Many articles and commentary recently have been touting the “safety” of the U.S. dollar. We can’t disagree; the dollar is and always has been a form of global shelter from economic downturns. The dollar has even seen nearly a 6% gain against the Euro since the beginning of the year. All things seem to be in order; investors have not only been running, but sprinting to safety (buying dollars). This “flight to safety” trend has been fairly predictable in the past and it has worked in normal downturns.

Well Dorothy, we aren’t in normal downturn times when the term depression is on the tip of many tongues in this country. In our view, the record expansion of U.S. debt levels and recent developments in government spending make this a situation that cannot be directly compared to history. The trillions of dollars that have been committed in housing reform, bailouts and “stimulus” (not really sure if you can call this bill stimulus), seem to be somewhat of an anomaly when you look back over the years.

As mentioned in previous musings, the dollar trade is likely to fade away as foreign countries turn their focus in-house and pullback from buying our treasuries that are paying next to nothing.  The idea that other countries will continue to support the U.S. which is already limping on one leg, with growing levels debt ready to trip the other, seems odd to us.

The dollar will likely remain propped up for a while, as most investors wander around in the clouds hoping that the good old USA can keep things chugging along.

Well of course we can keep things chugging along; we have Big Ben and Big Ben has access to lots of dollars and he isn’t scared to use them. Even if the world did still have demand for U.S. debt and dollars, the tremendous level of government spending is going to inflate all of that strength away.  Sure, near term the dollar can hover, but with each spending plan and Fed purchase, the rug is becoming tighter and tighter as inflation continues to pull.

We aren’t here to argue for or against the new supercharged bank account of the U.S. government, but we do have thoughts on how this will impact commodity prices.

Everyone watched the commodities market fall off the ledge last year as prices came back to earth from what were undeniably inflated levels. Well, we see a new push for commodity prices that is not only supported by good old economic principles of supply and demand, but fiscal policy issues. Everything in life becomes more expensive when inflation kicks into overdrive. Some things you can avoid purchasing, but food and commodities aren’t discretionary. As commodities go, so goes the land that produces them. Don’t get us wrong, this isn’t a short term trade, but it is a long term trend that will benefit from not only fundamentals, but from government spending policies that will be record setting.

-GDH