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Roubini Says Dollar, Franc May Beat Gold in Recession


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Roubini, who is flipping and flopping like a fish, is now saying that the dollar and franc may beat gold in a double-dip recession.




We had said this already in the MPIC Fund's 2009 2nd Quarter Letter:


Our perennial need to be in fear as value investors, has now moved from fear of the financial system and consumer debt, to one of fear of national balance sheets and budget deficits.  The nagging question now regularly in our mind is, “What is the likelihood that other countries could lose confidence in the U.S. dollar?”  This is an enormously difficult proposition to ponder.  One that we don’t believe we are qualified to answer, yet we find ourselves having to debate this as stewards of investor capital.


If we were in normal circumstances, then the conclusion would be a very simple…yes, quite likely!  But these are not normal times.  The strongest rebuttal we have for that question is “If not the U.S., then which currency would or could supplant it?”  The Yen, the Euro?  Not a chance, as their economic circumstances are even worse than the U.S. 


Without some confluence of Asian governments combining currencies, which could very well happen, we do not know of any reasonable substitute for the U.S. dollar that could be purchased in quantity by foreign nations.  The largest holders of U.S. currency are Japan and China - the two largest exporters to the United States!  It just isn’t in their best interest to see a very weak U.S. dollar as it will only stifle demand for their exports.


What are some other alternatives then…gold…other hard assets such as timber or real estate?  What about currency hedges?  None of these fall into our circle of competence or are truly quantifiable investments.  What about Treasury Inflation Protected Securities (TIPS)?  They will not provide above average long-term returns and we pay a premium for the insurance protection against inflation. 


We believe buying things that you have little understanding of, simply out of fear of not buying, is one of the most foolish things an investor could do.  We are not speculators!  As such, we have no legitimate alternative for our dilemma that would supplant our existing philosophy of seeking out undervalued investments.




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