QnA Friday: The Most Important Currency In the World

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Happy Friday, Dear Grasshopper! I’m feeling thoughtful today (go figure), and it’s been ages since I’ve quoted my man Bruce (shame on me), so I want to start today’s missive with an observation on arguably the very best and most expensive currency in the entire world, including (gasp!) gold itself…

Time.

“To spend time is to pass it in a specified manner. To waste time is to expend it thoughtlessly or carelessly. We all have time to either spend or waste, and it is our decision what to do with it. But once passed, it is gone forever.” — Bruce Lee, Striking Thoughts

How are you spending your time? (Because I know you’re spending it, not wasting it…)

It is a currency, just like dollars, or euro, or yen, or gold, and most of us trade our time each day for these other currencies.

And just like these other currencies, you can spend and invest your time wisely, moving closer to your goals or building deeper relationships with friends and family, or you can waste it and fritter it away on frivolities like mind-numbing TV or thoughtless people.

So my challenge to you this weekend is to thoughtfully spend your time like the precious currency it is…because once you spend it, you can never earn it back. It is gone forever.

So play with your family! Tell that special someone you love them! Hang out with your very best friends! (And yes….work on that investing plan!)  

I promise you won’t regret it.

Also, I want to thank YOU for spending some of your precious time here on Kung Fu Finance — I truly appreciate it, I hope you find it valuable, and I enjoy getting to know each and every one of you.

Quick housekeeping note: we’ve got lots of great questions this week, and for those of you who have emailed your questions in I humbly ask you for your patience…the volume of email I’ve been receiving recently has been overwhelming but I am slowly working my way through them (please remember, I am still a one-woman show…thank you!).

I truly do read each and every one and love hearing from you and will absolutely address each and every one of you individually or in an upcoming QnA soon.  Thank you!

Now onto this week’s questions!

First, Joey asks:
Great summary Susan! I am looking to hopefully start coming to these conferences soon and start mingling with like-minded individuals and investors.

Just a quick question, do you know what’s the minimum amount needed to invest in Doug Clayton’s Fund/private placements? It looks extremely interesting with the frontier markets in it. Also would love to plan to invest some with Rick Rule too.

Hi Joey,

Thanks for your nice comment! I will email Doug right now and ask him, and you may be able to find the information on his website, http://www.leopardcapital.com/.

If you’re interested in frontier markets investing, I would also encourage you to contact Mark Wallace and Chris Tell of http://www.capitalistexploits.at/. They have a new service called “CPAN” where they will give you the opportunity to invest in frontier market private equity deals, much like Doug Clayton’s firm (and they all know each other).

Yes, Rick is great, and I believe they now offer two ways to open accounts– a traditional full-service brokerage (where you make your own decisions with the help of an advisor…this is “Sprott Global Resources Investments” http://www.sprottglobal.com/) or a fully managed account for high net worth investors (where they manage your money for you…this is “Sprott Asset Management” http://sprottusa.com/managed-account-program-menu/).

There is no minimum for a traditional brokerage account, although there is a $1500 minimum on the buy side, and they have two accounts for high net worth investors– the “Traditional” account open to anyone (except Canadians…don’t ask me why!) with a $100,000 minimum, or the “Premium” for Qualified Investors only (net worth $2 million not including your primary residence) with a minimum of $250,000. The “Premium” account lets you invest in Private Placements…Rick’s specialty (he is an OUTSTANDING negotiator).

Good luck, and I will let you know when I hear back from Doug Clayton!  – KFG

Next, Alex asks:
Hi KFG– Doug Casey’s humor is amazing… I like it! Speaking about serious stuff, I think he should make one of those monologue shows which will combine amazing investment knowledge with a looot of humor– just dunno who will allow him to speak about that stuff on the mainstream tv.

I have one question which has crippled my mind for some time and which I believe is significant (I hope that KFG will understand it rightly and maybe ask Doug what is his opinion):

Lets get to the time when the “apocalyptic” scenario starts to unfold.

What happens to the stock market?

