Investment Contrarians

U.S. Dollar

There’s a debt crisis brewing not only for European countries, but for America. Investment Contrarians editors have been critics of the U.S.’s inability to reign-in government spending. Based on the White House’s own figures, the national debt will reach $20 trillion by the end of this decade—about 140% of our current Gross Domestic Product. In our studies of history, countries who have incurred considerable debt, countries that have experienced a consistent national debt to GDP multiple of 120% or more have experienced currency devaluation. The U.S. dollar has already been in a free-fall since 2009 against other major world currencies. We expect the devaluation of the U.S. dollar to continue as the U.S. continues to pile on the debt. You can find regular commentary on the U.S. dollar in Investment Contrarians.

China Leads Campaign to Replace the Dollar as Reserve Currency

By for Investment Contrarians | Oct 17, 2013

China Leads CampaignA very interesting item appeared through the official Chinese news agency, Xinhua, in which the Chinese government is effectively calling for the end of the U.S. dollar as the world’s reserve currency, stating that the world should “…start considering building a de-Americanized world.” (Source: “Commentary: U.S. fiscal failure warrants a de-Americanized world,” Xinhua web site, October 13, 2013.)

In my view, the commentary was intended to voice the opinion of Chinese leaders that they are fed up with the political fighting in Washington, leaving China’s trillions of dollars in U.S. debt in the hands of ineffective leaders.

With the U.S. dollar as the reserve currency, there is very little recourse for many nations around the world. You have to remember that for countries to make large trades on an international scale, a reserve currency is required for transactions. Increasingly, China is looking to move away from the U.S. dollar as reserve currency to lessen its reliance on our nation. This is part of the reason why China’s leaders are looking to move away from an export-led economy and toward a more domestic-oriented economy.

However, much of the commentary was geared towards politics, rather than purely economics; one example: the U.S. is “meddling in the business of other countries,” a not-too-subtle hint that we should stay out of China’s affairs.

They are right in one aspect: we have abused our power as the reserve currency and have run up a massive amount of U.S. debt. At some point, countries around the world that depend on the U.S. dollar as the reserve currency as well as trillions of dollars in invested U.S. … Read More

What the Wealthy Are Doing to Beat Inflation

By for Investment Contrarians | Oct 7, 2013

Beat InflationWith practically every central bank around the world having the throttle fully open when it comes to monetary policy, investors with extra cash just lying around need to do something with it. While you could put this cash in a government bond or simply keep it in cash, these options aren’t going to help you beat the rate of inflation. Instead, investors should take a cue from the superrich and consider an investment strategy that includes hard assets.

As you may already know, an investment strategy that comprises hard assets includes traditional stores of wealth (such as gold and silver) and commodities (such as oil), as well as artwork and even cars.

While I advocate the traditional investment strategy of becoming a part owner in companies through equities, there are growing signs that even the superrich are becoming increasingly worried about having cash sitting idle and are looking at hard assets as part of their portfolio.

Just recently, a 1963 Ferrari “250 GTO” sold for $52.0 million! I like a nice car as much the next guy, but $52.0 million is a lot for one vehicle.

Obviously, the person buying it is not using it just to go grocery shopping; rather, it’s likely that the new owner is incorporating this item as part of their investment strategy to include hard assets (in this case, collectible cars).

To show you just how strong the market is for alternative hard assets by the extremely wealthy, a similar Ferrari 250 GTO sold last year for $35.0 million, which means this year’s sale is a 49% increase in price.

Of course, price appreciation in … Read More

These U.S. Companies Will Suffer as China’s Economy Slows

By for Investment Contrarians | Jul 19, 2013

These U.S. Companies Will Suffer as China’s Economy SlowsKeep your eyes on China. One of the themes I keep reiterating in these pages is that our world is more interconnected than many investors think. While it is certainly important to be aware of how the American economy is performing, we cannot forget that we are part of the global economy.

