How does one intelligently hedge against the risk of a US Dollar collapse?

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ByLoSellHi

Currencies...I am completely ignorant of how to protect oneself against a collapse in the value of a currency.

I know that we're experiencing a dollar run for the moment, but think there's some possibility that there's a risk of a US Dollar crash if the government prints and distributes the amount of money it will ultimately take to stabilize the toxic financial sector AND stimulate the economy to the degree that a deep recession or depression is avoided over the next several years.

What is the most efficient and rational method to hedge against such a risk aside from buying an asset class such as gold (which has been risky from a historical standpoint)?
 
Personally, I just made a minimal effort to buy shares of good dividend-paying companies in a couple of other countries on the theory that if the Dollar went down the toilet, we'd either take them down with us, or end up weaker than their currency (which would mean the dividends would translate into more dollars-per-whatever).

Examples:

SPIL (Siliconware) -- Taiwan, pays an almost ridiculous dividend that's nevertheless sustainable because the company is unbelievably profitable. It was a solid buy at $4-5, and is an INSANELY great buy at today's price (~$3.25).

CEO (CNOOC) -- Hong Kong. Even if China's economy goes down the toilet, they need almost as much oil as we do. Pretty much every drop of oil (or the money from it) coming from an offshore Chinese platform flows through their hands.

BP -- Britain, obviously. In this case, the British-ness is more of an accident than anything. I bought these shares because Sterling is getting slammed by the Dollar right now, so the shares seem cheap compared to other companies like Exxon. As a practical matter, if the Dollar goes down the toilet, the Pound will probably have been long-since flushed and be even more completely screwed... but on the other hand, I remember that last year, the Pound completely spanked the Dollar... so who knows?

YZC -- Coal isn't sexy, but most of China's electricity comes from it, and the CCP isn't shy about smacking down any environmentalists who try to complain. Average dividends, but dirt cheap at ~$4/share, and likely to get even cheaper tomorrow. I just feel sorry for people who paid ~$80-100/share for it 6 months ago ;-)

I'd love to buy a few hundred bucks worth of Ciba (Swiss), but they quit trading on NYSE about a year ago. Logitech is Swiss, but doesn't pay dividends, and probably wouldn't do well in any hardcore depression sufficiently bad to destroy America's economy since upscale mice and game controllers are fairly discretionary products. That basically leaves Novartis, which is Swiss, pays dividends, and is a drug manufacturer (ie, makes a product people HAVE to buy regardless of how poor they might become), but the company overall seems kind of underwhelming and overpriced.

By the way, if anyone seriously disagrees with any of my analyses, by all means let me know... I'd rather be insulted tonight than broke next month ;)
 
Hold your money in another currency.
Buy real estate (with as big as a mortgage as you can so if the dollar does collapse, you will be able to pay it off with hyperinflated dollars and you will own the property free & clear)
Agriculture stocks.

You could also buy aluminum as there are always places to sell it and its less volitile than gold/silver
 
In all honesty, I wouldn't lose too much sleep about the Dollar vs other currencies, other than making half an effort to diversify like I did where it's convenient and easy.

The fact is, so many economies are so totally dependent upon the Dollar, it's almost not even worth BOTHERING to worry about, because if things truly get THAT BAD in America, the rest of the world will have LONG SINCE been reduced to rubble and poverty first.

* South/Central America, Mexico, and Canada? Screwed.

* Europe? Screwed by both circumstance AND self-mutilation.

* Asia? China's economy depends on America and Europe... and the other countries depend on America, Europe, and China.

* Africa? Always BEEN screwed, always WILL be, too, regardless of what happens.

* Mideast? Petrodollar isn't just a metaphor. One or two particularly bad terrorist attacks, and the economies of Dubai and/or Israel are toast.
 
http://etf.stock-encyclopedia.com/category/currency-etfs.html
Quote from ByLoSellHi:

Currencies...I am completely ignorant of how to protect oneself against a collapse in the value of a currency.

I know that we're experiencing a dollar run for the moment, but think there's some possibility that there's a risk of a US Dollar crash if the government prints and distributes the amount of money it will ultimately take to stabilize the toxic financial sector AND stimulate the economy to the degree that a deep recession or depression is avoided over the next several years.

What is the most efficient and rational method to hedge against such a risk aside from buying an asset class such as gold (which has been risky from a historical standpoint)?
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I wouldn't worry about the USD I'd worry about the EUR, AUD, NZD, etc surving this crisis. The CAD basically crashed vs. the USD by 20% in one month. The more the USD strengthens the more of these "when will the USD collapse" threads keep poping up. I don't get it!!!

And even if it doesn't stay the reserve currency, look at the GBP, which stoped being the reserve in the early 20th century. Since then it has still risen and fallen.
 
Also, one thing lots of people forget when they think of the metaphor of ancient Rome falling (as frequently happens when discussions of the Dollar and/or America come up)... there WASN'T really any one specific day when people woke up and said, "hey, the Roman Empire fell yesterday!" It just slowly faded from relevance. A city here, a kingdom there getting conquered or drifting away. People deciding to start writing the language they spoke the way it sounded, instead of pretending that Latin was the One Correct Way to represent their language in writing. Eventually, "Rome" became an empire in name more than anything, and people just started to feel silly about pretending it mattered anymore. In fact, I think Rome was the original inspiration for the phrase "not a bang, but a whimper."
 
Quote from miamicanes:

Also, one thing lots of people forget when they think of the metaphor of ancient Rome falling (as frequently happens when discussions of the Dollar and/or America come up)... there WASN'T really any one specific day when people woke up and said, "hey, the Roman Empire fell yesterday!" It just slowly faded from relevance. A city here, a kingdom there getting conquered or drifting away. People deciding to start writing the language they spoke the way it sounded, instead of pretending that Latin was the One Correct Way to represent their language in writing. Eventually, "Rome" became an empire in name more than anything, and people just started to feel silly about pretending it mattered anymore. In fact, I think Rome was the original inspiration for the phrase "not a bang, but a whimper."
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Correct, sir!

It was a slow death of around 100 years I'd say 380 - 480 AD. One could argue the range. Even after, its influence on European culture is still felt today.
 
Quote from ByLoSellHi:What is the most efficient and rational method to hedge against such a risk aside from buying an asset class such as gold (which has been risky from a historical standpoint)?
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Short DX futures, trading on NYBOT. Every point "represents" $1,000. The DEC future is trading at 88.2 as I write this.

So for every 88.2 x $1000 = $88.2k of your trading portfolio (or total net worth, depending on how much you want to hedge) you'd short 1 DX future.

It's comprised of a weighted index of foreign currencies

20070504_usd.jpg


Then you just keep rolling the future. Very simple and cost efficient.
 
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