The Purchasing Power Portfolio: This Five-In-One Investment Is the Ultimate Way to Diversify
by Karim Rahemtulla, Advisory Panelist
Tuesday, March 2, 2010: Issue #1207
This time last year, I was pounding the table so hard that my hands hurt.
The target of my beating? The ol’ U.S. dollar.
The greenback was in real trouble. Its litany of woes were as clear as day…
- An enormous U.S. fiscal deficit – and little or no solid plan to reduce it.
- A government hell-bent on bailing out failing institutions.
- Higher taxes.
- Inflation.
Those factors are still present today. Not a pleasant topic, I know. After all, the majority of my holdings – and probably yours, too – are priced in greenbacks…
Back then, there were two options available:
- Cry about it.
- Do something about it.
I chose the latter. Here’s what I came up with – an investment that it still working like a charm to this day…
Purchasing Power Portfolio: A Five-Pronged Attack Against Dollar Depreciation
I set up a meeting with my friends and colleagues at EverBank. After much collaboration, we created an exclusive “five-in-one” investment called the Purchasing Power Portfolio (PPP).
It’s a five-pronged effort, aimed at combating the depreciation of the dollar. The investment gives exposure to assets that most people don’t have. Not all in the same investment anyway: strong foreign currencies and metals.
Specifically, it includes the Canadian dollar (up by 4% against its U.S. counterpart over the past four trading days and 22% higher over the past year), Australian dollar and Norwegian krone, plus traditional safe havens against dollar woes – gold and silver.
So while the dollar has rebounded recently and the reasons for its woes might not be as evident today, given that it’s risen against some currencies, don’t be fooled. It’s rising against weak currencies like the euro and the British pound. (Just yesterday, the pound lost four cents against the dollar amid concerns about a hung parliament in the upcoming British general election and a subsequent economic stalemate. It hit a nine-month low of $1.47, having been worth $1.64 just six weeks ago.)
But against stronger currencies – the Canadian dollar, Aussie dollar and Norwegian krone, for example – the dollar is still down big. Gold and silver are also much stronger against the dollar.
Result? The Purchasing Power Portfolio (PPP) is up 30% since its inception.
The Driving Forces Behind These Five Assets’ Upward Moves
It’s easy to see why these five assets are performing well…
- Canada, Australia and Norway are heavy resource-based economies.
- These countries also have better fiscal policies. Australia just raised interest rates again today – to 4%. The Aussie dollar is up 42% against the U.S. dollar over the past year – the best performance of the world’s developed nation currencies. Several other government policies foster stable growth, too.
- Gold and silver demand is high – largely from high-growth emerging nations.
It’s a clear signal from the market to investors. But it’s one that many investors are still ignoring. Don’t get me wrong here… I hope the U.S. dollar and economy return to strength… but not at any price.
Right now, that price is too high. So here are some actions that you can take…
Diversification… Twenty-First Century-Style
First of all, I’m not saying that you should dump a ton of your cash into something like the Purchasing Power Portfolio (although investing some would be a prudent move – you can follow the link to find more information on the Purchasing Power Portfolio). Rather, take advantage of the dollar’s current relative strength and consider partial diversification.
There are very easy ways to do this today:
- Buy foreign currency ETFs that strengthen when the dollar weakens.
- Buy foreign shares in growing markets. Again, you can do this through ETFs, or by investing in ADRs on foreign stocks that trade in the United States. (See the “Editor’s Note” below for a great way to do this.)
- Buy U.S. stocks with high growth potential that will outpace inflation.
- Invest in metals that rise when the dollar falls – gold and silver, for example.
This is not meant to be an exercise in paranoia, or anti-dollar sentiment. In the twenty-first century, a portfolio that doesn’t contain investments like these cannot be truly diversified.
In the end, you must take action to protect yourself and your hard-earned cash from all potential hazards. After all, given the events and policies over the past two years, it’s patently obvious that nobody else will.
Until next time,
Karim Rahemtulla
Editor’s Note: There’s no better time to take advantage of the diversification and profit potential that foreign stocks offer.
Last year, overseas investments in The New Frontier Trader notched up returns of 1,874%, with investors having the chance to grab 154% every month. Now, foreign stocks are set for more gains – and here’s the best way to grab them…
We profiled the offer in yesterday’s issue, so rather than rehash it here, visit the link below to see how you can get a massive discount (we’re talking more than 60%) and generous risk-free trial. The clock is ticking. Go here to get the details now.
- How to Play Rising Foreign Stocks and a Rising Dollar
- Why It’s Time to Invest in Silver: This Precious Metal’s Rally is Just Getting Started
- Silver Wheaton Corp (NYSE: SLW): Stock of the Day
One Response to “The Purchasing Power Portfolio: This Five-In-One Investment Is the Ultimate Way to Diversify”
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Dubbed a "market maven" by CNBC, Karim Rahemtulla is one of the country's foremost specialists in options trading. As founder and editor of The Smart Cap Alert, he focuses his efforts on all aspects of options trading – LEAPS, put selling/covered calls and spreads. 
March 2nd, 2010 at 5:02 pm
Well done on a realistic article, that acknowledges the deficiencies in the USD as distinct from straight bullishness elsewhere.
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