Chapter 1. Global Economic Forces and the Average Investor

Trade Imbalances, Fiscal Policy, and the Average Investor

In 2005, someone asked me what I thought the best investment was. “Short the U.S. dollar or buy gold,” I responded—an unusual statement for an option trader. When I spoke those words, gold traded at $450 per ounce. Four years later, at the time of this writing, gold was worth $1,150. The prediction was based on a couple of simple financial dynamics. In 2005, the world’s combined gross domestic product (GDP) was around $45 trillion, but the U.S. trade deficit had ballooned to $800 billion. Interest rates around the globe had already collapsed into a range of 1%–2%. Simply multiplying these numbers revealed that the U.S. trade ...

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