Monday, January 28, 2008

Protection And Profit From Falling Dollar And Rising Inflation

Protection And Profit From Falling Dollar And Rising Inflation

Issue #355 11/7/2003
The U.S. dollar is now vulnerable to a decline on two fronts — against major foreign currencies and in terms of its declining purchasing power in the United States.

Already, based on our recommendations in this column, you should be protecting yourself — and profiting — with:

  • About 10% of your conservative portfolio in Prudent Global Income Fund (PSAFX, 800-711-1848,, which has enjoyed nice gains, and/or American Century International Bond Fund (BEGBX, 800-345-2021,, which has done even better. But don't let the difference in their relative past performance bother you. Both are still buys. Here's a chart showing their relative progress:

    Contra-Dollar Funds

    Both of these mutual funds are designed to benefit from a declining dollar, but each does so in a somewhat different manner. The American Century fund buys short maturity highly-rated bonds of overseas governments and corporations in non-dollar currencies. Prudent Global Income fund, meanwhile, also includes shares of gold companies in its allocations, along with a modest allocation to US treasuries for stability.

  • About 15% in gold-related investments, which are also doing very nicely. Now, it's time to go a few of steps further.

    Step 1. Reduce your Treasury-bill allocation from 45% to 30%. That's still more than adequate for good safety and liquidity.

    Step 2. Open an account with Everbank. It's owned by First Alliance Bank in Jacksonville, Florida, which earns a Weiss Rating of B (good) and is insured by the FDIC up to $100,000. You can reach them via email at or by calling 1-800-926-4922.

    Step 3. Their minimum account is $10,000. If that's more than 10% of the amount you've allocated to our Conservative Portfolio, add to your dollar-contra funds instead. Otherwise, put the 10% of your Conservative Portfolio into their 3-month euro CD, yielding 1.26%.

    Although the interest is better than the equivalents in the U.S., the primary goal is appreciation in the value of the currency. I like the euro because it has such a strong uptrend against the dollar.

    Step 4. Set aside 5% of your portfolio to buy Enerplus Resources Fund (ERF). This is a closed-end investment trust that produces a steady flow of earnings from various royalties it receives from the distribution of natural gas and oil. But don't buy it right away. Wait for it to decline some more and pay no more than $25.75 for it.

    Portfolio Update

    To sum up, here's what your Conservative Portfolio should look like:

    1. Treasury bills or equivalent money funds: 30%. Buy directly through the Treasury Direct program (for info, call 800-722-2678 or visit

    One of the most convenient ways to buy is through money market funds specialized in Treasuries, such as:
    • American Century Capital Preservation Fund, ticker symbol CPFXX (800-345-2021;
    • Dreyfus 100% US Treasury Fund, ticker symbol DUSXX (800-645-6561;
    • Fidelity Spartan US Treasury Fund, ticker symbol FDLXX (800-544-8888;
    • USGI US Treasury Securities Cash Fund , ticker symbol USTXX (800-873-8637;
    • Also consider our own Weiss Treasury Only Money Fund, ticker symbol WEOXX (800-814-3045;
    2. 3- to 5-year Treasury notes: 15%. No change in your allocation.

    3. Dollar-contra funds: 10%. No change.

    4. Euro CD: 10% (see above).

    5. Gold-related investments: 15% (see Larry's Gold Column).

    6. Enerplus (ERF): 5% (see above).

    7. Other energy related investments: 15%, including ...
    • Provident Energy Trust (AMEX-PVX), which rose as high as $8.63 in October, nearing my sell targets. Sell half at $8.90 or better and the other half at $9.40 or better. In the meantime, hold on and enjoy the dividends.

    • Pogo Producing Company (NYSE-PPP): Profits rose from $31.6 million to $67.7 million in the third quarter for this company. But the shares slipped as oil prices fell. Hold.

    • Kinder Morgan Energy Partners (NYSE -KMP): 5%. KMP announced third-quarter net income up from $80.4 million to $95.6 million. Hold.
    8. FTI Consulting (NYSE-FCN). Last month we recommended that you exit this stock at $18 or better, and it rallied as far as $20, giving you ample opportunity to get out.
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