A tale of two dollars — American and Australian
August 21, 2012 6:10PM
Updated: September 23, 2012 6:04AM
D ear Mr. Berko: During the past 21 years, my wife and I have owned a successful small business. We worked hard, purchased our trucks and building, reinvested in new equipment, and have 18 employees. We’re concerned about the future of the U.S. dollar and the government’s addiction to deficits and continuing to spend money the country can’t repay, and there seems to be no end in sight. Our big concern is our company’s $7.2 million retirement plan, which is conservatively managed by me, with an average 6.1 percent return since 1998.
From numerous inconsistent and contradictory economic data reported in the media almost daily, I think another economic slowdown is coming soon. Several of our business colleagues and competitors agree. We think that this time will be worse and that Congress will go overboard flooding the economy with what you called “toilet paper dollars.” Now I’m convinced that the results will be bruising inflation and a slow business environment. The reason for this long narrative is to ask where I can put some of this retirement plan money to protect it against the certain decline in the value of the dollar.
: Thanks for your words of common sense and good writing. A close acquaintance has finally had enough of our “toilet paper” dollars. He came here 21 years ago from Brisbane because he thought the Australian economy was too tame, that Aussie government policies were too benign and the country’s politics too conservative. He may have been right in 1990, but now he’s had his fill of our “cowboy economics, crooked politics and regressive government programs” and will return home. And he will convert his huge cache of U.S. dollars into Aussie dollars because he’s certain the U.S. dollar is “fading to hell in a handbag.”
You’re wise to invest some of your retirement assets in one of the world’s stronger currencies, such as the Aussie dollar. Australia’s public debt is 21 percent of gross domestic product (vs. 109 percent for the U.S.), and its economy has emerged from the global recession practically unscathed. Best of all, the Aussie dollar is a “commodity-based currency” backed by cattle, wheat, fruits, natural gas, iron ore, sheep, barley, gold and other products that China, Japan, India, South Korea and their emerging middle-class consumers demand.
There are two exchange-traded funds that own Australian dollar bonds, each of which you might consider. WisdomTree Australia & New Zealand Debt Fund (AUNZ — $22.17), yielding a stinky 2.31 percent, and Australia Bond Index Fund (AUD — $102.19), a recent initial public offering managed by PIMCO. AUD is too new to pay a dividend, but its first annualized distribution may yield 3 percent.
Australia’s potential currency appreciation over the decade looks like a solid hedge against the U.S. dollar.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.