People who own U.S. assets, whether real estate or stocks, are going to lose substantial wealth in the next five to ten years, according to Peter Schiff, president of Connecticut's Euro Pacific Capital.People who own U.S. assets, whether real estate or stocks, are going to lose substantial wealth in the next five to ten years, according to Peter Schiff, president of Connecticut's Euro Pacific Capital. (iStock)

Walker Todd has a sobering message for you: A tidal wave of money is headed your way, and it's going to soak the global economy in a sea of rising prices.

Since last summer the U.S. government has committed $8.1 trillion to domestic bailouts, figures Todd's American Institute for Economic Research in Great Barrington, Mass. Part of that commitment is through loan guarantees that might not be needed. Even so, says Todd, "the authorities have lost control of the expansion of money."

The danger is that after the economy hits bottom, all the money sitting on the sidelines — including $3.9 trillion that households have in money market mutual fund accounts and the $7.5 trillion held in interest-bearing bank accounts — will come rushing out. As it does, consumers and businesses will have to vie with government for a finite amount of goods and services. If the Federal Reserve has not already begun applying the brakes to the money supply, prices will shoot higher. Even before inflation sets in, there could be devaluation — a fall in the dollar's value against other currencies.

"People who own U.S. assets, whether real estate, stocks or U.S. Treasurys, are going to lose substantial wealth in the next five to ten years," says Peter Schiff, president of Connecticut's Euro Pacific Capital. "They need to move their money abroad."

Unfortunately, if you buy Schiff's argument, traditional inflation hedges provide less than airtight protection. Stocks tend to gain against rising prices but only if you have a decade or more to smooth out their volatility. Treasury bills pay next to nothing in real terms over the long haul. The same is true even of Treasury Inflation-Protected Securities, unless held in tax-sheltered accounts.

It is also apparent that gold and silver, time-tested stores of wealth, are better hedges against wars and other crises than against inflation. In the 34 years since Americans were once again allowed to own gold, its purchasing power has climbed 2.7 per cent a year, barely enough to cover insurance and assay costs for hoarders. Gold is also susceptible to bubbles of its own, warns Liam Halligan, chief economist for Prosperity Capital Management in London.

Here's a concept: Consider commodity producers with significant foreign sales as an alternative that offers something of a double hedge. They can give you exposure to agricultural and industrial commodities, which tend to fare well in times of rising prices; on top of that, they are a hedge against the dollar.

Each company in our table has revenues in excess of $1 billion, manageable debt, positive cash flow from operations and an enterprise value/sales ratio below historic norms. All generate at least two-fifths of revenue outside the U.S.

Copper, oil perform well in expansionary cycles

If you believe a world recovery is near, copper, uranium, oil and agriculture products are worth a look because they tend to perform well early in expansionary cycles. That's according to Krassimir Petrov, an economics professor at the American University in Bulgaria. Gold, by contrast, tends to perk up in a later, more overheated stage, he says.

Cameco is a Canadian uranium miner trading for a 4.1 enterprise value to sales versus a five-year average of 7.4.

Southern Copper is a $4.9 billion (sales) Peruvian miner with American Depositary Receipts listed on the New York Stock Exchange. It boasts the largest copper reserves of any publicly listed producer in the world. Despite copper's fall in the past 12 months from $8,700 a tonne to $4,400, Southern recently said it will still pay a 12-cent-a-quarter dividend and keep buying back stock.

Cameco is a Canadian uranium miner trading for a 4.1 enterprise value to sales versus a five-year average of 7.4. Titanium Metals' ratio of 1.0 is less than half its five-year average. The Dallas firm derived 41 per cent of its $1.2 billion in sales abroad in the past year and has no debt.

Undeveloped land and agricultural commodities are two other sound inflation hedges, says Walker Todd. Viterra is Canada's largest grain handler and has revenues of $5.5 billion and debt equal to 23 per cent of total capital. Alternatives include Bunge and Archer Daniels Midland, both U.S.-headquartered, NYSE-listed firms with assets across the globe.

If your broker doesn't handle foreign stocks, or charges an arm and a leg, consider Interactive Brokers or E-Trade. Interactive will execute trades on 80 exchanges in Asia, Europe and North America. Commissions on electronic transactions for European stocks run around 0.1 per cent. Trades are executed on hometown exchanges, so investors pay the same spreads as locals. The currency conversion charge is just $2.50 for any trades below $50,000.

On more exotic exchanges, such as Argentina's, say, a trade handled by Charles Schwab & Co. confronts a round-trip cost as high as 1 per cent; on big exchanges, like London's, the bid/ask spread is going to be more like 0.1 per cent to 0.2 per cent. Schwab's minimum stock commission for an overseas trade is $100, but the currency conversion charge is already bundled into the execution price.

A number of exchange-traded funds also own producers of hard assets, including s&p Global Materials (fee, 0.48 per cent a year) and the Van Eck Market Vectors Agribusiness ETF (fee, 0.65 per cent.)