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The Scariest Political Statement YetBy
Thursday, October 21, 2010
"We will not devalue the U.S. dollar," U.S. Treasury Secretary Tim Geithner said this week (or words to that effect).
And by golly, the people believed him!
The dollar soared on his "reassurance." Gold fell.
Wow... I was stunned.
Do THAT many investors NOT know their economic history?
On June 30, 1997, Thailand's leader said, "We will not devalue our currency." Like Geithner this week, Thailand's leader backed it up with all kinds of powerful, incontrovertible statements... like "if the currency is devalued, we will all become poor."
But three days later, on July 3, 1997, Thailand devalued its currency.
The currency crashed. Check out a chart of Thailand stock market during the time of the crisis... down 90% in terms of U.S. dollars:
.gif) Can you imagine a 90% bust?
Thailand is just one well-known example of the "we will not devalue" speech, followed by a massive devaluation. We've seen it happen over and over again...
Porter Stansberry and I started out writing investment letters in the mid-1990s, focusing on emerging markets. The "we will not devalue" line got to be a joke around the office... As soon as we heard "we will not devalue" from an emerging-market finance minister, it was time to bet on a devaluation.
It's like this... "We will not devalue" is the equivalent of your 7-year-old child hustling into the room and announcing, "There's no need to count the number of cookies in the cookie jar!"
It makes you think... "Well, I wasn't worried in the least about the cookies in the jar. And I wasn't worried about my child lying, either. But now we'd better seriously check on both. "
Now, the U.S. Treasury Secretary Tim Geithner just gave the "we will not devalue" speech. "No need to count those cookies in the cookie jar!" he's hustling to tell us. Uh oh.
Our currency can't have a crashing devaluation like we've seen time and again in emerging markets. We simply have a different type of currency system in the U.S. than the emerging markets did when their currencies crashed overnight.
But Geithner just uttered the magic words of future currency collapse... So far, the market has believed him. The dollar soared and gold crashed on his comments.
I thought investors were in on the joke...
My instinct – built on years of watching politicians say the same and end up doing the opposite – is to do the opposite of what investors did after Geithner's speech. My instinct is to run from the dollar, for the long run.
The dollar soared and gold crashed after his speech. But the fate of the dollar was sealed this week. Looking ahead, the future is bright for gold and bleak for the dollar.
Invest accordingly.
Good investing,
Further Reading:
Back in May, Porter Stansberry wrote a two-part essay on the massive government debt in Europe and the United States. "The U.S. dollar will collapse," he wrote. "It's no longer a prediction. It is a certainty."
Porter offered one easy solution to protect yourself from the inevitable inflation of the U.S. dollar: "It's the single most important financial step you can take right now," Porter wrote...
Market NotesA BORING AND UNCOMPLICATED UPTREND In the past few trading sessions, we've seen huge price swings in most stocks and commodities, all driven by the volatile "hate the dollar" trade. Stocks and commodities soared in September... and got clobbered on Tuesday.
One asset, however, is exhibiting "Goldilocks" price action. Not soaring... and not suffering crazy selloffs. It's an asset we've written about many times in the past. This "low stress" asset is timberland.
The bull case for owning timberland is: 1) You own something "real" and permanent. 2) You can collect income from tree harvests. 3) It provides diversification for your portfolio. Plus, you don't have to rack your brain with analysis. You just try to buy timber at a good price and sit on it.
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