Thursday, May 24, 2012

The US Dollar

We currently live in a world characterized by competitive currency devaluation.  The competition is between the world's most prominent central banks.

Central bankers fear deflation more than any other economic phenomenon.  Understanding that these bankers are puppets, installed and controlled by commercial bankers, is important.  A deflationary environment makes debt repayment more challenging.  As we know, commercial banks are thinly capitalized.  In some cases as little as 5% of loans failing in a given period can render the institution insolvent.  Luckily they have installed some of their own in a position that allows for continuous life support in times of trouble without giving up profits when times are good.

As we forecast what might be next for the world's developed economies, it is important to realize that looking ahead requires a multidimensional thought process.  It is also critical to be prepared for the unintended consequences that come with manipulating the value of money.

What is next for the US dollar?  
As we see it, the dollar should resume weakening against other currencies.  The RSI indicated exhaustion at this level making a breakout to new highs unlikely.

But, it is critical to remember that as Hoover described in recounting the events of his presidency, capital can flow wildly between sovereign nations during times like these.

Considering every factor that we are able to study at this time, precious metals appear to be the most attractively priced asset class.  Specifically, we favor quality mining firms in the early phases of production with competent leadership at the helm.  The risk/reward is so drastically skewed in this sector that risk taking can be diluted to just plain taking.  When the market removes the risk premium you are taking upside only.

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