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The Best Way to Bet Against the Dollar, Richest Man Explains

By Dr. Steve Sjuggerud
Tuesday, February 28, 2012

In a rare television appearance yesterday, the one-time world's richest man explained a unique and simple way Americans can bet against the dollar...  
He called it "as attractive an investment as you can make." 
And yet you don't need a brokerage account or any real prior investing experience to take advantage of this opportunity.
Warren Buffett built his $50 billion fortune simply from his investment ideas... mostly through buying great companies in the stock market, like Coca-Cola, Procter & Gamble, and most recently IBM.
So I was surprised by the answer he gave on CNBC when asked whether he'd recommend people buy stocks or houses right now...
If I knew where I was going to live for the next five years or 10 years, I'd buy a home and I'd finance it with a 30-year mortgage. It's a terrific deal...  
If I had a way of buying a couple hundred thousand single-family homes... I would load up on them. And I would take mortgages out on them at very low rates...  
It's a way in effect to [bet against] the dollar.
What did he mean by that? 
The Average Joe doesn't associate buying a house with betting against the dollar. But that is exactly what is happening. Think about this with me...  
You're borrowing paper dollars and putting them into a real asset... at a dirt-cheap price. Buffett pointed out that, if interest rates go down, you can refinance and get an even lower rate. But if interest rates go up thanks to inflation or money-printing, the bank is stuck holding your low-rate loan.
Buffett loves it... With "a 30-year mortgage... it's a leveraged way of owning a very cheap asset now. That's as attractive an investment as you can make." 
As the dollar loses value, the number of dollars it takes to buy a house goes up. So if the value of the dollar goes down, the value of your house goes up, all things being equal.
The government is sacrificing the value of the dollar today to get the economy back in gear. Borrowing dollars for 30 years at less than 4% interest to invest in a cheap, safe asset is a simple and effective way to hedge the dollar's decline.
In his latest letter to shareholders, Buffett admits the timing he gave last year on the housing recovery was wrong...  
Last year, I told you that "a housing recovery will probably begin within a year or so." I was dead wrong.
But Buffett is confident. It's a simple case of economics... and biology: 
Housing will come back – you can be sure of that... Every day, we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over... Fortunately, demographics and our market system will restore the needed balance...  
The world's greatest investor – who made his fortune in stocks – is saying he'd "load up on single-family homes if he could." And he'd do so with a mortgage at a low rate.
You can do the same. You may not have thought of it this way before... but it is an excellent way for non-stock investors to bet against the U.S. dollar.
Today's "terrific deal" will not last forever. So take the advice of the greatest investor in history...
Go buy a house, and get a low-rate mortgage on it. It is "as attractive an investment as you can make." 
Good investing, 

Further Reading:

Catch up on Steve's full argument for buying real estate here...  
"With housing more affordable than ever, and mortgage rates lower than ever, we have incredible upside potential." 
It hardly ever happens. But it is EXACTLY what I want to see as an investor... And it is happening right this second.
I can't know this for certain, of course... But I'm more convinced of what I'm saying here than I have been about any other investment in my two decades of studying investments.

Market Notes


Today's chart is another look at the best energy bargain in the world... natural gas.
Regular DailyWealth readers know how new drilling technology has allowed us to access huge new supplies of domestic natural gas. This supply surge has pushed gas to bargain-basement levels.
Like its energy cousin oil, natural gas has many uses. It's used as a building block to make chemicals, fertilizers, and plastics. It's also used to fire power plants and heat homes and factories. And it's becoming widely used as a motor fuel.
For a picture of how much of a bargain U.S. natural gas is, we need to look at the "Brent crude/natural gas ratio." While most Americans only know our domestic "West Texas Intermediate" price, "Brent crude" is a better measure of what the rest of the world is paying for oil. Right now, Brent is surging in price... and folk are paying around $124 per barrel.
Rising Brent crude prices and falling natural gas prices have pushed the "Brent crude/natural gas ratio" to an extreme level. Years ago, this ratio drifted between six and 10. Sometimes, the ratio would even spike to 14, which indicated really cheap natural gas. In December, the ratio spiked to 35. But just recently, the ratio spiked to 47. Energy in the form of U.S. natural gas is ridiculously, absurdly cheap... which is why we're going to start using a lot more in America.
The Brent Crude/Natural Gas Ratio Superspike

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