Mark Cuban was on CNBC recently stating his biggest trade right now was in the currency market.
He’d seen all of the rhetoric from Japanese Prime Minister Shinzo Abe and his pressure on the central bank to undermine the yen.
Why does Abe want the yen undermined? If the currency is brought lower, it would stoke inflation and get the country out of the deflationary environment that it's been stuck in for at least a decade.
Abe made very bold claims about targeting 2 percent inflation, which is a far cry from where it has been.
Cuban knew it would take aggressive moves from Japan's central bank and the government but that they were very likely going to be successful in undermining their currency.
So what did Cuban do? Well, let’s hear it straight from him as he told it to the viewers on CNBC on April 25:
"In December, early December, I went and took every penny of debt that I had with the [Dallas] Mavericks and personal debt and everything and converted it to a yen loan when I think it was in the mid-80s, and I've been really happy with it," he said.
What is he attempting to do? He wants to pay back future debt in a cheaper currency.
Let’s look at an example. Let’s say you took out a loan for $10,000 back in 1970 with the stipulation that you’d pay it back in full in 2013. Now, for simplicity’s sake, we’re not going to consider interest, but only the principal amount of $10,000.
Now, you know that $10,000 back then and $10,000 today isn’t the same thing, right?
In 1970, you could buy a Camaro for $2,800. Yet today, it costs $24,000 to over $50,000, depending on what model you get.
The currency went further then. With $10,000 back then, you could have bought three Camaros and still had money left over. Today, that same amount will only buy a fraction of a Camaro.
Back in 1970, the median price of a home was $23,000. It sounds funny today when we’re dealing with much larger numbers. Today, the median house price is just under $179,000.
So back then, $10,000 would come close to paying off half of your mortgage. But today, it might only be enough for a meager down payment on a home.
The point is that a dollar’s worth of debt today and a dollar’s worth of debt 10, 20 or 30 years from now are very different.
Well, Cuban believes (as do I) that the yen will continue to weaken overall for quite some time. If he’s right, he’ll end up paying back his debt much more easily.
But this concept isn’t new. In fact, Cuban likely got the original idea from simply watching what our government does.
Ever since the Federal Reserve was created in December 1913, it's been devaluing our currency. And the Fed even picked up the pace ever since we came off of the gold standard back in late-1971.
Why would they do that? Well, we’ve got a massive amount of debt that we owe our creditors. The Chinese and Japanese own a ton of our debt. And the government wants to pay them back in cheaper, devalued dollars rather than stronger, more expensive dollars.
This is one of the main reasons why the Fed continue to devalue the currency through both republican and democrat administrations. It’s a goal that both parties tend to agree upon.
Therefore, take a cue from Cuban and our government and take advantage of a falling currency by holding some assets that will appreciate as the dollar depreciates. By taking an offensive approach like that, you can combat the slide-off of the greenback over time.
Commodities, commodity-related stocks and many foreign currencies are a great way to fend off the effects of a devalued dollar over time.
Remember, the government isn’t going to change its tactics. It hasn’t in 100 years, so why should it start now?
If you want me to do all the research as to which stocks to get into, then come join me in the Ultimate Wealth Report at www.ultimatewealthreport.com
and I’ll show you which stocks I’m recommending to my subscribers to combat the dilution of your dollars.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.
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