I just read a short piece by Rob Arnott, entitled "Death of the Dollar".
http://advisorperspectives.com/commenta ... 121412.php
The endgame is coming. It doesn’t matter who is in the White House or which party controls Congress; when the markets lose confidence in our currency, it happens very fast. When confidence in the world’s dominant currency plunges, the consequences can be very disruptive to every business and consumer around the globe. The coming decade will be a doozie.
Whenever I read something like this, especially from a "mainstream" kind of financial guy and not some fringe type, it reminds me what a desperate state we're in and I start asking how I can protect my retirement assets.
In 2006 and 2007, I voiced concerns that treasury rates didn't fully reflect the credit risk of the US. Since then, US debt has been downgraded, yet interest rates have dropped several percentage points. Far more variables go into rates than just credit risk.
According to the CIA world factbook, US public debt as a percentage of GDP was 67.8% in 2011, but in Japan it was 205.5% (sources: https://www.cia.gov/library/publication ... os/us.html
, https://www.cia.gov/library/publication ... os/ja.html
). For Japan it has been above 150% since 2001 (source: http://www.indexmundi.com/japan/public_debt.html
), and, for the US, it has been at or below 67.8% from 2001 to 2011. Yet the yen has gained over 20% against the dollar since 2001 ( http://fxtop.com/en/historical-exchange ... 16&LANG=en
). Go figure.
One can have very good reasons for a prediction about global markets, and still find the prediction has not come true by the time you believe it will. That said, I think the most rational course is to stay widely
diversified geographically, and by security issuer, and by asset class, including equities, bonds, precious metals (e.g. physical precious metals, IAU or GDX ), agricultural commodities (e.g. DBA or JJA ), merger arbitrage (e.g. merfx or arbfx ), currencies, real estate, and lots of cash. The reason I say "precious metals, and agricultural commodities" instead of just commodities, is that I believe diversified equity indexes include adequate exposure to most commodities except precious metals and agricultural commodities.
The following Talmud advice about asset allocation is worth considering as a starting point: "Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve." If real estate (land) or equities (business) appears to be in a bubble to you, you could tilt somewhat toward reserves, but don't go overboard. I count precious metals, agricultural commodities, cash, and bonds as reserves, though I'd focus primarily on cash and short to intermediate bonds since they are so much less volatile than precious metals, ag. commodities, and long bonds. I would not
recommend putting the majority of one's reserves in US treasury bills, notes, and bonds. As for currency exposure, one can get that by leaving one's international equity and international real estate holdings without a currency hedge.