February 3, 2008
Cash is King, But in Which Currency?
Good interview with Joseph McNay in this week’s Barron’s. He pounds the table for gold (GLD), the gold mining companies (GDX), and the “whole medical-pharmaceutical-biotechnology area.” 95% of the value of Barron’s lies in the weekly interview, where people talk their book (just ask a subscriber or a freeloader).
“The Federal Reserve has been… increasing the money supply at a much faster rate than people realize, near a 15% annual rate of increase in M3 … Increasing the money supply… decreases the value of our currency on a consistent basis and sometimes at an accelerated rate … The decline in the value of our currency is directly inflationary: Lost purchasing power is inflation. The bigger risk is that, at some point, the large holders of U.S. dollars may decide they want a lot less of them, if any. This is a very challenging set of conditions for us.
We are denigrating the value of our currency at a much faster rate than we have in the past. The government is running a $250 billion to $400 billion deficit, and our balance of trade is running at a $700 billion or $800 billion deficit. This has all created money at a rate faster than we produce and means that we are further in debt and the value of our money falls faster. One has to come to decisions on how to protect the value of money. Cash is king in the minds of some people. But the biggest question associated with that decision is what currency do you keep your cash in?
I would rather own the Chinese currency than the U.S. currency. As they revalue upwards, it’s a growth investment and it gives protection against losing purchasing power, and that is what we are all facing.”
I agree and have put my money where my mouth is (on the CNY) for a very long time. And let us not forget our precious pandas.
February 3rd, 2008 at 12:36 pm
i’m pro pandas (in zoos) and pro dollars short term. gold long term, after a pit stop.
“denigrate” is a mis-used word. it indicates imbecility in analysis.
except for the recent relatively minor weekly FED crap loan auctions, there is little evidence of expanding US money supply for several years.
check with hussman and the st. louis FED for details.
February 3rd, 2008 at 1:06 pm
Tom D: Good catch with “denigrate,” but remember this guy is a professional money manager so he’s not expected to be literate. (How’s that for denigration? :-) )
February 5th, 2008 at 12:59 pm
Compared to the 1970’s, through which I lived in fear and loathing–not for the reasons you might suspect: my fears “came true”–one’s “native currency” doesn’t really matter now. It’s just a shorthand for daily cash settlement transactions. In those ancient days one needed an offshore account.
Now, any idiot with an account through a clearing house can trade and/or hedge everything, everywhere.
One of the implications is that events unfold almost instantaneously. Bull and bear markets can last just a few days in everything. Naturally, the really, really big money still takes a while to get all their ducks lined up and bought and sold. But for smallboys it’s much easier now to beat them at their own game. With skills.
February 12th, 2008 at 2:43 am
Goldbugs have been saying the same thing for decades. Right now, there is pause that they might be right this time.