1. What would be the first 100% signs of that scenario starting to unfold? (I suppose the news will break that the US govt cannot pay to its debtors or some banks have margin calls that they cannot cover?

2. I suppose 1. is going to lead to brutal hyperinflation and the questions is what will happen to the stock market in this case?
Are the stock prices going to rise or fall in this case?

Of course it depends which stocks but in general is the stock market able to operate in an environment of hyperinflation which had been seen in the Weimar Republic in Germany and in many other countries or it is going to crash and all owners of all stocks are going to lose the value of their stocks?

I would very much like to know Doug’s opinion on the most probable version of how the above scenario would unfold and what is the likely event that would pull the trigger for the unfolding.

Thanks in advance. Cheers, Alex from Bulgaria

Hi Alex, Great questions! I will forward your questions to Doug and see what he says…most likely he won’t be able to address it personally but you’ll probably see an answer in a future article he writes or an upcoming “Conversations with Casey” (if you don’t subscribe to that yet you should– it’s free and comes out every Wednesday and is an interview with Doug)….and yes, he’s insightful and hilarious– great combination!!! You can sign up for the free Conversations with Casey at http://www.caseyresearch.com/.

If you’re interested in my take, here you go (although I warn you this is a complete guess…I have no crystal ball):

1. At some point, we will have a crisis of confidence, and interest rates will rise, as they did in the PIGS, because our creditors will “suddenly” realize that we cannot possibly pay our debts. To me, this will be the first sign of the “apocalyptic” scenario beginning.

2. This will wreak all sorts of havoc…of which I can only guess. As interest rates rise, bond prices will tumble, causing a bond market implosion.

3. I cannot imagine this will be “good” for the stock market, either…you don’t need to go back to Weimar Germany for evidence of that, but just to the recent troubles of 2008-09, 2000, etc…financial crises of any kind are typically a huge “risk off” (e.g. stock market crashing) event. I did find one chart that showed the German stock market rising dramatically during their hyperinflation, both in marks and in dollars; however, many say that it’s all relative — the stock market went up thousands of percent, but gold (and other real assets such as real estate) went up billions of percent, so stock owners got slaughtered. However, at the end of the day a productive asset (a well-performing productive company that produces cash flow) still holds value, so I cannot imagine all equities would instantly “go to zero”…that just doesn’t make sense.

So in all honesty I don’t know….do any of you dear readers???  I would love to hear your opinion in the comments! What do you think will happen when the world wakes up to our debt disaster?

Next, “S” asks:
Besides buying metals, what currency would you suggest that we transfer US dollars to?

Great question!

While most everyone agrees that all fiat currencies are in a race to the bottom and will eventually reach their intrinsic value (0), there are some currencies that you could diversify into if you already have enough gold/silver (or if you want to spread your risk a little more).

At the recent Agora Financial conference, Frank Trotter gave an excellent talk on currencies (he is the founder of EverBank). Here is his take:

Norway:

Has positive trade balances, no foreign debt, and their unemployment rate is only 3%. The only concern with Norway is that it’s an export-oriented economy that relies heavily on the sale of oil, so if the price of oil goes down that could affect their currency.

Australia:

The Australian central bank held their interest rates steady as opposed to cutting them, and the Aussie dollar has appreciated a lot in the last month (2%…a lot for one month!). It’s been in the Top 5 performing currencies in the past 12 months (although I caution you here that past performance is NOT an indicator of future results!!!). Australia’s economy depends heavily on China’s appetite for commodities, so that’s a possible risk factor.

Personally, I think the Aussie dollar looks a little “toppy”, as they say in finance, but that’s just me. (And I am not a currency expert…)

Canada:

Canada has the tenth largest economy in the world and an AAA rating from the illustrious ratings agencies. It’s the 2nd largest oil exporter, and it’s currency is up over 1% recently with the rising price of oil (but again, that works in reverse, too, if the price of oil is to fall).

Singapore:

This has been strong the past few years, and the Singapore Monetary Authority has set a band within which it can trade. Singapore’s GDP for 1Q’2012 was up 5%, and it’s economy is thriving. Also, China has allowed Singapore’s banks to be among the few that will trade renminbi in the future.

