Unless you’re living under a rock, you’ll know that the Fed is gearing up for more large-scale money printing this week.
The government and the mainstream press call this process “quantitative easing” – or QE for short.
But “quantitative easing” is to money printing what “collateral damage” is to dead civilians and “friendly fire” is to shooting soldiers on the same team.
It’s a nonsense phrase designed to obscure an unpalatable truth: that America’s central bank is creating dollars out of thin air in attempt to ‘fix’ the economy.
I’ll spare you the yawn inducing analysis of U.S. monetary policy. But since Ben Bernanke announced at the end of August that the Fed would do “all that it can” to help the markets, the dollar has lost over 7% of its value versus a basket of major world currencies.
That’s because the more dollars there are in the world the less each one is worth. The more dollars the Fed prints, the deeper the dollar’s slump is likely to be.
Luckily, there is something you can do right away to protect yourself. It’s what John Burbank from Passport Capital calls “New CASSH.”
New CASSH stands for New Zealand, Canada, Australia, Switzerland, Singapore and Hong Kong. Or rather it stands for the currencies of these countries. According to Burbank, these countries stand to benefit the most if the financial crisis lingers on.
Burbank knows his stuff. The hot dog vendor turned money manager made a 219% return for clients in 2007. And after launching Passport Capital in 2000 with just $800,000, he now has $3.2 billion under management.
According to Burbank:
“The way the Western world is dealing with its problems is essentially trying to appreciate and print money, and that is going to be to the detriment of emerging markets as they have to deal with higher food and energy prices. At least in the West, where food and energy are a lot lower, they don’t have this problem…at least not to the same degree. And in the case of (the New CASSH) asset class, Canadians and Australians are essentially beneficiaries of inflation, New Zealand has agriculture.”
New CASSH – How to Profit from the Coming Inflation
Burbank’s thesis is simple. Money printing eventually leads to inflation. So you want to be positioned in assets that profit from inflation.
This is where the New CASSH countries come in:
1) New Zealand: New Zealand is a developed market with a generally laissez faire style government and strong free market credentials. It is also the least corrupt country in the world, according to Transparency International. The country has a large agriculture sector, which will perform well in a weak dollar environment.
2) Canada: Canada is also in good shape to weather the financial storm. It is home to vast oil and natural gas reserves and is one of the few net energy exporters outside of the Middle East and Latin America. It also has a banking system that is one of the strongest in the world.
3) Australia: Australia is another resource rich nation, with tons of coal, iron ore, uranium, nickel and gold. It also produces oil and gas and grains, such as wheat. Even better, it’s on Asia’s doorstep. So it stands to gain big time as Asia’s appetite for its resources grows.
4) Switzerland: This tiny mountainous European country is not a big exporter of energy or resources. But Switzerland’s currency is considered by many to be a “safe haven” in times of trouble. This means the franc is likely to rise in value as the value of the dollar declines.
5) Singapore: Often referred to as the Switzerland of Asia, Singapore has a high growth, low debt economy and a high level of GDP per capita. The Singapore dollar is already hitting fresh highs against the buck. And with growth rates on track for between 13% and 15% this year and the Singaporean central bank keeping a sharp eye on inflation, this outperformance is set to continue.
6) Hong Kong: Hong Kong’s currency is actually pegged to the U.S. dollar. This means a cheap dollar results in a cheap Hong Kong dollar – a situation that could send Hong Kong into a massive boom. Of course, this could also lead to an eventual bubble. But there may still be triple-digit gains in store for investors with strong stomachs and a high appetite for risk.
P.S. Some of these six “New CASSH” plays are riskier than others right now. And some have a lot more potential than others over the long term. I’ll be making some specific recommendations for members of my paid-for research service Alpha Hunter. Find out more here.
Editor’s note: Chris Hunter is IL’s Financial Editor and lead writer for International Living’s new FREE financial e-letter–International Living Investor. You can sign up for this free service here.