Protect your assets from a US dollar collapse

Sell out of US assets while you still can, and buy precious metals! This might appear an extreme reaction to a few days of bad trading for the US dollar - which is now at a seven-month low against the euro - but devaluation is an invidious thing.

Just consider how much poorer you are if you have held on to US dollar assets since the year 2000. The dollar has moved from 82 cents to $1.26 to the euro and has lost 60% of its value against an ounce of gold.

Where you feel this most is as a traveler. The US dollar just does not buy as much in terms of hotel rooms and meals as it used to do. It also means that if you wanted to buy a house in Europe then you would get a much smaller one than in 2000 for the same money.

So if you are sat on a US dollar bank account bad luck! But it might still make sense to convert your savings into a currency or asset more likely to stand up to the pressures of devaluation.

Indeed, once the US Presidential Election is out of the way on November 2 economic reality will begin to close in on the USA.

The twin deficits are unsustainable, and that means the US economy will have to tighten its belt. This can be done by higher taxes and interest rates, or by devaluation, or more likely a combination of both.

However, if like most Gulf State investors you live a dollar zone, then it is difficult to avoid the impact of devaluation entirely. Your income, for example, will probably be in US dollar-equivalent currency, and your local investments will be dollar-denominated.

It is a pretty sobering exercise to take, for instance, recent local stock market profits in the GCC and revalue them to constant 2000 dollars. What seems like a big profit becomes very much smaller.

On the other hand, if you live in a dollar zone and spend your income locally then devaluation means little, except that inflation is likely to pick-up sharply for goods and services.

The message is pretty simple nonetheless. US dollar deposit holders should consider shifting to safer currencies. Likewise holders of US stocks and bonds should liquidate them and move to a safe haven such as gold or the Swiss franc. For the honeymoon for the next US President in financial markets is likely to be very brief.