Wednesday, April 20, 2011

There's Just NO Reason To Be Long The U.S. Dollar

Unless someone has a gun to your head.  China has been firing warning shots at the U.S. Government/Tim Geithner for a while now and they are starting to come from higher up the food chain in the Chinese Ruling Party and more frequently as well. Here's the latest:  PBOC governor says foreign reserves excessive.  The "PBOC" of course is the People's Bank of China, or China's Federal Reserve, if you will.  In so many words, this fine gentleman is telling us that China is going to accelerate its U.S. dollar selling:
Foreign exchange reserves have exceeded our country's rational demand, and too much accumulation has caused excessive liquidity in our markets, adding to the pressure of the central bank's sterilization," Zhou was quoted by the official Shanghai Securities News as saying  "The State Council has required a cut in excessive accumulation and good management of the funds accumulated, including diversification of investments," Zhou was quoted as telling a forum at Tsinghua University in Beijing.
 Here's the link to the article:

Here's the chart of the U.S. dollar:

I actually thought that we would get more of a "trading bounce" at the 75 level, but we have not.  In fact, the index today even lower, currently at 74.64 and has been as low as 74.46. 

The price action in precious metals and in the U.S. dollar is sending us the signal that the United States financial system and economy is in big trouble.  The fact that China and some of the Middle East "rogue" countries so openly defy U.S. geopolitical will is telling us that our Government is losing credibilty quickly.  The fact that countries like Iran and Libya no longer run away from U.S. military force tells me that either the U.S. is losing its super power status quickly or that the U.S. will soon intensify its military pursuits in order to defend its "right" to contol oil and global commerce using the Fed confetti known as the dollar. 

I worry quite a bit about the former two issues - economic/political collapse - I live in fear of the latter (world war).  If you have read "Atlas Shrugged," please go see the movie.  It is a brilliant screenplay adapatation of the book, as it condenses a very complicated "text" and plot scheme efficiently and with good direction and projects this "text" onto the screen in a manner that reflects the "essence" of the story.  The acting is superb. If you have not read the book, it will make a good project for you if you decide to save your money for food and gas instead of taking a vacation this summer, as I do believe the movie is lost on anyone who has not read the book and understands it. Many of the reviewers of the movie have not read the book.  I can't wait for Part 2 of the movie. 

Oh, and don't be surprised if at sometime down the road the Government does indeed hold a "rule of law" gun to our collective heads and forces us to use the dollar and invests our retirement funds for us into Treasuries, as I believe that the retirement fund asset base in this country will be the "buyer of last resort" to keep your Government operating and well-fed.


  1. Dave,

    Regarding holding physical precious metals. I have about 100 oz of silver for every 1 oz of gold. It has worked out amazing as you know silver has outperformed pretty much everything. Going forward though do you think it would be wise to shift more towards gold. My thinking is that as wti continues to climb & food prices the global economy is going to move back into recession thus forcing a major liquidation in most assets again and silver will tumble where as I expect gold to hold up fairly well. Thanks in advance for your opinion!

  2. was just looking at the myself. i'd ride it. where do you think the gold/silver ratio is going?

    if you think you might might want the flexibility of mobility out of the country in the next few years, i'd probabaly move 30% of the silver into gold. nothing majic about the 30%, just using it as an example.

  3. Was the percent decrease in Gold much less than the % decrase in Silver back in late 2008?

    (Sorry, too busy to do the research but would like to know the answer to this question.)


    Hold the silver.

  5. "forces us to use the dollar and invests our retirement funds for us into Treasuries, as I believe that the retirement fund asset base in this country will be the "buyer of last resort" to keep your Government operating and well-fed."

    I have long thought this as well. Unreal. How they do it will be tricky; I can imagine a program where 401k's that hold X$ of treasuries would be FDIC like guaranteed but if you go another route it is not safe. Some others come to mind but I don't want to give them any ideas.

  6. Dave, Don't look now, but the dollar is falling off of the cliff...

  7. Regarding "Atlas Shrugged", I had an encounter with Objectivists in college. Due to a family crisis I had to get a room in the Dorm at NYU. There was only one spot left so I took it. After I moved in I found out why that spot was available. The other three roommates were Objectivists, followers of Ann Rand. One was the president of the Objectivist Society, one secretary, and one regular member. What a dead bunch! We were 20, in college, living in Greenwich village and these guys spent every night in the dorm. I lived with them for 9 months in 1969 and never once did we have a memorable conversation. They lived in their heads and ideas and everything else passed them by.

    Of course it wasn't until much later that I heard about Ann Rand's infatuation with a serial murderer and her lack of human compassion. Society can be judged on how it treats its old, and sick, and its children. I shudder to imagine Ann Rand's ideal society.

    But I've heard that she accepted Social Security benefits when she was old. Like her student Alan Greenspan, Ann Rand apparently was willing to abandon her principles for a price.

    BTW one of the Objectivists from my dorm found a girl friend late in the year. It didn't last long and he spent the remainder of the term moping in his bed heartbroken. I learned one important thing from the Qbjectivists. Ideas are dandy but life in its mercy and compassion sinks them sooner or later.

    I won't be going to see Atlas Shrugged but I'll be back here enjoying your work.

  8. Dave,

    Do you have any time frame or estimate for when any government move to nationalize 401K/IRA assets might occur? Are there any pre-move signs to look for? Thanks.

  9. No idea Don. Watch Congress and watch what people in the Administration say. And watch blogs like this. If I see any indication I'll write about it. There have already been Congressional hearings with academic presentations on the idea.