The chart above is the national debt as a percentage of GDP as per the St. Louis Fed. As you can see we are at 120% now compared to 40% before 1970. So everybody in the world needs to worry that at some point the US Dollar may devalue. Many people think Gold is the safe haven in the event that the US Dollar devalues. I have a theory that Stocks especially the S&P 500 is also a equivalently good safe haven as compared to Gold. And I saw the proof of my theory yesterday, when the Japanese stock market fell 12%. See the CNN article below and see the line I circles in it below:
To begin with Gold is an international commodity and it’s price is set by worldwide demand and if anybody is worried that the US Dollar will suddenly devalue due to a crushing national debt, then obviously Gold is a safe haven, and yet investors here in the USA put only a small percentage of their capital into Gold and the reason is simple, the value of Gold doesn’t appreciate as much as Stocks simply because worldwide demand for Gold increases only gradually every year. So Gold is clearly not an investment.
Most people think that in the event that the US Dollar suddenly devalues, the stock market is a bad place to be, that Stocks will suddenly devalue as well, but I have a theory that in the event that the US Dollar suddenly devalues, the S&P 500 stocks are a better safe haven than Gold for two reasons:
- You cannot predict when the US Dollar will devalue, it may happens 2 years from now or 10 years from now, it depends on global events that no one has control over, so all the money that is in Stocks is rising more rapidly in value as compared to Gold UNTIL the US Dollar devalues, so in the run up to a Dollar devaluation the investment in Stocks is appreciating faster than the safe haven Gold.
- When the US Dollar does devalue, my theory is that the S&P 500 stocks, especially Microsoft and Apple will regain 100% of their intrinsic value (i.e. measured in International currencies) within 5 days. So for example suppose the US Dollar devalues 15% over 3 months, the Dollar cost of Microsoft and Apple Stock will increase 15% over the same 3 months, so that measured in International currencies the value will remain 100%.
The proof of my theory is above, look what happened in Japan in the last three weeks: As the Yen appreciated rapidly, the cost of Japanese stocks in Yen fell by an equivalent amount over the same period.
The USA has always had a Strong Dollar policy, but some people are starting to realize that weakening the US Dollar by 10-20% would actually be a great thing for the USA to bring jobs and manufacturing back to the USA. If you want to read about this theory and my prediction of the future of the USA, read my book below: (you don’t need a Kindle reader, you can read it on your computer or tablet).