The dollar is losing the world's respect - but you're losing much more

By Charlie Garcia

Charlie Garcia responds to readers concerned about U.S. dollar weakness, purchasing power and China's challenge

'We didn't lose a trade war. We volunteered for one and then complained about the uniform.'

Editor's note: Columnist Charlie Garcia shares select emails and online comments from his virtual mailbag each week.

Dear Charlie,

Democratic countries can never compete with cheaper labor in Communist China, where the Chinese Communist Party can make anyone work long hours in hazardous conditions for low or no pay.

The biggest mistake the free world made was allowing Communist China to dump its cheap goods here, which causes industries to shut down and results in theft of intellectual property.

President Donald Trump is right - they need to be excluded from world trade unless they become a democratic country with rights and protections for workers.

Meera

Blaming China for taking the deal we offered is like blaming the pawn shop for buying your watch.

Dear Meera,

Nobody put a gun to Apple's head and made them build iPhones in Shenzhen. American CEOs looked at Chinese labor costs, looked at American labor costs, and bought plane tickets. They knew about the IP theft. They did the math and decided the margins were worth the risk.

Blaming China for taking the deal we offered is like blaming the pawn shop for buying your watch. Yes, they got it cheap. You're the one who walked in the door.

The "until they become democratic" condition sounds righteous but means never. China isn't becoming democratic next quarter. Or next decade. So that's not a trade policy. That's a wish.

Trump is right that the old arrangement doesn't work anymore. But the companies that shipped the jobs overseas are the same ones funding the lobbyists in Washington. They liked the cheap labor. They still like the cheap labor. They just don't like the competition that came with it.

We trained the dragon and now we're upset it learned to breathe fire. The solution isn't waiting for Beijing to hold elections. It's deciding what we're willing to build here and what we're willing to pay for it.

That's the conversation nobody wants to have.

Charlie

P.S. We didn't lose a trade war. We volunteered for one and then complained about the uniform.

Dear Charlie,

Another dollar-debasement article recommending gold. The rare-earth game will haunt China and Africa as environmental remediation eats profits.

But if you want to bet against the U.S., I suggest you convert your money to yuan. Maybe even move there. I wouldn't.

Nicholas

Dear Nicholas,

Friend, noting that your house has termites is not the same as moving in with the neighbors. Especially when the neighbors have a social-credit system and a government that disappears people who complain about the plumbing.

I'm not betting against America. I'm betting against the people running America's printing press. Those are different wagers. I own gold (GC00) because the U.S. Federal Reserve has never once looked at a problem and said, "Let's not print money." I own U.S. dollars DXY too. I live in the U.S. I like it here. The food is better and nobody asks me to applaud for Xi Jinping.

You're right about the rare-earth remediation costs. China poisoned half of Inner Mongolia to corner that market. Eventually someone pays that bill. But "eventually" can be a long time, and in the meantime, they're pricing cobalt in yuan while we're arguing about pronouns.

The false choice between "love the dollar" and "move to Beijing" is exactly how we got here. You can criticize the management without burning down the building.

Charlie

P.S. Owning gold isn't rooting against the home team. It's noticing that the coach has a gambling problem.

Dear Charlie,

The Fed is doing a bang-up job destroying the value of the dollar. I doubt they need any help from China.

Jeremy

Dear Jeremy,

The Fed doesn't need help destroying the dollar any more than a man jumping off a building needs help from gravity. But gravity shows up anyway.

China's building a landing pad for everyone who wants off the ride. The Fed does the demolition. China does the alternative infrastructure. It's a partnership, just not the kind either side would admit to.

Charlie

P.S. The Fed and China aren't enemies. They're co-authors of a book neither wants to put their name on.

Dear Charlie,

I don't know about investing in individual mining companies. You'd have to know the specifics of each to not pick the wrong ones.

However, there are funds you can invest in that'll give you a basket of mining companies and that can provide some safety.

Walter

Dear Walter,

You're right to be cautious. Picking individual gold or silver miners is like betting on which prospector will find the nugget. The geology, management and luck vary wildly from one outfit to the next. If you want the glitter without digging through the dirt, stick with exchange-traded funds - for example VanEck Gold Miners ETF GDX and VanEck Junior Gold Miners ETF GDXJ for gold miners, and Global X Silver Miners ETF SIL and Amplify Junior Silver Miners ETF SILJ for silver producers. These and others give you a basket of the good, the bad and the lucky, which is about as safe as mining ever gets.

Charlie

P.S. The best way to make money in a gold rush is still selling shovels - or in this case, buying the company that owns all the shovels.

Dear Charlie,

America losing its exorbitant privilege will add to its inflation problem in a big way. If you are retired or planning to be, you should factor that in and buy gold, silver and miners as you suggest.

Treasurys and CDs are a sure way to lose money. If you use the Rule of 72 with 8% to 10% inflation, your purchasing power halves in less than a decade.

Stephen

Dear Stephen,

You get it. Someone put Stephen on the payroll.

The Rule of 72 is the one piece of math they should teach in high school and don't. At 8% inflation, your money halves in nine years. Your CD paying 4% isn't "safe." It's a guaranteed way to lose purchasing power while feeling responsible.

Treasurys are a promise from people who've never kept a promise.

CDs are a bet that the people running the printing press will stop running the printing press. They won't. They can't. The debt requires inflation now. It's not a bug. It's the only exit strategy they have left.

Retirees get hit twice: Fixed income that isn't, and a government that counts on you dying before you notice. Cheerful? No. Accurate? Unfortunately.

Charlie

P.S. A "safe" investment is one that loses money slowly enough that you blame yourself instead of your adviser.

Charlie Garcia is founder and a managing partner of R360, a peer-to-peer organization for individuals and families with a net worth of $100 million or more. He owns positions in gold and silver.

Agree? Disagree? Share your comments with Charlie Garcia at charlie@R360Global.com. Your letter may be published anonymously in the weekly "Dear Charlie" reader mailbag.

By emailing your comments to Charlie Garcia, you agree to have them published on MarketWatch anonymously, or with your first name if you give permission. You understand and agree that Dow Jones & Co., the publisher of MarketWatch, may use your story, or versions of it, in all media and platforms, including via third parties.

More from Charlie Garcia:

China is quietly destroying the dollar - and that'll cost you. Fight back with these money moves.

These stocks could land big profits from filling Big Tech's critical water needs

How the U.S. government bought an election, rescued some Wall Street bigshots - and left you with the tab

-Charlie Garcia

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