Fall of the USD and how it will impact you!

This week, we see how the market trashed USD to the bin, forcing it to drop beyond the last swing low on the USDX index. This event is significant for all investors and traders because USD has been the default world reserve currency. With VIX at its extreme low and USD at its extreme descend, we should be worried about the consequences. So let's touch on the fall of the Reserve currency today and how it will impact you (i.e. standard of living) and your portfolio.

Living standards
Since most of the essential thing is priced in USD terms (i.e. crude oil, commodities, metals etc), producers will price their goods and services higher to account for weaken purchasing power of the fiat currency. As wages growth can no longer accommodate the rate of inflation, majority of the people will feel 'poorer' since a dollar today cannot purchase the same goods/services yesterday. Take the case of a cup of Kopi from local coffee-shop. I realize it is now 90cents a cup from the stall uncle, up10cents just a few weeks back. This represents a 12.5% price hike!!! Don't think that 10cents is just pocket change because all comparison must be apple to apple. Think in percentage terms... How about a typical bowl of delicious Meepok, from $2.50 to $3? That is a whopping 20%!!! You can't blame the stall holders! The real culprit is the Fed who has been printing money since QE1, QE lite, QE2, and now maybe QE3, causing an unstoppable inflow of easy liquidity into US denominated asset class like commodities, equities, real estate. You might think things are still quite manageable in Singapore because SGD is appreciating against the USD... But wait a moment because there is a limit how much the government can allow SGD to appreciate without hurting the economy, bearing in mind that Singapore is an export oriented country... So much on the macro level; what about our 2.5% interest bearing CPF money in OA? With retirement age pushing towards 65 and beyond, inflation will seriously erode any purchasing power.

Portfolio
What happens if you have equity priced in USD? Like the recent Hutchison IPO which is still underwater. Every time USD falls, you are losing money and any gain must be account for foreign exchange loss. Of course it does not mean you can't invest in US market/stock, but vigilance must be exercised since you have the currency exchange going against you whenever a trade is opened. If portfolio growth is less than 5%, it is losing money in real term.

What can you do?
While there is little we can do to stop inflation, there are always things that we can do to lessen its impact. Here are some things you may consider; not a lot, but something to think through:

1. Ask for a pay raise from your boss
2. Change to a better paying job
3. Find a second income stream on top of your day job
4. Invest some good stock (go reitdata.com to research on dividend paying stocks)
5. Own hard tangible asset (e.g. properties, physical metal etc)
6. Build up your knowledge

Happy profiting!
* Fed is speaking next week!!! Watch for his stand on QE! From this week USD movement, I guess the market big players are already positioned to capitalize any profits.

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