virtues.

In no particular order:

  • Canadian government finances are fairly solid; US government finances are spiraling out of control. Canada stands out as being one of the few countries that is not only rated AAA by the major credit agencies, but actually possesses a AAA balance sheet… or at least something close to AAA.
  • Canada’s GDP growth is outpacing US GDP growth.

Canadian GDP Growth vs. US GDP Growth

Canadian employment growth is booming; U.S employment growth is moribund. The Canadian economy has created nearly 800,000 jobs during the last five years, while the US economy has lost more than 5 million! In other words, the Canadian labor force has expanded by 4%, while the US labor force has contracted by 4%!

Canadian Labor Force Growth vs. US Labor Force Growth

As a result of these trends, Canada is becoming an increasingly attractive investment destination, relative to the US The Canadian dollar, in particular, is increasingly attractive. The Canadian dollar’s appeal is hardly a new story, but it remains a very relevant story.

Canadian Dollar vs. US Dollar

As the nearby chart illustrates, the Canadian dollar has been trending higher against the US dollar for several years. We expect this trend to continue — more or less — over the next several years. But investors should expect some bumps along the way. Currencies can sometimes bounce around even more than stocks. The Canadian dollar plummeted more than 25% during the depths of the 2008 credit crisis, for example, as terrified investors piled into the US dollar. Once the crisis eased, the Canadian dollar recovered. But the lesson is clear: Currencies can be volatile.

If you have a mind to Fed Reserve-proof a strong dollar, we like the Canadian dollar.

Regards,

Addison Wiggin
for The Daily Reckoning

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • M. Mir

    Gold and silver beat the loonie by a mile.

  • 2 funny

    Psst – Addison – the Bureau of Engraving prints the currency. The Philadelphia Mint strikes coins.

  • CT

    Must be the only thing in this world that isn’t crazy.

  • coinbuyer

    I like to buy my Loonies and Twonies out of the junk box down at the coin shop. British pounds, Australian 50¢ coins, they’re all 15 for $1.00.

Recent Articles

Give Your Book Away For Free, Make More Money

Chris Campbell

The publishing industry is on its head. These days, it makes more sense to make money before you write your book and give it away for free once you do. In today’s Laissez Faire Today, Chris Campbell shows you how to create a hit with those two counterintuitive steps. Read on…


How to Poke the Russian Bear in 3 Easy Steps

Greg Guenthner

Interested in buying the dip in Russian stocks this morning? Before you do, let’s try to knock some sense into that skull of yours. Late last week, I reminded you why we bid farewell to the big Russian bear back over the summer. At the time, Russia was one of the cheapest markets in the world. But cheap can always get even cheaper—and Russia is certainly no exception. With comic book supervillain Vlad Putin manning the controls from his secret Siberian lair, the Market Vectors Russia ETF (NYSE:RSX) has dropped a cold 20% since registering its late June highs. Does it have a shot at rebounding? Greg Guenthner explains…


Why Malpractice from the Fed Will Undermine Growth

Steve Forbes

The latest friend of ours to weigh in on the topic of the value of your money is Steve Forbes. As you’ve been reading this week, we paid a visit to Mr. Forbes recently, to discuss his latest book, Money. In this essay, you’ll find his thoughts on currency devaluation… it’s impact of economic growth and your investments…


Video
The Two-Pronged Approach To Safe, Consistent Gains

Steve Forbes

What causes individual investors to underperform the market year after year? Volatility? The Fed? In today’s video, Steve Forbes reveals what’s sabotaging your investment strategy – and the simple steps you can take to see consistent gains.


The Real Reason the Global Economy is Such a Mess – and How to Fix It

Steve Forbes

Why is the global economy such a mess? Why can't the world's foremost economists and financial thinkers seem to get it right? Simple... They don't understand the most basic element that makes up an economy: money. And as Steve Forbes explains, it all stems from the incorrect assumptions of a general theory of money. Read on...


Laissez Faire
Why Democracy Isn’t All It’s Cracked Up to Be

Chris Campbell

Is Democracy really all it's cracked up to be? And, more importantly, does Hong Kong really need it? China's wayward island already enjoys many of the freedoms of most democratic countries including free business, free trade and even low taxes. Chris Campbell ponders this idea today as he observes the protests from afar.