QE3 was announced on Thursday and it is by far the most aggressive action that the Fed has taken in years. Rather than set a specified amount of money to print, Bernanke and company have pledged to invest $40 billion per month in MBS until they see material growth in the economy. That means that this QE is open-ended and could potentially drag out for a while. If the program were to be in place for just one year, we would print $480 billion. For two and three years, we would add another $960 billion and $1.4 trillion respectively [for more economic news and analysis subscribe to our free newsletter].
While there is no guarantee of how long this program will extend, it can be said with certainty that the U.S. dollar will suffer for as long as the Fed chooses to dilute the money supply. In fact, Peter Schiff went as far to say that we are moving towards a currency crisis with the rampant printing. “This is a disastrous monetary policy; it’s kamikaze monetary policy” said Schiff. Mr. Schiff went on to state that he feels that what our economy truly needs is less money printing and higher interest rates, although Bernanke’s pledge to keep rates at near zero levels through 2015 leaves little hope for that.
As the dollar continues to weaken, one asset class in particular will begin to look very attractive, commodities. These hard assets are among the best in the financial world at providing a hedge against inflation as well as a weakening dollar. It is widely agreed that at some point in the near future, all of the money printing combined with our massive debt will lead to hefty inflation, making commodities a great long-term buy right now. Below, we outline several funds to help you take advantage of a flailing greenback [see also Why QE3 is Just Delaying the Inevitable].
- DB Commodity Index Tracking Fund (DBC): This fund invests in the 14 most heavily traded commodity contracts in the world, giving you exposure to assets like gold, crude oil, and corn among others. The fund has more than $6 billion in assets and trades over 2.4 million times each day.
- DB Agriculture Fund (DBA): Many feel that inflation will hit food prices the hardest, making an agricultural play ideal to keep up with runaway prices. This fund invests in a variety of agricultural futures and has enjoyed a return of nearly 25% in the last three years [see also Jim Rogers: The Agriculture Industry is Doomed].
- Physical Precious Metal Basket Shares (GLTR): Precious metals are another commodity group that are expected to soar with more QE, and already have done do. This fund invests in physical gold, silver, platinum, and palladium. Its trading volumes are relatively low, but note that as an ETF, the creation process allows for instant liquidity no matter how low trading volumes go.
Disclosure: No positions at time of writing.