While the U.S. is still a large player in the global economy, we are not alone at the top. Over the past decade, the Chinese economy has grown to rival our own in size, and its effects can be felt everywhere. The Chinese economy has been a huge driver for many parts of the global economy, including commodity prices and the materials sector.

However, recent attempts by leaders in that nation to shift the Chinese economy away from a production- and export-oriented nation into one that is driven more by domestic demand is causing significant problems.

The latest gross domestic product (GDP) data for the second quarter indicated that the Chinese economy grew at a 7.5% rate, according to the National Bureau of Statistics in Beijing. That was much lower than the forecast conducted by Bloomberg, of which the median estimate was for 7.7% growth in the Chinese economy. (Source: “China growth slows to 7.5% as 2013 target under threat,” Bloomberg, July 15, 2013, accessed July 16, 2013.)

Whether we like it or not, the global economy is heavily dependent on the Chinese economy. For much of the past decade, many companies, including U.S. firms, have deliberately focused their attention on the rapidly rising Chinese economy.

With the slowdown being worse than expected, I believe that this is … Read More

Chinese Sovereign Fund Shifts Focus to U.S. Real Estate; How This Will Affect Home Prices

By for Investment Contrarians | May 29, 2013

Home PricesOne of the biggest fears for investors is to buy at the top of any market. This is a natural reaction because most of us were taught since childhood to do the opposite. For example, my parents always emphasized the importance of buying products when they’re on sale.

Some people view the significant rise in home prices with apprehension, believing that these prices have risen too far. While it is true that home prices have risen substantially, as long as interest rates remain low, there is potential for further capital appreciation.

Americans aren’t the only ones considering real estate as part of their investment strategy. Recent reports state that China is considering diversifying its foreign exchange reserves, totaling approximately US$3.4 trillion, into U.S. real estate. (Source: Yang, S., et al., “China said to study US property investments with reserves,” Bloomberg, May 27, 2013.)

With the Chinese investment strategy in the past based primarily on investing in U.S. government debt, considering how little this asset class is currently yielding, it does make sense for the Chinese to look at diversifying into other sectors. When looking at the potential for home prices to continue rising versus U.S. government debt, this diversification seems quite prudent.

The ramifications for American home prices could be substantial. It really depends on how China goes about allocating its investment strategy. There are already shortages in many real estate markets across the U.S., which is part of the reason home prices have moved up so quickly.

The Chinese sovereign wealth fund could look at taking stakes in companies that are already involved in real estate and that benefit … Read More

Portfolio Protection Against the Collapse of the U.S. Dollar

By for Investment Contrarians | Feb 12, 2013

Portfolio ProtectionWhen it comes to the state of U.S. politics and the economy, you can’t believe everything you read or hear.

Example 1: In 2003, President George W. Bush famously gave a speech aboard the aircraft carrier USS Abraham Lincoln, during which a banner behind him proclaimed, “Mission Accomplished.” It wasn’t then, and it still isn’t.

Example 2: Who can forget these wise words from former Federal Reserve Chairman Alan Greenspan in 2007: “The worse is over for the U.S. housing market, and there will be no economic spillover effects from the poor housing market.” It wasn’t then, and it still isn’t over.

Example 3: Here’s more dubious wisdom coming from the world of finance. Published in the pages of the Saudi Gazette, a January 28, 2013 article announced, “Global ‘economic crisis over,’ say Davos pundits.” Courtesy of, a February 6, 2013 article headline proclaimed, “Financial crisis officially over, proceed into stocks with caution.” Again, it wasn’t then, and it still isn’t.

Why do some think the global crisis is over? Because the stock market is doing well. The Dow Jones index recently rose above 14,000 for the first time since October 2007. And the S&P 500 is trending near its all-time high. So, what more proof do you need? Well, for one, how about looking at those who are not liquid enough to participate in the stock market?

Frankly, I’m not sure how anyone can declare an end to the global economic crisis when the eurozone continues to report record unemployment and a bleak economic outlook. Here in America, the unemployment rate remains stubbornly higher and economic growth projections … Read More