Thursday, May 22, 2008

False U.S. dollar hope

It get’s tough sitting down and never having any good news to share, each time I write it seems to be the same thing, housing down, bankruptcies up, inflation and unemployment up, so I took the last couple of weeks off giving all those who will not accept the reality of the U.S. dollar a little time to bask in their delusion that the U.S Dollar was putting in what they took to be a major rally, Major it was not!

I’ve responded several times in the last couple of weeks to people who write me directly but won’t post comments that nothing has really changed, that the fundamentals of a broken economy and a dying currency remained fixed, sure exports went up a bit, Chinese imports might be slipping a bit but each and every day borrowed money just barely keeps the wheels on the bus. As several people I read have asserted, the U.S. could have a 100% personal income tax rate, or close the military down and still not cover the government real financial obligations including unfunded liabilities. It’s quite simple there is no answer short of massive defaults or massive inflation with the intent to destroy U.S. Gov financial obligations at both home and abroad.

Right now this is a game of chicken, holders of U.S. dollars don’t want to piss of the U.S. or encourage a run which would cause financial earth quakes in the world economy, so the U.S. gets away with passing off its potential worthless script and debt vehicles. In the mean time the U.S. is obviously involved in massive debasement of their currency all while daring the world to pull their finger! Every one knows what will happen if the finger gets pulled but they also know you can only hold a stinker so long before it gets away regardless. It might be one hostile country who’s had enough and pulls the trigger, it could be a glitch in a trading program or it could happen incrementally like what’s happening so far, but in the end the US dollar will burn.

And don’t think the other countries of the world don’t know what’s happening and won’t eventually act to protect their self interest, even if they risk unraveling the entire system. An example would be the usually pro U.S. Philippines whose congress today urged their central bank to lower its ratio of U.S. dollar reserves. The Philippines are currently importing inflation with their current peg and the recent bans on rice exports by other countries is going to impact the Philippines very hard, they cannot afford continue riding the U.S inflation coaster and lose more buying power when they will require imports of 500,000 tones of rice to meet this years needs.

In the Philippines this conversation is happening in the open but I assure you this same conversation is happening in every central bank and in every government that has U.S. reserves, pegs to the U.S. dollar or worse still, don’t have a domestic currency and use the greenback instead. I still believe that country like Ecuador will create a domestic currency this year or change to Euros or join a new regional currency.

So what about the so called dollar rally?

The U.S. dollar index shows that 2/3rds of the recent one month rally in the dollar up to an anemic 73.757 has been washed away in the last 3-4 days of trading back to 71.888 by wed pm. The result has been strong bounce in gold and silver but since they are still below their recent highs and my predicted highs for the years definitely still a strong buy. We have another small dollar rebound this morning but it is definitely small compared to the drops in the 50 pt range the last couple of trading days and will be nothing but a speed bump on the way down.

The Canadian dollar is also strengthening from U.S. weakness and with an upward blip in inflation this month I hope the BoC stops its reckless policy lower interest rates in an attempt to catch a falling knife called the U.S. dollar.

Most years people say Sell in May and go away, but this year I’d suggest convert to gold and dig a bunker. I’m sticking to my prediction of more banks and at least one large home builder will be down for the count this year, probably sooner than later. Add into the mix insolvent high end retailers, more crashed airlines, the first wave of municipal bankruptcies and most States going into deficit and you’ve got the makings of one hell of a mess.

Not only do we have the Sub prime mess continuing but you also have bad Alt As, ARMs, commercial loans, car, credit cards and student loans defaulting and pension funds destroyed by investing in this bad paper. Do not be complacent and ignore the markets this summer the end is near and it will not matter what season we are in when the chain reaction starts. Prices are still well below their peaks and should be considered buys. Stocks, especially small producers and the better exploration plays are so far off their real value it is depressing, even more depressing that I don’t have the kind of cash available to take part in a private placement.

For those friends, family and readers who’ve ignored my calls to buy metals starting over two years ago, you’ve missed out on some serious profits, how are those bank stocks working out for you? Are they keeping up with food and energy inflation?

Summer is hard to post regularly, but I do post up relevant articles on my facebook on days I don’t have enough time to anything else, drop by if you like.

For those who were having problems sourcing physical silver, has the situation improved? Has NWT mint started delivering on time?