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Thursday, September 17, 2009

USD and Market Rally

I posted previously how the US stock market rally has been closely tied to the devaluation of the US dollar. This trick that is being used to try to give Americans and the world false hope of a quick recovery has a dark side. How far can the USD fall before it becomes critical?
And how can USD falling be a negative thing?

Well, any currency, like USD, can be thought of as the "stock" of a country. If the currency devalues to the point people are afraid to store wealth in USD, the whole system crumbles. This this is far fetched? It just happened to Icelend, and many other countries it has happened to in the past.

But it doesn't matter if you think this is possible, what does matter is what level does the US Government consider critical mass, and action must be taken to change course? From the chart below I see two critical mass points, USD at 76, and 72. Below 72 is USD free fall territory.

Me trying to play short where a country is willing to sacrifice it's money's valuation to artificially inflate their economy was not a good plan.

Because of where we are, GOLD/Gold Miners could be a buy of a lifetime, or a horrible time to buy. It depends on where USD is headed in the next 6 months. For now, I am being OPTMISTIC the USG defends the valuation of the USD, and prevents a currency crisis. Think market collapse of 2008 was bad? Thats NOTHING compared to a currency crisis.

So my advice is still cash, maybe a little gold miners, a little short, but your guess is as good as mine on where this train turns around...or derails.
From WebSurfinMurf's Financial Blog

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