Where’s Your Safe Haven?

Where’s Your Safe Haven?

An interesting article in this morning's Wall Street Journal entitled "Investors Seek Safety in New Harbors" states:

For years, whenever significant political or financial turmoil reared its head anywhere on the globe, investors would turn to the U.S. dollar as a safe haven.

Yet as the chaos in North Africa has grown over the past month, investors have largely shunned the dollar and sought shelter elsewhere. They have turned to other traditional islands of stability, buying Japanese yen and the Swiss franc.

What has especially raised eyebrows has been the move by investors to buy euros, a currency traditionally seen as a riskier prospect than the dollar, especially with the euro zone's debt problems still largely unresolved.

This has sparked a debate over whether the dollar has lost its safe-haven status.

According to the article, the euro has gone up 1.2 percent against the dollar, the Swiss Franc has risen 2 percent, and the Japanese yen gained .07 percent.

Gold has gained 5.7 percent—it's biggest gain since April of 2010.

Of course, if you've been reading this blog or have read the Rich Dad books, this is no surprise to you. I've been saying for years that the dollar is trash and toast. Now, it seems investors are realizing this as they scurry to find new safe heavens in a time of crisis.

This latest crisis is one that especially worrisome to dollar holders because it involves oil. With the unrest in the Middle East, there is fear that oil production will diminish and the price will go sky high. The price of a barrel of oil is approaching $100.

This is bad because the price of oil affects the whole supply chain, meaning that the price of manufacturing and delivery goes up, so the price of everyday products, not just your gas, goes up.

Life gets much more expensive when oil gets more expensive. In other words, your dollars buy less.

Here are some of the reasons why the dollar is being shunned.

US Deficit Spending

This week the budget battle that I've been writing about for the last couple months comes to the first of two potential tipping points (See "The Showdown" and "The Boiling Point"). As I write, the congress and Senate are scrambling to come to a compromise to extend a stopgap spending bill that will allow the government to continue functioning. Republicans want immediate budget cuts, and Democrats want to continue spending. If no compromise is reached, the government will shut down.

Last year, the US government spent $1.3 trillion more than it earned. This year, Obama's proposed budget calls for spending $1.6 trillion more than expected earnings.

To the average person, this is insane. You and I know what happens when you spend more than you earn for years, your creditors come knocking on your door and people refuse to believe you when you say you'll pay them back.

Today, investors are saying they don't believe that the US can pay back their creditors. That is why they're ditching the dollar.

US Foreign Debt

It's reported today that the US debt owned by China is much higher than originally expected. In the latest revision of China's US debt holdings by the US Treasury Department, it was discovered that China's holdings were 32 percent higher than expected.

How the US Treasury was off by 32 percent in their original forecast is a topic for another day, but this latest news confirms that we're much more indebted to the rising global economic power of China than previously thought.

The US is the biggest debtor nation in the world, and we're indebted most to a country that has expressed continued and stronger criticism of the dollar. If China decides to collect on its debt, the dollar would completely collapse.

This is another reason why investors are ditching the dollar.

The Fed Policy

Despite inflation fears rising in the US and across the world, the Fed is holding steady on their $600 billion quantitative easing program—aka printing money.

This is proof that the Fed is more concerned with devaluing the dollar and causing inflation than creating a strong dollar.

Additionally, more dollars have been printed in the last decade than in all previous decades combined.

This is another reason why investors are ditching the dollar.

What's Safe?

All of this begs the question, if the dollar isn't safe, what is?

The short answer is cash flowing assets.

The investment philosophy for Kim and I is the same as it's always been. We invest in assets that cash flow and hedge against inflation, things like businesses, real estate, oil wells, and more.

Additionally, we keep our liquid investments in gold and silver instead of dollars. This is because gold and silver rise when the dollar falls. This has worked well for us over the last decade.

For you, what Kim and I do may not be safe. Our investing takes a high level of financial education. You have to decide for yourself where your safe harbor is.

But whatever your financial position, it's imperative that you continue your financial education and study hard to decide what's best for you. Those that are financially intelligent will fair much better during these turbulent economic times than those who continue with the old rules of going to school, getting a good job, saving, buying a house, and investing in a diversified portfolio of stocks, bonds, and mutual funds.

Today, savers are losers and the dollar is toast. We want you to be a winner. Dare to think for yourself and take control of your money today. Then, while the world panics, you can prosper.

Original publish date: March 07, 2011