Hyperinflation: The coming storm?

The flight from US treasuries, equities and the dollar is a category five hurricane against the once safe haven.  Is it fear of hyperinflation or just a ripple of the recession?

Speculation is increasing that the US will not be able to pay off its mounting debt and it is showing in the markets.  Most currencies, especially commodity driven ones like the Australian and Canadian dollar, are rallying.  The US treasury bonds are selling off at an alarming rate.  The stock market is starting to either consolidate or make a larger move down.

If the hyperinflation hits and creates a panic, this type of activity will increase markedly.  If instead this is a ripple from the recession tarnishing the confidence of other markets it is still a negative because it shows that central banks around the world are not supporting US debt to the degree that they did in the past during a time when the US is creating more debt than ever before.

The implications are vast and will have an effect on purchasing power, employment, wages and the types of jobs available moving forward.

Hedging inflation in 2009 and beyond

What do silver, the Australian and Canadian dollars all have in common? They should all be considered good inflation hedges for US dollar-based portfolios.  The Australian and Canadian dollar are commodity-based currencies, because their underlying economies are very much driven by the production of commodities such as gold, silver, oil, industrial metals, etc.  Silver itself is very undervalued against ever increasing real world demand for coinage, jewelry, electrical and chemical applications.  The combination of all three assets, in two different asset classes (foreign currencies and commodities) provide strong upside as the dollar weakens and world growth comes more from emerging economies than industrial economies.

The Australian dollar ETF can be bought through symbol FXA, the Canadian dollar ETF through FXC and silver through SLV.  I currently have holdings in all three assets and advise those concerned about inflation to consider what their long term investment goals are and how these assets may or may not fit in to their strategy.

Canadian dollar may rally

With the US poised to announce multiple government endorsed packages  to stimulate the economy and assist banks, it is likely that a dramatic weakening of the US dollar will occur.  The Canadian dollar seems especially well positioned to rally, perhaps even back to par with the US dollar.

Canadian dollar (FXC)

We can see in the above chart a bottoming process in the Canadian dollar beginning to take shape. Now that oil is also potentially bottoming and some commodities are finding strength, the trend serves the commodity-driven Canadian dollar well.  Watch the USDCAD pair and the FXC Canadian dollar ETF.