Since the financial collapse a few years ago, the standard monetary policy for central banks all over the world has been to devalue their respective currencies. With so many governments and central banks attempting to make their money more competitive by weakening them, economists have labelled it as the global currency war.
The post-crisis fiscal measure has been adopted by many nations’ central banks, including the Federal Reserve, the People’s Bank of China, the Bank of Japan and the European Central Bank. In addition, this policy is meant to stimulate the economy and spur growth because the weaker the currency the greater amount of exports.
Unfortunately, this is a "lose-lose" situation for many parties, particularly for consumers, says Bank of America Merrill Lynch strategist David Woo, who recently told CNBC the currency war will have no winners in the end.
"The bottom line: A weak currency might provide a short-term boost to the countries engaging in currency devaluation. However, if everyone is playing the same game, all we will end up with is more and higher FX volatility," Woo said in a note to clients last month. "This in turn will likely exact a toll on global trade and capital flow."
The currency war also leads to record-low interest rates that hurt the savings of families, retirees and other average consumers.
Marc Faber, a famous contrarian investor and the editor and publisher of the Gloom, Boom & Doom Report, urged investors last week that they should "short the central banks," which could include purchasing precious metals, especially gold. Faber, who has been a staunch critic of many of the policy measures introduced by central banks since the Great Recession, essentially believes it’s a tough time for any investor or consumer owning fiat money.
"If I could find a way to short central banks, that is what I would do,” Faber said. “This is the year that people will lose confidence in central banks, mostly because of the failure of Abenomics in Japan.”
Although this currency war has only been a phenomenon for a few years, others say it has been going for more than several decades since Bretton Woods, a time when many countries got off the Gold Standard.
Nevertheless, if you’re a millennial and you’re concerned about debasement of the currency in your wallet, safe or bank account then here are five ways to protect yourself and your assets in this war:
- Precious Metals
Gold and silver have been in a bear market for two to three years now. Although gold has been trading rather well in 2015 thus far, experts still expect it to diminish in value. However, there is a silver lining: it could bottom out this year and then return to a bull market next year. With that being said, acquiring precious metals (gold, silver, copper, platinum and palladium) is a protective measure for your net worth.
Right now, it’s a great buying opportunity for precious metals and you should take advantage of it, even if it’s only 10 percent of your portfolio.
- Stocks & Mutual Funds
If you’re quite conversant and astute in the world of finance then you can start investing in certain stocks. The stocks you select should be situated in precious metals, mining, resources, agriculture and even energy (many stocks are at multi-year lows because of falling oil prices).
Or, if you lack the knowledge and time to trade stocks then a mutual fund is a perfect alternative. Akin to the criteria of stocks, the mutual funds you buy should be in the areas of precious metals, resources, mining, agriculture and other related mutual funds. Tech is a great area but right now a lot of the sector is in a bubble so try to refrain in the meantime.
- Foreign Currencies
Not everyone is participating in this currency war. A wide spectrum of central banks have maintained value in their currencies and you should allocate between five and 10 percent of your portfolio to foreign currencies. Here are a few to mull over: the Swiss franc, the Singapore dollar, the Australian dollar and the New Zealand dollar. For a short-term trade, the U.S. dollar is a wise move because everything is returning to the greenback as a hedge - remember, long-term it’s a poor decision to own U.S. dollars.
- Digital Currencies (maybe?)
This will likely spur intense debate. In the past year, peer-to-peer decentralized virtual currencies have been depressed. For instance, bitcoin traded close to $1,200 in Nov. 2013, but now it’s sitting around just over $200. You shouldn’t convert your entire estate into bitcoins, dogecoins and peercoins, but having about two to five percent could be a prudent move, especially if its proponents are right about it being in the infancy stage similar to the Internet of the 1990s.
- Real Assets
Owning things that are real will defend you from the debasement of currencies. With that being said, they must also be in pristine condition, acquired when they were priced very low and perhaps even liquid. Vehicles, jewellery and housing are examples of assets that can be of immense value in times of a currency war.
The global currency war isn’t a conspiracy theory, but a reality that everyone is talking about. Millennials are just finally starting to establish a life after years of being unemployed, indebted and broke. As they begin to accumulate wealth and assets, they can’t be stuck in the pits of hell thanks to central bankers.