The Falling Dollar, Our Rich Cousins in Canada, and Other News

Canada's Dollar Reaches Parity With U.S. Currency First Time Since 1976 Canada's dollar traded equal to the U.S. currency for the first time in three decades, capping a five-year run on the back of booming demand for the nation's commodities.

XX This is big news. For many Americans, this is the first time the Canadian dollar has been at parity with the US dollar in their lifetimes. What will be the consequences of this? More importantly, where is the US dollar going?

The rise of the Canadian loonie versus the US dollar is having an effect on the Red-Hot Canadian Small-Caps portfolio. Let me show you what I mean. First, let's look at one of our positions, a gold miner called Aurizon (symbol ARZ on the TSX) ...
Our Canadian position is up 6.2% since I recommended it in June. Now, let's look at Aurizon's shares listed on the AMEX in the US (symbol AZK) ...

Aurizon's US shares -- listed on the AMEX -- are up 13.9% since I recommended it in June. In other words, the US shares are more than doubling the Canadian shares of the same stock. But that's just to make up for the decline in the US dollar versus the Canadian loonie ...

The lesson to take from this is to invest in foreign stocks ... to invest outside the US. It's the best portfolio protection you can get if you think the US dollar is going to continue to shrink.

Can this trend continue? Well, the US government is injecting liquidity -- basically "printing money," though it's more complex than that -- which debases our currency. This is eating away at the confidence of not only investors but foreign governments. Overnight, we got news that Saudi Arabia might drop its peg to the US dollar.

Great Britain's Daily Telegraph newspaper reported: "Saudi Arabia has refused to cut interest rates in lockstep with the U.S. Federal Reserve for the first time, signaling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East."

I think it's a move the Saudis have wanted to make for some time, but have held off because our troops in Iraq serve their interests. Our troops are leaving -- probably next year -- and the Saudis are sick of pegging their money to a shrinking currency. How soon before China decides to hop aboard that train? If you think the US dollar is tumbling now, just wait until the Chinese start to sell.

This will continue as long as the US government (and by extension, Americans) continues to live beyond its means. Buy gold, buy silver, and invest at least part of your money in foreign-based stocks. Investing in US ADRs or tracking stocks of those foriegn companies will protect you as well.

If you don't subscribe to Red-Hot Canadian Small-Caps, and have been thinking about it, now might be a good time to SIGN UP. What you'll make in currency differential alone will probably pay for a 3-year subscription.

Check out my new gold and energy blog at MoneyAndMarkets.com