How to Invest in an Era of High-Inflation and a Weak US Dollar

After years of monetary expansion, and now bailouts, there is the possibility that, once the recession is over, will see a devaluation of the U.S. dollar, possibly followed by inflation.

How should investors guard against this outcome?

U.S. stocks will eventually gain against inflation - but may lag by a decade. Also, if the U.S. dollar is devalued, then all U.S.-based assets will lose substantially.

Treasury bills hardly pay anything after inflation. Even Treasury Inflation-Protected Securities (TIPS) will under-perform unless held in tax-sheltered accounts.

Gold and silver are better hedges against war and crisis than inflation. In the last 34 years, the purchasing price of gold has only climbed about 2.7% per year - before insurance and assay costs.

A better alternative for hedging against both the risks of inflation and dollar devaluation might be to invest in the stocks of commodity producers with a lot of overseas sales.

At the start of inflationary periods, products such as copper, uranium, oil, and agriculture tend to perform best. Gold, on the other hand, tends to advance at the later, more speculative stages.

Therefore, if you think that the world-wide recession is ending, you will want to start buying the stocks of companies involved in the international sales, mining and production of the above commodities.

Some possible examples include Archer Daniels Midland (agriculture), Southern Copper (copper), Cameco (uranium), Titanium Metals (titanium), and Viterra (agriculture).

Note that, except for Southern Copper (which is based in Peru), all the above companies are based in the U.S. and Canada. However, they have substantial foreign product sales and own undeveloped land. Both of these make excellent hedges.

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