Which Currencies? – A Reader Question

Here’s an excellent question from WedgeHead that encapsulates the interest of quite a few members.

WedgeHead asked:

Chris,

I assume your position re: selling stocks pertains primarily to the US market.  What about foreign stocks held in foreign currencies (a la, Peter Schiff’s strategy)?  Of course, I realize you don’t want to be giving specific investment advice — just looking for general thoughts re: interplay of fiat currencies.

This is something that I have not been able to clarify in my mind: all current currencies in the world are fiat currencies, so, what happens to them when the dollar hits its crisis.  Do they all go into crisis?  At the same time?  I am not so much thinking the English pound or the Euro, as they appear to be as mismanaged as the dollar, but more along the lines of the Canadian, Australian and Asian currencies.

I’d like to be somewhat diversified beyond physical gold and silver, and have not found land that makes sense for me at this point.  It seems like foreign currency denominated oil, mining, etc stocks seems the most rational. 

Thanks as always for your excellent analysis.

WedgeHead,

I wish I could offer some stellar insights into how all the various currencies will play out.  But I am reasonably certain of how things play out over time.

All paper currencies eventually return to their intrinsic value – zero.  (~ Voltaire, 1789)

Over the short haul, by which I mean the next couple of years, the landscape is going to be particularly treacherous, primarily because the dollar is the world’s primary reserve currency and we have no historical experience to guide us as to how things might play out if/when a global fiat reserve currency loses that status.