Sunday, March 27, 2011

Dollar riding Shotgun

This week it appears that the Euro will take center stage, and the dollar will move over.  The Yen is along for the ride as well, and its baggage may weigh on all fiat.  Interesting that this happens at the same time that the debt ceiling will be breached.  Will a Euro catastrophe divert attention away from the dollar long enough for the US Treasurie to convince Congress that debt equals sustainability?

It is a simplistic view, but it appears that the Fed and Treasurie have only one measure of action to combat what was a poor use of funds.  Increase the debt level; continue to add funds across the board.  What is interesting is that they fail to see that this is not wealth creation.  They think that they are creating opportunity, because the loans they make will spur growth.  More than anything, the are fighting fire with fire.  The problem is that the house they built is made of wood, and it is burning down.

False paradigms beget fallacies.  Continuing with these policies is total madness, because it is these policies that created the problems in the first place.  Also, if the Euro struggles, does the dollar then become a better investment?  In comparison sure, but once again, why should we compare such with such, when both are fallacious?

Since fiat is an undeserved asset, the rubric is to shun all fiat.  Once fiat is off the table, what is left?  Equity and bonds trade in such, so they are off with it.  All that is left are tangible goods.  I will not deny corporations of their goods and services, nor governments, but the instrument used to measure them is not feasible.  Without measure, there is nothing.

This is what is to come.  Yes it numbs the mind.  Yes there is no fine answer.  Yet this is where finance has led us.  To wit, I do fear a Euro collapse that sees the dollar rise to a level that leaves it as a one eyed king among the blind.  Now that the Yen is as good as nothing, this scenario is very real.  This case would be great for precious metals, as last year's Euro panic showed.  Yet this would be where the SDR would step in, as it is well known that the dollar by itself can not sustain finance alone.

The tell will be platinum climbing the way it did a few months ago, from the $1700 to $1800 range.  Very few people will notice, as it appears very few people watch platinum.  Platinum is the real canary in the coal mine.  To know what direction this week is heading, watch for platinum to break out.  The other scenario would be for silver and gold to test support.  Gold's support is $1407.  Currently, both silver and gold are smack dab in the middle of their respective ranges.

If there is a deflationary storm, and gold tests support, platinum could shake a little lower.  This week will be interesting, because most fundamentals were thrown under the earthquake/tsunami.  Japan's problems will exacerbate Europe's and America's.  Let's wait and see what tomorrow brings.

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