Wednesday, May 19, 2010

Greece! It has less people than the city of Los Angeles! Now ask yourself, is U.S. cash a trap waiting to be sprung

Image by Steve Rhodes via Flickr
The Euro is suffering because of the initial reluctance of the EU countries to take action regarding the Greek debt crisis. A devaluation of the Euro is overdue, and necessary. It will actually strengthen the Euro's trade deficits over time, and bring prosperity (eventually) But forget Portugal, Ireland, and Spain. In the greater scheme of the international markets, they are small fry.

However, it is the eventual devaluation of the U.S. dollar that should have Americans much more concerned. Beware of what is happening in California, Florida, Illinois, Ohio, Michigan, North CarolinaNew Jersey  and even Texas. These states have all spent over 1 billion on their unemployed alone, bankrupting their unemployment budgets. They also have between 13.7 and 17% unemployment, huge debts and deficits, and in some cases, housing prices have been cut in half.

Like the "Pigs" of Europe, these states also cannot print their own money, thereby inflating their way out of the current malaise. As the PIGS of Europe are having a huge, negative impact on the Euro, these states, (the HUGE federal debt notwithstanding) will have the same affect the U.S. dollar. It is a certainty. The only question is, how long can "king dollar" (as Larry Kudlow likes to call it) remain king. It currently is only king because there are no princes in waiting (as regards other world currencies). So, is "Prince Gold" quietly mounting a coup against the King. How about "King Commodity" who is somewhat weakened right now, but will be gathering strength as 2010 progresses.

Many developing countries, including China, India, Indonesia, Russia, South Korea, Brazil etc. are already looking to gold as a substitute for the prominence of the U.S. currency. Many individual investors and fund managers in these countries and throughout the west, have also moved into gold and commodities as a hedge against the demise of the usd. Some have recently added the Canadian and Aussie dollar to their international currency accounts as these two countries are considered "commodity rich"!

Whether they are right or wrong, sentiment is what moves the market. Anyone who thinks that gold, oil, uranium, titanium, natural gas, copper, diamonds, platinum, palladium, REE's or Lithium are not good places to put your money in this environment, just isn't paying attention. We are taking advantage of the current market disarray and buying these commodities

The U.S. dollar is a bubble waiting to explode into hyper inflation. Cash is a trap waiting to be sprung, and the current downturn is just that, a downturn that was expected and somewhat welcome by smart investors. Being in cash at the beginning of May was smart. Being in cash in June won't be.

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