Many financial show pundits have talked in recent weeks about the weakness in the US dollar. What a weak currency means is that US products that are exported to other countries become cheaper in the local economy and goods imported here are more expensive.

A big reason why the dollar has been soft in recent years is the twin deficits - federal budget and trade. Deficits are caused because income is less than spending. In the case of the federal budget deficit, it means that the government spent more money than it received in tax receipts. The trade shortage means that we buy more goods from other countries than we ship abroad. In January 2006 the US trade deficit reached a record of $68.6 billion. Because the US economy is spending more money than it makes, it relies on investors to buy our debt (e.g. Treasury bills and bonds) to make up the shortfall. This has worked out well in recent years because other countries rely on our purchases to keep their economies thriving. However, when demand for US debt declines it causes the Federal Reserve to have to print up more money, which decreases the greenback�s value because of the abundance of supply. So along with the rising national debt comes inflation. Inflation basically means that the purchasing power of a particular currency is declining, making it more expensive to buy goods and services for consumers in that particular country. If, for example, the value of your home rises from $70,000 to $100,000 over 5 years, it is because of inflation. It�s great that the value of your home increased, but it means that a dollar today buys less than it did 5 years ago.

Although it sounds gloomy that we are living in an economy that has rising inflation and a weak currency, there are ways to make money from this scenario.

1. Buy US companies with a large international presence to profit from a weak dollar because it makes our products cheaper abroad, fueling exports. Companies such as Coca Cola, Wal Mart, Procter & Gamble, and Intel receive a large portion of their sales from countries overseas. In addition, investing in exchange traded funds (ETFs) such as the Select Sector SPDR Consumer Staples and Select Sector SPDR Technology are good ways to play this trend

2. In times of economic uncertainty, investors tend to flock to Gold for safety. Its value tends to rise when the dollar is falling. Gold prices are at 37 year highs. Individual investors can profit from the bull market in gold is to buy shares of gold stocks such as Freeport McMoran (FCX), Goldcorp (GG), Newmont Mining (NEM). Another idea is to buy the Streettracks Gold (GLD) or iShares Comex Gold Trust (IAU) ETFs.

3. Treasury Inflation Protected Securities (TIPS). Since a weak dollar tends to cause inflation, investors who prefer bonds can protect their investments by buying TIPS. The way typical bonds work is that an investor will pay a principal amount (typically in $1000 denominations) and receive semi-annual interest payments until maturity. So with a 30 year bond an investor would receive interest payments every six months he is holding the bond and would receive the $1000 principal amount at the end of year 30. With TIPS that principal amount is adjusted each year for the rate of inflation. So if inflation rises 3% a year that balance rises by that amount. At the end of the term the investor would receive the inflation-adjusted balance ($2427.26), which is more than twice as much as the person investing in a regular 30 year bond would receive. Individual investors can purchase the iShares Lehman TIPS Bond ETF (TIP).

The host does own shares of Streettracks Gold and iShares Lehman TIPS Bond ETFs in his personal investment account and accounts managed for clients.