The Contrarian

[ls7550]

but basically I'm investing on the theme that U.S. economy will lag the rest of the world for quite some time, and the dollar will underperform as well. Thus, other than some natural resource stocks, I'm invested in international equities only, with just a very small amount in international bonds.

As long as the U.S. continues to print money, and increase its national debt to truly stupendous levels, I see no way for the economy to grow. GDP figures show small growth, but virtually every month, the figures are revised downwards. There is no growth.

It's becoming very dangerous out there Aim Heir. I wouldn't be so sure about the US $ declining that much, if at all - other than more usual fluctuations. As the US prints to suppress treasury yields the intent is to inflate away the debt. Yields down, dollar down etc. But other central banks aren't daft and simply print more of their own currency to buy more US T's - which pegs their currency and maintains the same (similar) level of yield (income) as though no US QE had occurred. The US doesn't like that and press others to refrain from such activity - but that just falls on deaf ears.


http://www.gold.org/download/value/stats/statistics/xls/gold_prices.xls

QE continued onwards and ultimately there wont be enough T's to support demand and whilst there will be a migration of the debt to being more internal to the US, a breaking point could suddenly be reached when all other 'foreign' holders suddenly demand that the T's be backed by physical gold or some other tangible real asset(s). That could lead to gold soaring and a loss of faith in US $ and a massive exit to an alternative 'safer' choice - with no other option than very high US yields. The breaking point will be when real yields are too negative that others start losing out in a big way. Foreign bonds wont be much of a haven either and some countries will be the losers with bankruptcies/bailouts/debt revisions etc.

Where the loss of primary reserve currency will move to ??? China has the reserves, but not the skill. My guess if it did get that far it would be for some kind of return to a gold standard. Whilst physical gold might come through ok, paper forms of gold could evaporate.

My guess is it wont get that far, and that the US is in the last throws of QE, perhaps until a new Fed chairman steps up to the mark with 'new ideas'. But you just never know, the safety line could break before then and typically when such events occur they do so hard and fast with little hope of any reversal until after all of the dirty linen has been cleared.

Wall Street Crash years, when banks were allowed to fail, and Iceland 2008 where they let their banks fail, resulted in a big down and a few years of pain before a recovery occurred. In contrast the current way is just prolonging and extending the final pain that will have to be endured if things do turn out bad. The best outcome is a possible extended period of flat, sideways zigzag - that could extend across a decade or two.

Central banks et al are more concerned with the return of money rather than the return on money. Safe haven's are difficult to find and when you do find one likely there will be a negative real yield associated to it. Countries with a surplus trade and who are only printing/devaluing to peg to US $ are perhaps a good choice. CHY, AUD, CAD or even Japan (who were a bit late to the printing more Yen game). And China of course - provided you can avoid corrupt activities. Interesting times!