Market Commentary From Monty Guild : Welcome To Jim Sinclair’s MineSet

Does the Obama Administration want the U.S. dollar to decline?  We believe it does.  On November 5th, the U.S. Federal Reserve announced that they intend to keep “interest rates exceptionally low” for an “extended period of time.”  Given that the U.S. Dollar is already under pressure due to low interest rates, the Fed’s announcement is the equivalent of saying: “go ahead and short the dollar”.  In our opinion, it is clear that this announcement ushers in a period of extreme volatility and a continued downward bias for the U.S. Dollar.

During the Clinton and GW Bush administrations, it was common for U.S. Treasury officials to make statements about the need for a strong dollar.  Historically, financial leaders have been circumspect about declaring that their currency is overvalued.  This is especially true for countries like the U.S. where the government is trying to sell trillions of dollars of debt to investors to finance the immense current and expected future budget deficits.  We therefore find it shocking that the world’s most important central bank has made statements that strongly encourage a decline in its currency.

However, an examination of the current administration’s economic approach provides a possible reason.  On November 2nd 2009, President Obama called for a new “post bubble growth model” with a greater focus on exports, and referenced the fact that Germany, which he called “a wealthy, highly unionized industrial nation,” has been a very successful exporter.  It does not take a rocket scientist to understand that his goals include more unionization and more exports.  And because U.S. union workers are in general much more generously compensated than non-union workers, we believe that the only way that the U.S. can achieve higher exports is to devalue the dollar.  We therefore believe that it is a goal of the Obama administration to see the dollar decline.

These events add credence to our view that one should avoid the U.S. dollar for major cash balances and instead hold the Australian, Canadian, Norwegian and Brazilian currencies.  We also continue to believe that investors should continue to hold oil, gold, and foreign stocks for the long term.  In our opinion, the profits in these areas may be just beginning to occur.

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