While stocks received all the headlines following the Federal Reserve’s decision to launch QE3 without an expiration date, the dollar getting cracked went relatively unnoticed.
The greenback slid to a key support level and could fall further if the line doesn’t hold. We believe Ben Bernanke’s choice to digitize another $40 billion a month until max employment will continue to erode the dollar’s value.
A weak dollar has critical consequences, particularly for the average home. Oil is priced in dollars and will increase as the dollar falls. One can inevitably expect to pay more at the pump. Other commodities like gold, silver and food are likely to face a bump in prices, too.
Ben Bernanke’s intended targets are stock and home prices. Many homes are worth a lot less than their purchase price, and outside of 401ks, the individual investor has pulled money out of the stock market. ETF Stocks doesn’t feel that a modest move higher in home prices – if it happens – and gains in equities will be enough to offset rising ticket prices at the grocery store and gas station for most families.
And, if you are retired, on a fixed income and hoping for interest rates to go up some, you can forget about it until at least mid-2015. In Thursday’s announcement, the central bank said they will keep rates close to 0 for at least the next 18 months. The current monetary policy is awful for savers.
Fortunately, there a number of ways investors can protect their purchasing power against a slumping dollar but reaching for higher yields with safety is becoming more difficult.
To combat George Washington getting skinnier, investors might think about PowerShares DB US Dollar Index Bearish (UDN). The exchange-traded-fund goes up when the dollar goes down. Owning United States Gasoline (UGA) or United States Oil (USO) could help offset any increase in prices at the pump.
iShares Gold Trust (IAU) and iShares Silver Trust (SLV) are also a good way to join in on rising precious metal prices, if the trend higher for shiny things continues.
If inflation continues at the pace of last week’s Producer Price Index surge of 1.7 %, iShares Barclays TIPS Bond (TIP) will continue to set 52-week highs.
Obviously, there is no guarantee that inflation will beat max employment to Ben Bernanke’s finish line. However, if the market’s initial reaction to the Fed’s decision for limitless QE is correct, you are armed with a handful of ideas to help combat the negative effects of inflation.