Keep your eyes on the US dollar, Americans are getting thrifty

There is no doubt that the US economy has suffered a setback. But Americans may also have learned some lessons along the way. Americans are moving from a mentality of spending and material acquisition to one of saving with a view to their future.

In 2007 Americans personal debt level was at the highest level it has ever been. Now saving seems to be in fashion. Americans are getting rid of their SUVs and ferocious spending habits. They are saving and paying down debt. When this savings trend occurs on a large scale the impact will be great.

Family’s debt ratios will drop to levels that have not been seen for the past 25 years. Frugality will accelerate major economic expansion at the end of this decade.

Increasing savings means increased domestic capital available and less foreign borrowing

What this means is that there is going to be significantly more domestic capital available to invest in American companies’ bonds and equities. Increased dollars in savings accounts allow the federal government to fund their deficit with their own citizens’ savings rather than with foreign money with its high interest rates.

The U.S. has been through some of the worst times. It will take time and money to get over the present situation. But the U.S. is a vibrant and entrepreneurial nation and they like to win. So you would not want to bet against them.

The Challenge

Right now the challenge for investors is to cut through the fear and worry around investing in anything American. This is the time to buy US. And when the herd is negative you should do the opposite. Do not follow the herd mentality. But continue to invest with a proper timing system. Follow the trend in a disciplined manner. You can do this by timing your entry and exits with the use of ETFs that are large and widely followed. Do the same thing with bond ETFs as well. In the U.S. some of the largest equity ETFs are SPY (S&P 500) and QQQQ (NASDAQ 100). For Bond ETFs there are four that cover the whole market from treasuries to corporate bonds. They are: TLT (U.S. Treasury government bonds 20+ maturity); TIP (U.S. Treasury government bonds short term maturity); LQD (high quality corporate bonds); JNK (high yield corporate bonds).