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A standard way of hedging risks is to diversify. If you buy government bonds and hold them to maturity you face the risk of inflation in the currency in which they are denominated and the risk of sovereign default. The returns on Bunds are not very appetizing just now but that might change. They would have the advantage of being denominated in a currency in which you have expenses. I liked Chris's suggestion about Norwegian investments. You might check out one of his fairly recent diaries to see why. Norway is an oil and gas producing country with a sovereign wealth fund. And it would diversify your currency risk.
The world economy seems very unstable now and I am mostly in cash. I agree with Mig that the general situation is deflationary, but I fear that attempts to stave off deflation could result in bungling into inflation. It is hard to protect against both at the same time. "It is not necessary to have hope in order to persevere."
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