Thursday, March 19, 2009

Update - Dollar, Gold, Oil

Update - Dollar, Gold, Oil

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These are historic, scary times.

After their FOMC meeting, the Fed announced they will print money and flood the financial system with a jaw dropping - $1.2 trillion.

There are probably many reasons why the Fed has resorted to these desperate measures:

- This past Sunday, 60 Minutes had an interview with Fed Chairman Bernanke. At the end of the interview he was asked what is the biggest risk to the economy, he responded by saying - will lawmakers have the political will to rescue the economy?

The Fed got part of their answer when they saw lawmaker’s “outrage” over AIG bonuses. It will be hard for lawmakers to fork over more taxpayer money to fix our financial system.

This means the Fed will have to pick up the slack.

-The Treasury has not communicated its long-term plan to fix our financial system.

This means the Fed will have to pick up the slack.

-In a statement yesterday they expressed their concern about “increasing economic slack here and abroad”

At this point they are much more concerned with deflation and a prolonged deep recession.

Many sectors of the markets expressed differing viewpoints of flooding the world with U.S. dollars. It certainly scared our trading partners and holders of dollars.

Here is a current chart:

[Image 1]

As one would expect, the dollar got slammed.

Global investors are not only concerned what the U.S. is doing, but there is a rightful concern that other central banks will follow, also debasing their currencies.


After another pullback to the $900 dollar area, prices quickly recovered after the Fed announcement.

Here is a current chart for gold:

[Image 2]

Investment and speculative dollars continue to be attracted to the safe haven of gold.


With the potential of all this liquidity, investors are also seeking other inflation hedges like oil.

Here is a current chart for oil

[Image 3]

After shunning oil and energy stocks for the past 6 months, investors have moved out of the dollar and into inflation hedges like gold and oil.

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