Tuesday, October 4, 2011

Burning The Furniture......

The austerity imposed on Germany by the Treaty of Versailles following World War I created the conditions for an unmanageable monetary hyperinflation and eventually Hitler's rise to power.  During this time the wealthy sold valuable artwork and antiques for any price just to survive.  The poor had little options and even resorted to burning their furniture for heat.  Crippling asset deflation was followed by out of control monetary hyperinflation.  This violent series of conditions led to the backing of a populist dictator as average people were left with nothing else to believe in.

We have written at length on the weakening dollar which was in a firm downtrend from June 2010 until 9-1-2011.  Please consider this chart of our dollar index tracking fund:
Notice that the dollar touched upper resistance in the first week of June 2010 and began an orderly fall that lasted until 9-1-11.  Since 9-1-11 the dollar has been strengthening against other currencies mainly the euro and franc.  Now, consider this chart of the euro and notice the inverse behavior as it relates to what you have seen in the dollar chart:
Clearly, central planners are embarking on coordinated currency devaluations.  They take turns as they try to maintain order while defrauding holders of currency.

How does this effect Americans?

Well, if you hold assets in dollar terms be prepared to feel tremendous pain until the fed initiates QE3.  That could come soon or could take a while.  Once a path of quantitative easing was chosen all other solutions were nullified.  Some readers are not comfortable with that statement but they are advised to "keep dreaming."  Sovereign economies with banker controlled electronic money supplies, which are the liability of unknowing citizens, do not operate like a small business.  Cutbacks and austerity only cause tremendous pain for the society while those in control act to relieve themselves from suffering and economic accountability.

We find it nearly impossible to trade in this environment.  Being in place for the macro trend yet lightening up when the G20 finance ministers meet in Europe for the weekend to determine who is next to devalue is nearly impossible.

Physical metal and unleveraged hard assets remain the only sensible positions.  While it is completely contrary to the major trend and certain long term outcome, holding dollars is profitable until they have completed the euro liquidity expansion.  Part of the reason that this direction is so hard to accept is that dollar money funds have incredible levels of exposure to the European condition.

People, cities, states, banks and sovereign nations remain over-leveraged and under-capitalized.  This cycle of coordinated devaluation and strategic printing for the benefit of connected bankers will continue until the modern currency system implodes.  If you don't like what we are saying feel free to trade as if we are wrong.

No comments: