The Future Is Now

Although Bernanke is quite right that inflation is likely still several years in the future, this distant threat has not prevented investors from dumping the dollar in anticipation. Why such rash actions now in concern about a problem in 2015?

Investors make money if they have foresight about a future development not apparent to the seller of the asset. As knowledge of that development spreads, the asset’s buyer loses their advantage. Therefore, when an investor believes he has identified a development that is not widely known, it is in his interest to act quickly, before that information is “priced into” the asset. This is why markets can move so quickly on important news.

As increasing numbers of investors—foreign and domestic—recognize the trends outlined in this book, they are perceiving the value of diversifying out of the dollar. They will get the best price possible (say, on Brazilian stocks) if they act before other investors can bid that asset’s price higher. Thus, investing is always based not only on current conditions but also on the future that investors anticipate, and try to exploit.