In our opinion, the American economy is a grand ship in danger of sinking. As the problems with her hull are structural, current efforts by government officials and central bankers to plug up the holes are not enough to keep her afloat. Though we remain hopeful that she may one day be returned to a sea-worthy condition, there is nothing currently being done to alter her fate. Unlike the vast majority of American investors who choose to optimistically dance the night away on the decks of a doomed ship, we urge our clients to protect themselves and their families from the collapse of the U.S. dollar. In our opinion, the lifeboat of choice is a carefully selected portfolio of relatively conservative*, high-dividend paying, non-U.S. equities.

Such investments provide three potential sources of protection:

1. They often pay high dividends, many of which qualify for the lower dividend tax currently in effect.
2. Because these dividends are paid in the companies’ local currencies, their value will rise when the dollar falls, as will the principal value of the underlying shares.
3. They provide the potential for true capital gains, as the shares themselves may appreciate in terms of their local currencies.

As a result of these three separate and distinct sources of current income and capital gains, the U.S. dollar need not be falling for a portfolio of foreign stocks to produce positive returns. However, it is during a potential dollar crisis that such portfolios will be of the greatest value. Since no one can be certain when the dollar collapse will occur, it is better to be prepared. When it comes to getting out of the dollar, there are only two possible ways to do it: too early or too late. At Euro Pacific, we choose the former.

Though the dollar will predictably experience several counter-trend rallies along its downward path, we feel that it is too risky for retail investors to attempt to time the market. As a result of our buy-and-hold strategy, during those time periods when the U.S. dollar is rising in value, or when global stock markets are in decline, our portfolios may lose value, priced in U.S. dollars. Though such declines may be partially offset by dividends, investors unwilling to assume short-term volatility as a trade-off for absolute long-term performance should not implement this strategy.

Also, it is important not to confuse a desire to go down with a sinking ship with patriotism. Those who stand on deck saluting the flag of a sinking ship will likely be of little assistance to survivors left treading water. Protecting our wealth today, outside of the dollar, will allow us to repatriate it in the future and help rebuild a viable American economy.

*The most important step for investors to take when determining which investments qualify as being conservative is to first determine exactly what one is attempting to conserve. If one's goal is simply to conserve the number of dollars one owns, then there are several domestic investments that will satisfy that simple criteria. However, what good is it to conserve dollars if the dollars themselves do not conserve their purchasing power? After all, we do not want dollars for their own sake; we want them for the goods and services they can buy. However, based on current U.S. monetary and fiscal policy, the many structural imbalances underlying the U.S. economy, and the potential monetization of massive funded and unfunded federal liabilities, the purchasing power of the dollar is likely to diminish substantially over time.

A truly conservative investor seeks to conserve the purchasing power, not merely the nominal dollar value, of his holdings. At one time, when the dollar was sound and Americans produced the goods they consumed, this goal was readily accomplished with certain types of dollar-based investments. However, times have changed and anyone now wishing to be truly conservative must change with them.

To truly protect against the lost purchasing power that would result from a crash in the U.S. dollar, one must go overseas. However, most stocks are not conservative, and neither are most currencies. The challenge is to choose the currencies that are most likely to conserve purchasing power, based on objective economic and political criteria, and then to invest in conservative stocks denominated in those currencies. Remember, though, that even “conservative” stocks are not without risk.

Respected figures like former U.S. Comptroller General David Walker and former Fed Chairman Paul Volcker have issued dire warnings about the state of the U.S. government’s finances. It is now widely accepted that the country is floating on the confidence of its foreign creditors. If and when they decide to sell their massive stockpiles of U.S. dollars and Treasury bonds, there could be a dollar crisis unlike any before seen. It is no longer prudent for an investor to believe blindly in the invincibility of the U.S. dollar. Prudence demands that less precarious alternatives be sought. That is what we offer.


All investment strategies contain various elements of risk.  No guarantees, either expressed or implied, are made that the strategy outlined above will perform as it is intended.  Investors in foreign stocks can lose principal due to a variety of risk factors, including currency risk, political risk, systemic risk, and company specific risks.   Also the economic assumptions inherent in the formation of this strategy may in fact be incorrect, thereby adversely affecting the performance of the recommendations.  Furthermore the fact that these strategies have preformed so well in the past does not assure similar results in the future.  Clients and prospective clients are advised to carefully consider these risks prior to investing.