Short Term Investment Advice

On 05/15/2011, in Investment Strategies, by Jordan Wilson
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Some thoughts from successful investor Jim Rogers.

Sell United States (U.S.) bonds, buy renminbi, invest in commodities.

The key point behind all is recommendations is the fate of the U.S. dollar.

An opinion I share. 

Given the terrible policies being implemented in the U.S. that have resulted in ever increasing deficits and debt, I am pessimistic about the U.S. dollar. Unless the U.S. federal and state governments rein in their spending, it can only have a negative effect on the U.S. dollar.

This is why Rogers recommends divesting from U.S. denominated debt and currency and shifting to China’s renminbi.

Also, to invest in hard assets that should appreciate as the dollar falls.

Currencies

While I am bearish on the U.S. dollar, it may not suffer as much as it should value-wise. The main reason is that many other currencies are also facing economic issues. The European Union (E. U.) is potentially falling apart. Certain E.U. countries are  de facto bankrupt.

I am also less bullish than Mr. Rogers on China. While their economic data looks good, getting accurate data on the Chinese economy is always a challenge. Much of what one reads needs to be taken with some scepticism. My own sense is that the Chinese economic picture is not as positive as we are led to believe.

So where does one put his/her money?

Even though the U.S. is a bad bet, it may be one of the least bad bets out there.

But countries that are doing well should also be considered. Canada, with its resource based industries, may stay strong. Australia may be another country that benefits from resources. Perhaps the Swiss franc will also be seen as a safe haven.

U.S. Interest Rates

A weak U.S. dollar should result in interest rate increases.

That is because the U.S. needs to raise rates to attract investors towards a weak dollar caused by high deficits and debt loads.

As rates rise for new bonds, existing debt will lose value as pricing adjusts to the new market conditions. As an investor, one wants to divest or at least shorten durations under normal conditions.

Yes, this is Bonds 101 in abbreviated form.

But, if you think about it, it is also simply common sense.

Commodities

As for commodities, I do think there is room for continued gains.

Part of the potential growth is due to a falling U.S. dollar.

But a part is due to ever increasing demand for scarce resources. This will become more important as economies begin to truly recover.

So there you go.

It will be interesting to see how these investments play out over the coming year.

 

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