China:

China has the 2nd largest economy in the world and a large trade balance. Frank believes it’s currency is undervalued by 20 – 25%, and the Chinese government is under political pressure to appreciate the yuan vs. the U.S. dollar.

It’s recently had a 4.3% increase. The Chinese government sets the exchange rate each day– it is closed and does not trade on the markets. (yet)
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None of those are personal recommendations, but I would definitely spend some time on the EverBank website if you’re interested in getting into currencies (and aren’t ready to plunge into Forex yet!). They have a big education section that will give you lots of information about the various currencies…their website is http://www.everbank.com/.

Good luck!
– KFG

Next, Ken asks:
If and when this happens (dollar hyperinflation), what will be the ripple effect on dollar valued commodities such as oil, gold and silver?

Hi Ken,

Great question! Having not lived through a hyperinflation personally (thank goodness…) I can only offer you my best guesstimate.

Because gold, oil, silver, and other commodities are “real” assets, they are also priced in other currencies, too. For example, you can look up the gold price in euros, or yen, or any other currency, as well as its dollar price.

A fellow La Estancia de Cafayate owner has a fantastic website called “Priced in Gold” that I urge you to check out….it will help you flip your frame of reference from being dollar-centric to thinking of things in terms of how they would be priced in gold (or other commodities). http://www.pricedingold.com/

Basically, if the dollar hyperinflates, gold/silver/oil/etc. will go through the roof in other currencies, because people the world over will at that point be scrambling to grab hold of anything of value!

Let me know if this makes sense….
– KFG

Next, Mark asks:

Has anyone else suggested that the fed bring back gold precious metals w/ oil and energy currency for sole american domestic use only? the american fiat money is left on the international exchange only. this can be further limited to american blue collar new currency, white collar (wall street corporations) old fiat international currency. (the hope is) the new currency is far more valuable than the fiat, and the fiat would benefit in value also if not used for paying blue collar workers salaries/benefits. the values of both currencies will be reflected in the wall street world international stock and exchange commodities that each are based on. i am still looking for a similar proposal but nothing so far. (maybe china has proposed a domestic only currency?)

Hi Mark,

Those are great questions, and no, I haven’t heard of anyone proposing a domestic-use-only currency at all, whether backed by gold or oil or energy….that’s a very interesting concept!

To be honest, my head hurts trying to contemplate the implications of that….I need to ask someone much smarter for their opinion (and will do so!).

To my knowledge China hasn’t proposed a domestic-only currency, but they don’t “trade” their renminbi/yuan much outside of China, as most trade is conducted in US dollars. They have, however, made separate agreements with Iran and Russia I believe to trade in yuan, so who knows….many people do think that China will one day introduce a gold-backed (or something real-backed) currency that will crush the dollar.

Great question!!!
– KFG

Next, Bob asks:
Kung Fu Girl,

How do you feel about silver rounds as a way of reducing the premium associated with purchasing government issued silver bullion?

Hi Bob,

I think it’s a personal decision. Silver rounds are basically “coins”, but aren’t legal tender or government issued (which some people would LOVE just because they hate the government so much!).

But because of that, they can usually be purchased for much less of a premium over the spot price of silver, so definitely give you more bang for your buck (and are easier to carry around than say, silver bullion bars).

The only downside is because they are not “government issued legal tender” and because they are not as “easily recognizable” as the well-known coins (like Eagles, Krugerrands, etc.), should the “SHTF” someday, it might be more difficult for whomever you are trying to sell them back to and/or barter with to recognize their purity…you might have to get them assayed.

So it’s really up to you and your reason for buying them! Please let me know if this makes sense, and good luck with your decision!

– KFG

That’s it for this week…have a wonderful weekend (spend your time wisely!), and thank you as always for reading and subscribing!

To your financial success,

— Kung Fu Girl

Tagged as: Bruce Lee, currencies, Doug Casey, Doug Clayton, gold, Leopard Capital, private equity, silver, time