The Dollar May Be the Next Bubble to Burst
by Teeka Tiwari 12/11/08
Bailouts, bailouts, bailouts -- everywhere we look we see more bailouts. A recent Fortune article put the number at $7 trillion.
Now, even for the United States of America, that is a lot of money. Right now we are running the printing presses 24/7, churning out greenbacks at a rate we haven't seen in years.
So the strength in the U.S. dollar has been truly stunning. With all these extra dollars flying around, you'd think the dollar would be in freefall. If it wasn't for the simultaneous meltdown of every financial market in the world, it surely would be.
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Panic and fear is still rife among the world's leading allocators of capital. How do we know? How else can you explain Tuesday's one-month Treasury auction. We saw $120 billion chase $32 billion of one-month Treasuries that were yielding ZERO percent interest!
If that's not scared stiff, full-fledged panic mode, then I don't know what is.
The U.S. dollar is the only reserve currency big enough to hide out in. And that's exactly why the U.S. dollar hasn't crashed. Safe haven buying has been driving the dollar up to levels it hasn't seen in years.
What About When the Party's Over?
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But like every party, eventually the music will stop. As the global economy stabilizes, we will begin to see money rotate out of low-to-no yielding Treasuries back into stocks and other debt instruments. When it happens, it will be swift and sudden. The dollar will look like it just hit an air pocket; it will plummet with a fury that we have never seen before.
The investment implications of this are that we will see massive inflation. Commodity prices will go buck wild. Now hold your horses, we are not there yet. Many people are looking for a recovery in Q2 2009, but I haven't totally bought into that thinking.
