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Tuesday, March 23, 2010

The Great Debate, the Market Destiny

I pay for quite a few market pontificator's professional opinions on market direction. I am drawn to the ones that view the world with a skeptic eye, so none of my market pontificators say the US made great decisions by printing trillion(s) of dollars, giving it to banks in exchange for garbage collateral, and suspending standard "sane" accounting practice of valuing assets by the price they are paid for.

So my view is a bit screwed, from this aspect, that the financial ponzi schemes and fraud on a mass scale will manifest into losses. The Great Debate among the market pontificators is how.

If the US government enforced the law, and did not lend money to hopelessly bankrupt companies, the answer would be easy. The losses would be taken by the risk takers, after all, they took the risk, they should take the losses. But what we have witnessed is "socializing" the losses, meaning the US taxpayer is playing hot-potato with the losses as the government takes various steps.

There are basically two camps, one that views the US dollar will fall, starting this year, the other is the US dollar may over the long haul be destined for lower, but not yet. Why not yet? Well the world also participated in the financial games, so in a world of crooks, the US is not "as bad as a crook" as the other crooks. Hardly a title to be proud of, but in these financial times, something to grasp at.

The thought goes, that in a deflationary collapse, as the one the US entered in 2008, and continues to experience despite mass media saying otherwise, the value of cash should rise. Ben Bernanke in doing various financial games "cheapened" the US dollar as the US dollar fell compared to other currencies. However more recently starting with the Dubai crisis, Greece and soon other countries, the USD has regained some strength.

In any event, I could rant for pages on the 100 different ways to dissect movements of US dollar valuation and the why's. That is a whole post onto its own.

So lets ask the question, do you think the USD value between now and 1 year from now will be higher, about the same, or lower?

If higher, then cash is king, low risk and a good keeper of wealth. Interest rates should trend lower, so buying US bonds today at a fixed rate is a good thing to do. In general natural resources should not fair well.

About the same? Cash is good, but probably will be a rocky year as the USD bounces around for the next year. Interest rates should bounce around, buying US bonds today at a fixed rate is OK. Stocks may fair well, as stability continues, natural resources should bounce around too, but probably overall trend a little lower.

If Lower, then cash is NOT King, you want your savings in something that retains wealth, not loses it. Interest rates should rise as US debt Risk increases, houses will spiral lower, business will have higher cost to service debt including the US government. And buying natural resources is good if not great. As the USD falters old-school storage of wealth such as gold, etc will gain popularity as the premium is paid.


This being the crux of the question, the bottom line no one knows direction in the next 3-9 months. After 1-2 years I am in the camp the US dollar will start to trend down as the debt burden catches up with the US, probably as we approach the next presidential election. But this is probably wishful thinking. The government continues to act as if debt is endless, and interest rates will always stay low. The world may call the US bluff on paying back all debts and the US dollar start to plummet in short order.


Gary of the Smart Money tracker is one service I pay for, and he is in the camp the USD is going lower sooner rather than much later. Therefore buying gold/silver/resources if/when the market dips significantly is the right play. Since the politicians when faced with a falling market will break the rules once again and start the printing presses. This should in effect break the back of the US Dollar once and for all. I recommend you pay for Gary's service for a length, detailed opinion on the markets. For your sampling below is a great compilation graph Gary gave me permission to reprint.

In any event, rolling 5-20% of your life savings with Gary's direction is prudent, since no one really can know exactly when the dollar will die, but over the long term, I think the US dollar is destined to be lower. So natural resources continues to be a play I am keeping an eye on.

From WebSufinMurfs FinancialBlog2


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