 "Non-Dollar"
Money
Richard Russell
Dow Theory Letters
Jan 6, 2004
Extracted
from the Jan 5, 2004 issue of Richard's Remarks
Question -- Should I hold gold coins?
Answer -- Yes. If we have a world crisis, if the dollar
collapses, if US consumers pull back on their buying, if the
bear takes over again, if "everything goes," then one
thing is certain -- gold will still be money. Gold is the one
item that cannot go bankrupt -- it can't go bankrupt because
it depends on no group, no plan, no nation to say it's money.
Gold is pure intrinsic value, accepted as money everywhere at
any time over thousands of years.
Gold is the ultimate insurance.
If everything else goes, if the current monetary system falls
apart, gold will still be money. Therefore, everyone should own
some gold, even though gold pays no interest. The safer the item,
the less interest it must pay. Since gold is totally safe, it
needs to pay no interest. With short rates at a 45 year low,
the "opportunity cost" of owning gold today is at a
minimum.
Question -- Should I own gold and silver stocks?
Answer -- I would, and I do, but remember, the stocks
are not the metal. The stocks have the leverage, but they also
possess risks that the metal does not.
Question -- Should I own assets denominated
in foreign currencies?
Answer -- I recommend it. Many of the smartest investors
in the world (Templeton, Soros, Buffett) have moved into non-dollar
assets. You can buy CDs denominated in other currencies through
Everbank on the net. You can buy German notes denominated in
euros. You can buy euro futures, although this is more of a professional
play. Gold is another easy way of buying and holding "non-dollar"
money.
Question -- What's the psychological difference
in investing say in euros vs. investing in gold?
Answer -- Excellent question. Note that when you read
the magazines or newspapers or listen to the advisories, they
have no objections to diversifying out of dollars into euros
or other currencies. But not so with gold. No, we hear, gold
is dangerous and volatile.
The real difference is that
when you diversify into euros, you are "playing" within
the central banks' paper money system. And that's OK. Even the
central banks themselves diversify into euros if they believe
they have too many dollars.
BUT -- when you diversify out
of dollars into gold, you THREATEN THE CENTRAL BANK PAPER CURRENCY
SYSTEM! If investors start to move out of paper, any paper, into
gold, the whole basis of the central bank paper currency system
is threatened, and that is something the central banks can't
abide.
Gold is international. It depends
on no government or central bank to state that gold represents
wealth. Gold is independent of the whole central bank system,
and as such it represents a danger to the paper system.
Question -- Will the US outlaw the possession
of gold by Americans?
Answer -- I can't see it. The US is issuing
gold coins for its citizens to buy and accumulate. Gold is now
being distributed to people around the world via ETFs and by
other proxies. Many Americans own gold in foreign accounts. Gold
ownership by its people is being encouraged by China and other
Asian nations. I think it would be nearly impossible for the
US to outlaw the ownership of gold. It would be too difficult,
too embarrassing, and above all it wouldn't make sense. And what
about gold stocks? Would the US outlaw ownership of US gold stocks,
foreign gold stocks? It's all too ridiculous -- I don't see it
happening.
Question -- Russell, what do you make of the
stock market's reaction to the sinking dollar?
Answer -- The current reaction to the lower dollar
is obviously bullish -- a lower dollar makes US goods cheaper
and more attractive to foreign buyers.
But if the dollar CONTINUES
to decline, at some point the decline will frighten our foreign
holders of US securities. If this happens (it's already happening
in a "polite" way) foreigners will panic out of US
bonds, rates will rise in the US, and that in turn will put pressure
on the huge mountains of US debt. At that point, the squeeze
will be on stocks and US business.
More follows for subscribers
. . .
Richard Russell
Dow Theory
Letters
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