Fiat Currency: A Common Sell-Side Trade

Faithful Daily Reckoning readers (and even some unfaithful ones) will undoubtedly be familiar with a concept known in these pages as the “Trade of the Decade.” In today’s Weekend Edition, we’re going to take a look at a few of your ideas.

But first, for the really unfaithful (or relatively new) readers, here’s a quick recap…

Around the turn of the millennium, our Reckoner-in-Chief, Bill Bonner, offered a simple pair trade. Bill’s idea was (roughly) to identify one asset class to buy and one to sell over the next ten years. The result: Buy gold on dips, sell stocks on rallies. At the time Bill issued his idea, gold was considered somewhat of an “untouchable” asset among mainstream investors. Stocks, as you might well remember, were all the rage and “buy and hold” was the banner under which equity enthusiasts marched. In hindsight, it seems easy enough to take the contrarian bet. But isn’t everything easier with the benefit of time travel?

As history would have it, the trade was a commendable success. Gold more than quadrupled over the decade while stocks…well…not so much. Even before allowing for inflation and myriad fees, the decade was a veritable cipher for stocks. In addition to proving a favorable trade, the concept also provided a useful backdrop against which many of the decade’s editorial themes were based, i.e., debts, deficits and, of course, the decline of the once almighty greenback.

And so, at the beginning of this year, Bill decided to issue a Trade of the New Decade: Sell US Treasury debt/Buy Japanese stocks.

“Crazy, right?” wrote Bill in the very same column. Maybe not? We’ll see.

While readers were reckoning on Bill’s trade, our senior editor and long time Daily Reckoning contributor, Eric Fry, issued his own Trade of the New Decade: “Sell everything…except uranium.”

We’ll see how this pair of pair trades plays out over the years to come – with a few thousand issues of commentary and entertainment in between. In the meantime, we are curious to hear what our readers have to say on the matter.

With that in mind, we recently asked readers to submit their own Trades of the Decade. The rules, as Eric outlined, are pretty straightforward:

1.    Identify just one specific asset, commodity, stock market sector, currency, mutual fund, ETF etc. to buy and hold for the next 10 years. Please provide a symbol, if possible. But please do not provide the name or symbol of an individual company. (We are seeking to identify attractive asset classes, not specific companies.)

2.    Identify just one specific asset, commodity, stock market sector, currency, mutual fund, ETF etc. to sell short for the next 10 years.

We’ll be presenting a selection of readers’ responses in upcoming issues but, for now, here are a few to get your creative juices flowing…

First up, here’s reader Mr. Presch.

“Buy and Hold: Palladium in physical form (forget the paper). I have been an advocate of Pd for over a decade…

“Why Pd? Obvious reasons on the supply side are: limited current supply, difficult to get out of the ground at a high rate, limited in-ground reserves, lousy locations where it is mined.

“On the demand side: humanity simply needs it much more than Au (at least according to today’s knowledge of limited uses for gold) and it looks mighty fine too.

“In my opinion there is little reason to have Pd priced vastly lower than Pt and as a group both should win out over the next 10 years, with Pd having the potential to gain twice as much as Pt.”

And for the short, Mr. Presch?

“Any stock that invests in mile-high sky scrapers, luxury golf courses and palm shaped islands in deserts (or other remote locations on this planet) that ought to be fit only for camels and extremely hardy individuals. My point is simply this: humanity cannot afford wasting limited resources on absolutely pointless ventures that spend millions/billions in whatever currency you choose and benefit only a select few individuals. Any company that wants to cash in on that dying trend will in my view loose out, which means that the stock holders will loose.”

Perhaps unsurprisingly, given the crowd, tangible assets were pretty popular amongst readers. Most paper currencies, as you might imagine, were out. Continuing with that theme, another reader, Glen, writes…

“BUY: natural gas. It’s been beaten way down but will surge back over the long haul because the world will start to transition away from oil. Coal is too dirty, and alternatives are lacking (solar, geothermal, biomass, wind, etc. are useful only within a narrow range of activities).”

And what doesn’t Glen like?

“SELL: any fiat currency, but if I had to pick one, I’d say the euro. The EU has gotten itself into a pickle. They welcomed members they shouldn’t have, and they will pay the price. There is just too much variation among member states for all to live under one currency. And with the hard times ahead (not before a crackup boom, though!), people will at first flee the weaker currencies to the dollar, but even old greenback is doomed, so I say short ’em all, but the euro especially. I think this will likely take the entire next decade to play out, but when it does, fiat currencies will be in shambles.”

Next up, a “long suffering” reader by the name of Ferdinand shares his thoughts:

“Sell US Treasury Debt (sell the US dollar) and buy gold. I still think buying gold is the Trade of the Decade because the world is being flooded with fiat paper from every nation. All of this paper money is basically worthless. Gold (and silver to a lesser extent) is the only real money.

“The US is bankrupt ($12 trillion + debt and $106 trillion + unfunded liabilities) and all the while adding tons more obligations. The only choice for the US is default or hyperinflation or a combination of both. This makes the sell side of the equation a no brainer. If the above happens, all the rest of the paper currencies will eventually be worthless also leaving only gold as real money. Thus the buy side of the equation.”

And lastly today (this is just a preview, after all) we bring you some thoughts form Don, in Portland.

“Go long emerging markets, especially Brazil and India. Be careful not to load up too much on Russia and China.”


“Short the Euro. If it doesn’t last long enough to make the butt end of the trade of the decade, then let’s short those ridiculous plastic water bottles everyone seems to have these days.”

Thanks to everyone who has written in so far. We’ll be publishing a larger selection of your responses in upcoming editions.

Joel Bowman
for The Daily Reckoning