How to Escape the Decline of the Dollar

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Everybody has to believe in something. So, let me tell you a few of my core beliefs:

I believe that trees do not grow to the sky. I believe that what goes up needs a fundamental reason to remain aloft. And I believe wholeheartedly in a reversion to the mean because history is never different, only the chapter titles change.

We are at a point now where a reversion to the mean is likely the next stage for both the U.S. dollar and the S&P 500. The strong dollar has created a series of problems that are causing headaches for the Federal Reserve and crimping U.S. economic growth. The S&P, meanwhile, is at a historically rich valuation and will need to see years of subpar growth to return to a more normalized path.

My friends at EverBank have created quite the unique way to profit from what’s potentially in our future — a new certificate of deposit (CD) designed to rise in value as the S&P weakens and as the decline of the dollar boosts precious metals prices. Best of all, you don’t risk losing a single penny of your deposited principal.

But before I tell you about the CD, let me tell why the CD makes so much sense today…

Since 2009, the S&P 500 has run so far so fast that it has been like watching a Kenyan marathoner on speed. From its post-crisis lows, the index has gained about 12% a year — far exceeding historical average gains of 7% to 9% a year. Corporate profits, meanwhile, are in the 10% range … so fat by historical standards (we’re usually in the 6% range) that it’s morbidly obese at this point and you just wonder when it’s gonna keel over.

I did some calculations for last February’s Sovereign Investor issue that show for the S&P to return to a more normal run rate over the next several years — that is, for the S&P to revert to the historical mean — implies an average annual return of between 0.5% and -6.5% (that’s negative). Split the middle and we’re looking at limp gains, possibly even average annual loses in U.S. stocks, until we get to about 2020. (And I specify U.S. stocks because I believe other markets, especially Europe and Hong Kong, will fare far better.)

Decline of the Dollar

Even as that is happening, we face the great likelihood of the decline of the dollar.

Its rise beginning in August 2011 is not the result of fundamental well-being in America’s fiscal outlook, which is typically a driving factor in currencies. After all, we are now history’s most heavily indebted nation, and pretty much everyone agrees we have no capacity to actually repay what we owe.

The only reason the buck is strong is because the euro is suffering an existential crisis of confidence and the yen is a sacrificial virgin that Japan hopes will appease economic gods.

Our dollar just happens to be in the right place at the right time … kind of like the ugly bar troll who happens to be the only guy left when a gaggle of drunken maidens calls it a night.

The upshot is that the dollar will likely weaken for fundamental reasons at the same time U.S. stocks weaken.

Therein lies a unique opportunity — one you’ve not seen before — to benefit from both of those possibilities.

Benefits From the Reversion to the Mean

My friends at EverBank have created one of the most unique and, frankly, useful CDs I’ve seen in a long time: the MarketSafe® Metals HedgeSM CD.

What makes this CD so unique is that it’s designed to benefit in a world where the S&P 500 is declining in value while gold and silver are rising in value. Of course, that means this CD, at its heart, benefits from a reversion to the mean.

Here are the details: The CD is indexed to precious metals prices so that as gold and silver prices rise, the CD’s value rises. Meanwhile, it is inversely tied to the S&P 500 (by way of the SPY exchange-traded fund), so that as the S&P declines in value, the CD rises. The metals components are weighted at 25% each and the short SPY ETF component makes up the remaining 50%. The design of the CD means that it will best perform if metals prices increase while the SPY ETF decreases.

As I’ve noted, the S&P 500, already excessively valued, will likely decline from here, which will push the CD’s value higher. Meanwhile, gold and silver will rise (pushing the CD value higher) because they are intimately tied to the dollar, and the dollar must reverse course because the currently strong greenback is causing too much economic pain on American multinationals and, thus, the U.S. economy. The Fed will engineer a weaker dollar to save the U.S. economy from recession. And in the 40-plus years of fiat dollars, whenever the dollar declines, gold (and silver) typically rises.

The CD extends for five years, giving us plenty of time to capture the trends that will likely define the dollar, the metals market and the S&P through the end of the decade. Best of all, EverBank structured this as a MarketSafe® CD, so at the very least you will get back 100% of your deposited principal in the event I’m wrong.

And if I’m right, you would benefit from a rise in metal prices as well as the decline of the dollar and the S&P.

In order to provide the MarketSafe® aspect, EverBank has capped the CD’s performance at 45%, meaning your maximum payout at maturity is capped at 45%.
To be clear, this CD offers no annualized return, nor does it provide any periodic interest payments. You will receive your principal and any gains at maturity in five years.

The CD is priced in U.S. dollars, so you have no currency risk. The minimum investment is $1,500 and the funding deadline for this CD is November 12. If you’re interested in this unique way to benefit — safely — from rising metals prices and the decline in the S&P 500, you will need to contact EverBank by clicking here. You will also find the product’s term sheet and important product details including payout examples.

For the sake of full disclosure, we receive a marketing fee based on our relationship with EverBank. But, honestly, we’d work with them regardless. EverBank is a member FDIC, which means your deposits are also insured up to $250,000 in the case of bank failure.

Until next time, stay Sovereign…
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Jeff D. Opdyke
Editor, Profit Seeker