Tuesday, September 22, 2009

Dollar Back At The 76 Level....

"Buy Stocks Because U.S. Dollars Will Be Worthless," according to Marc Faber, editor of The Gloom, Boom & Doom Report. However, in the near term, Faber sees plenty of money-making opportunities in certain equities. Sure, prices aren't as cheap as they were in March, yet he's confident, "in this environment cash will become worthless." As a result, he says investors are, "better off being in equities," for the next two to three years. Faber is most bullish on mining and energy companies, such as Newmont Mining (NEM) and FreeportMcMoran (FCX); again inline with my ITZ PIX portfolio theme!

Fed Chairman Bernanke has said that the recession is "very likely over," but the Fed isn't acting like we're in a recovery. Economists widely believe the central bank will keep interest rates between 0% and 0.25% at the conclusion of its two-day meeting this Wednesday. One would expect the Fed to raise interest rates once a recovery started, but it hasn't in part because this recovery is weak and tepid, we could see a jobless recovery. Which would mean that consumer spending will be as weak. Unemployment is still rising, retail sales are far from robust, manufacturers' capacity utilization remains at ultra-low levels and wages are still depressed. Home sales and new home construction are making a comeback, but they're coming off of historic lows.

As for the US Dollar, that bounce yesterday didn't last very long did it? Back down to that all important support level of 76. A sustainable break below could the final boost for gold to trade above the $1033 resistance level and for the DJIA to break over 10,000. But then what? Most traders can live with a steady decline in the dollar, but a rapid plunge near term could scare off equity investors and spike gold to extreme levels. Marc Faber's commentary is on a long term view of the dollar, many scoff at his views, but even so, just look back to this March and how close (even according to the President, Fed Chairman & Treasury Secretary) we came to falling into an financial abyss?

The dollar is now so weak that it has become the currency of choice for the new “carry trade” – where investors borrow currencies at low rates and invest in another currency at higher rates. Simon Derrick at The Bank of New York even said that “The dollar is the new yen.”

Another shocking fact about America’s waning world influence comes from the Boston Consulting Group (BCG) ~read story~, which issued a report that showed how Europe has surpassed North America as the richest region in the world. The BCG report said global wealth fell 11.7% to $92.4 trillion in 2008, the first decline since 2001. North America saw the biggest decline in wealth, falling 21.8% in 2008. The total wealth in Europe fell by only 5.8%, while Latin America was the only region where wealth grew, by 3% in 2008.

One other interesting comment last week came from former Fed Chairman Alan Greenspan, who said that he is worried that Congress will hamper the Fed’s efforts to rein in its monetary stimulus, and that inflation might “swamp” the bond market. Specifically, Greenspan said in a broadcast to Tokyo clients of Deutsche Bank Securities on Wednesday that “it’s the politics in the United States that worries me.” Mr. Greenspan also warned that the U.S. must rein in its “very dangerous” level of debt.”

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