Geopolitical stress points to upcoming war events - what should expats do?

From the nuclear missile laden saber rattling from North Korea to the French Embassy bombing in Libya today to an Iran linked terror plot in Canada to potential conflict between China and Japan (see video) or between China and Vietnam or between China and India, not to mention everyday bad news from Syria, Pakistan and Afghanistan, geopolitical stress seems to be climbing to new heights globally. A great article in Salon.com today summarizes the basis of all this geopolitical stress as being resource shortage driven. According to the article, "although the global supply of most basic commodities has grown enormously since the end of World War II, analysts see the persistence of resource-related conflict in areas where materials remain scarce or there is anxiety about the future reliability of supplies".

The question for expats and other investors is how should they hedge themselves against such an event. It is highly recommended that expats should have exposure in their portfolio to resource based funds such as water resources funds, food commodities, oil and gas, forestry as well as precious metals. These are exactly the resources that shoot up when geopolitical conflicts escalate.

Mr. Goldfinger gets bitten by Mr. Market

In the classic James Bond film "Goldfinger", the villain (Mr. Goldfinger) professes his love for the yellow metal (see video clip) and claims to get to into any enterprise that will increase his stock. There have been many such Goldfingers who were happy to ride the price wave of Gold until the massive drop of over 9% this week shattered their confidence in the yellow metal. Many of my clients have sent me panicky emails asking if they should dump the metal. Gold is only a holder of value and does not give dividends or interest, so when this perceived value is lost, pandemonium is primed to ensue. The best strategy is to wait out the downturn and do absolutely nothing. Perhaps the classic dialogue between James Bond and Mr. Goldfinger can be reworded thus: "Do you expect me to Sell?". "No, Mr. Bond, I expect you to Hold".

Better to be in US$ denominated investments than in £ sterling in the near to medium term

Everyone from Bill O'Reilly to Peter Schiff to Marc Faber have been prophets of doom for a long time on the US dollar frequently making dire pronouncements on the coming collapse of the dollar (as shown in this video featuring Bill O'Reilly). The simple truth is that it is best to be in US dollar denominated investments in the near to medium term as opposed to investments denominated in any other currency including pound sterling. Indeed at Capital Economics argues today the US is not broke and the dollar won't collapse.

One only has to observe the wobbly nature of all other currencies who are in a currency war against the dollar (and against each other) introducing inflationary pressures into their respective economies (except for the Euro which has different set of problems altogether. I recommend staying in US dollar denominated assets in the near to medium term as all other investments come with significant exchange risk.