I prefer to invest in real assets. Things that are tangible and that I understand. Things like food, energy, real estate, and even drinks.
It’s easy to see why the price of a tangible asset will go up or down. For example, if we look at coffee, then we know that people around the world will pay money to buy coffee. We also know that there is a supply chain that is impacted by weather, transportation, and seasons.
The demand for coffee never really changes that much, but the supply does. That is why prices fluctuate – lower supply means higher prices and vice versa.
The same is true for other things like food, energy, and any tangible asset that humans consume.
If someone can see the supply chain of a certain asset increasing or decreasing, then they can predict the price. If a huge region of coffee production experiences a drought, then prices will probably go up because there is less supply. Simple supply and demand economics – easy to understand.
But, in our world there is another huge influence to the way commodities are priced, and this has to do with currencies.
Because the US dollar is the world’s reserve currency, commodity prices are correlated to the strength of the US dollar.
People living in the US don’t really realize this impact because they hold US dollars in their bank account. However, people who use different currencies are very aware of how this works.
(This is one reason why Americans are often accused of having a lack of international finance understanding. The US Dollar is literally the center of the finance world, so if you hold US Dollars you are not impacted by much. Conversely, those who hold other currencies must constantly stay aware of what the US and other parts of the world are doing.)
If we look at the Mexican Peso, the Canadian Dollar, the Chilean Peso, or multiple other currencies, then we’d see that the US dollar has risen significantly in relation. This means that it takes more of those other currencies to buy the same thing that the US Dollar would buy.
This is because commodities (all those real assets) are priced in US Dollar terms.
As a US Dollar holder, you’d see things like oil, gold, and wheat decline in price as the US Dollar gains strength. But, if you hold other currencies, these same things could have increased in price over the same time period.
Now, I could go on and on about how this works, but it’s not what I want to tell you.
Here’s why I bring all of this up… At the end of this month (September 2016), something is going to happen in the international currency world. This event has never happened before and could end up significantly impacting the currency market – which means it could impact the price of things.
This isn’t a prediction… this is actually happening.
As a consumer (someone who eats food) or an investor, this really matters. A lot.
I’ll explain what is going to happen with this change later in the week and give you several ideas to invest (and profit) from this change.
I read about this world reserve currency sometime ago. Would this have an immediate effect on the US dollars?
I love your content and writing style. I’m learning more from you than all of my econ teachers
Thanks Izzy. That’s my goal. School was such a grind for me – I felt like I was in glorified daycare. Now, I did have some good teachers, but overwhelmingly topics such as econ were a complete mind-number. If I had originally learned everything in exciting and applicable ways, I would have learned a lot more and been more interested in what was being taught. Fortunately now in our world, we have free online resources to learn how and what we want.