Posted by: Aaron Pressman on July 15, 2008
Having been in Europe not too long ago, I witnessed firsthand the ridiculously little I could get for my Ben Franklins over there. But after hearing Federal Reserve chairman Ben Bernanke’s testimony today, all I can say is I’m glad I wasn’t travelling now, or a few months from now. Facing the rock of U.S. financial collapse and the hard place of growing inflation/weakening dollar, Ben has tried to squeeze through a shrinking middle way of late, especially in the Fed’s last official interest rate pronouncement. Way, way back on June 25, Ben and his colleagues said the financial world was improving slightly and inflation was the growing problem. Today? Well, I guess we have always been at war with Eastasia.
“Helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve,” Bernanke testified today.
On inflation, the picture was murkier in Ben’s view. “Accurately assessing and appropriately balancing the risks to the outlook for growth and inflation is a significant challenge,” he said today.
Overall, it seems like the latest problems and flare-ups in finance land (hmm, Fannie Mae, for example), seem to have altered the Fed’s priorities from just three weeks ago when many thought the central bank was signaling a coming interest rate hike to head off further inflationary pressure. After today, it’s save the banks and worry about inflation some other time. That means low rates stay for longer and the dollar continues to get killed. Already, the dollar has touched record lows today.
What’s a good investor to do? Certainly get some of your eggs out of the dollar basket. Solid, low-costs ETFs have arrived letting you invest in a foreign currency-denominated cash accounts or a portfolio of non-dollar bonds. Start your homework with some of the Rydex currency plays such as the Euro Fund (FXE), Yen Fund (FXY) and the Swiss Franc fund (FXF). Wisdomtree has some farther a field offerings like a Chinese Yuan Fund (CYB), a Brazilian Real fund (BZF) and a New Zealand dollar fund (BNZ). The best bet may be a more diversified basket of currencies like the Powershares DB Dollar Bearish Fund (UDN) or the Powershares DB G10 Global Harvest Fund (DBV). As for world bonds check out the SPDR Lehman International Treasury Bond ETF (BWX). If inflation starts rampaging, a global basket of inflation-protected securities like the SPDR DB International Government Inflation-Protected Bond ETF (WIP) is the ticket.