“What currency to buy to protect against inflation? » Editorial by Charles SANNET

My dear impertinents, dear impertinents,

More and more of you ask me what currency to buy to protect against inflation?

If I was teased, I would tell you that you should subscribe to the STRATEGIES letter and in particular read the file whose image you have at the end of this article and all the others that I publish regularly so that you develop the best strategies of heritage can protection!! But before you proceed by clicking here to subscribe to the STRATEGIES letter, here are some things to think about to answer that question so that even for those who aren’t subscribed, you can understand how a Strategies letter works.

What currency should I buy to protect against inflation?

If you ask me which currency to buy to protect against inflation, I answer that this question is only valid if you think that certain currencies are less affected by inflation than others.

So we must first look at inflation by country.

What do we perceive?

That all countries that have large so-called “safe” economies, like not Zimbabwe or Venezuela or not Argentina, are still affected by inflation, starting with… the United States, the world’s largest economy, which just surpassed 8.5% has annual inflation, highest in 41 years!

If all economies are affected relatively equally by inflation, then there is no better currency than ours…

So don’t buy US dollars!

However, this observation should be qualified.

Why ?

Because there are also changes in the relative parities.

Floating Exchanges.

Yes, we are in a floating exchange rate system, which means that the value of currencies relative to each other evolves and fluctuates according to a certain number of parameters, which I will not list all of here, but let’s say that for the sake of simplicity without being overly simplified said the dollar is the currency of the first world power. So when there are risks of war, the reflex is to buy the dollar, which is becoming a safe haven currency that is appreciating relative to all others, and this is currently the case. The euro falls against the dollar.

If the dollar appreciates 10% against the euro and you have only 8% inflation in euros, then the 10% gain on your forex trade actually gives you a 2% gain!

So you need to buy US dollars!

As you can see from this chart, the euro-dollar has fallen sharply as it has risen from 1.16 euros to 1 dollar to 1.08 between November 2021 and today. first of all we see that between the outbreak of the war in Ukraine and today it goes from 1.14 to 1.08.

To think that the dollar will go on parity 1 for 1 is quite logical. With such a foreign exchange transaction, there remains a potential for an increase in value of 8%, which allows you to compensate for losses with inflation averaging 7.5% in Europe.

But is the dollar a good currency?

The answer is no, knowing the United States’ abysmal debt and chronic annual deficits.

That means two things.

In the short term, the dollar is a currency that will appreciate against the euro because it serves as a safe haven through the war and if the situation worsens, all Europeans will try to save money from the United States and that the Fed, the American central bank, will raise interest rates before the ECB does it on their side. Christine Lagarde pompously calls this the “desynchronization of monetary policy”. As a humble Norman loft economist, we can put things more simply by stating that interest rates will not rise at the same time, which implies that investing in “dollars” is more profitable than investing in “euros”, so… You have to buy dollars.

In the longer term, the dollar is a moldy and rotten currency like the rest, which will no more protect you from inflation than the euro or the pound sterling.

We have two problems.

The first is an overly expansive money creation policy. Too much money is being created, so each amount of money is worth less purchasing power. Second, we have a resource and raw material problem. There aren’t enough left to keep them cheap! So we have structural inflation related to the scarcity of natural resources. And here central bank policy can do little but create recessions to reduce demand and let resources last a little longer. Hence the high volatility of energy prices over the last 10 years.

So you should not buy dollars, but gold.

Yes, but as interest rates rise, gold will fall. So you shouldn’t buy gold in the short term, except that gold could go up even if prices go up?

Ha good?

But in which case?

Well, if inflation stays higher than interest rates, for example, and that’s what’s happening. Basically, your issue A earns 1% and inflation is 5%, so the real interest rate is -4%!

What determines the value of gold is not the nominal prices (the advertised nominal price) but the real price from which inflation is subtracted. As long as real interest rates are negative, gold will rise. It’s as old as the world.

So we can buy gold.

But should you then buy dollars?

In the short term yes and to desensitize you to the ‘Euro’ risk and the ‘War in Europe’ risk but in the long term you need to buy gold.

Go for the road one last thought.

The euro is falling against the dollar, but gold is rising in dollar terms, so what’s better to buy? gold or dollars?

Hahahahahahahahahahahaha.

I joke, but if you’ve followed the reasoning so far, you’ve found the answer yourself, and that’s the job I do for my STRATEGIES newsletter subscribers. My goal is to enable you to understand what is happening, so that you can understand things for yourself and make decisions in a free and informed way, because this is about your money, your life, your families and to always be your best will know what is best for you and for those you love and want to protect.

If you want to find out more about the STRATEGIES subscription, you can find all the information here.

The answer is that you can buy dollars in the short-term and gold in the long-term, and if you want to take a shortcut and not take exchange rate risk, buy gold directly gold, which allows you to buy…all currencies on the planet, now and in the future !

It’s already too late, but all is not lost.

Prepare yourself!

Karl SANNAT

“Insolentiae” means “impudence” in Latin.
To write to me charles@insolentiae.com
To write to my wife helene@insolentiae.com

You can also subscribe to my monthly newsletter “STRATEGIES” which will allow you to go further and in which I will share with you the concrete solutions you need to implement to prepare you for the next world. These solutions are articulated around the PEL approach – Heritage, Employment, Location. The idea is to share with you the tools and methods to build your personal and family resilience.

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