Thursday, April 21, 2011

THTB Warning: Keep Your Eyes on the US Dollar

I came out of hibernation tonight because I am extremely concerned about the markets right now. 
I know I know, why be worried some may ask?  Many will say Apple just reported record earnings and Intel hit it out of the park yesterday!

My response to this is kudos to these companies for banking so much coin in such a crappy economy.  Steve Jobs is a frickin god IMO after seeing their earnings today.

That being said, let's get real about what's really going on here.  I'll start with a little video from Steve Wynn.  He get's it:

My Take:

Couldn't have said it better myself.  Folks, the dollar is in deep trouble.  Let's take a look at the recent $DXY action from a longer term perspective:

As you can see above we have now broken the 2009 lows on the dollar that haven't been seen since the 2008 inflationary/credit market crash.

This recent price action has been reflected in commodities.  Oil has surged to over $112 per barrell.  Silver's reaction says it all:

Take Continued:

Silver has surged over $46 tonight as investors continue to worry about the US dollar and fiat currencies in general.

The Bottom Line

The market futures are up but I can't see the market ignoring the USD problems for much longer. 

Now that the dollar has broken it's late 2009 lows it could very well hone in on the 2008 levels that blessed us with $140 oil.  The consumer is tapped out and can ill afford to return to these levels so the economy is in serious trouble as a result.

I wanted to write this piece because I see many investors getting complacent with the rising stock market.  The VIX is nearing all time lows and indicating all is well.

I am hear to tell you that all is not well and I would advise people to sell into this rally because the dollar is on the verge of melting down(this is my opinion of course).

It's time to stop looking at prices and start focusing on what's really valuable at this point.  Our interpretation of "wealth" is about to dramatically change in the near future IMO.

Wealth in the future may not be about how many US dollars that you hold.   What will determine wealth in the future?  That's the million dollar question.  Right now the silver market is telling you that it's the place to be for value.

I am sure the gold market will say the same thing at some point.  Holding metals as a hedge to currency is a must in my point of view.

That being said, the metals aren't necessarily the answer as all fiat currencies face collapse.  After all, you can't eat gold and you currently can't trade it for food right now if the world goes "Mad Max".

Farmland might prove to be as valuable as gold or silver at some point. 

The bottom line is there are no answers right now folks which is why the metals are surging to 30 year highs.  The one thing I can tell you is the market is not healthy when the metals are acting like this two days after the S&P downgraded their US debt watch to "negative".

Be careful out there when it comes to buying stocks.  The FOMC will be out a week from now explaining their exit strategy from QE2.  I don't see how this will end well because I am very confident that the Fed will stop buying bonds on June 30th because the dollar is selling off so hard.

The Fed will also want to see how the market reacts after they stop the QE printing presses.  They would LOVE to bail on this printing program if the markets allow it. 

IMO there will be no QE3 until the Fed tests the waters by ending QE2.  This will likely be a gigantic failure if history repeats itself.  When QE1 ended last August the market dropped 16% and didn't reverse itself until QE2 came to fruition.

A surge to 1400 on the S&P would not be out of the question from here as the dollar devalues.  The market likes it...FOR NOW.

Longer term a collapsing dollar is catastrophic for the US economy and stocks will eventually react negatively to it.  We may need $140 oil before the market wakes up.

Alrighty, it's time for me to go back into hibernation.  I will be back as needed. 

Be safe.