Printing money like Widgets

If the USA keeps printing what happens to the US Dollar?  Here's one man's view of the situation:

There is so much debt being created globally, that it will never be paid back in currencies that presently exist. At some point, precious metals will have to back a new global currency at an exchange rate so high that debts in current fiat paper can be cancelled. In other words, the final solution will be to create a value for gold, perhaps by Federal Reserve, Treasury Department, or even G-20 Nation edict, at some ridiculous number, say $10,000 an ounce, backing a new currency at this exchange rate, then calling in all former currencies in exchange for a fraction of the new currency (similar to a reverse stock split) since former currencies will be essentially worthless. Under this scenario, debts are essentially repudiated, instead of paid back.

 Read that again if you don't understand it the first time.  So, there are two options to paying back debt when you own a printing press.  You can either pay it back with money you actually earn, or you can print new money to pay back the existing debt that you have built up.  In one situation, your economy suffers because you will have to either raise revenues (taxes up) or reduce spending (bigger recession) to get a surplus, or your currency takes the hit due to excessive dollar creation (i.e. buying our own treasuries).  Currency down, everything more expensive, especially anything imported...like oil for instance.  We get over half our oil from outside the USA.  Around 11 million barrels a day.  Devaluing your currency is great for exporters, but sucks for the consumer as you can't keep up with rising prices.

So, if you don't want your currency to depreciate, you need to exchange it for something that will do well in a currency deflation situation.  Anything tangible that you can touch and feel (and has a use other than being a currency) would be better than paper dollars.  As you know, I prefer the precious metals, but to each their own.  If you want to buy cigarettes and liquor, and stockpile those in your basement, it would still be better than holding cash. 

Gold and silver took a nice ride today, first up, then back down. After hours they are coming back from the retreat they took today.  Silver margin requirements were raised today, so silver took a hit.  Raise somebody's margin and they either need to put in more cash, or cash out some open contracts and use to meet margin.  I think it was the latter today.  Most commodities take a dip when the margin requirements are raised.

Gold and silver are headed up this spring, and you want to be on the train people.  Will it fall back?  Oh yeah, but the goal is to ride these advances, and lighten up on positions during the decline.  You can either liquidate positions into the rise, and then buy back into the dip.  Or you can hedge your portfolio using bearish silver and gold ETF's near the top, and then selling those into the dip, and using proceeds to buy even more.  Or to just hold in cash.  If you don't want to incur excessive trading fees, then I suggest using the bearish ETF's to hedge near the top. 

Long Term:  I am looking at a ratio of 1:1 for the Gold to Dow ratio, and a 15:1 Gold to silver ratio before I start cashing in all my positions.  Last bull market in PM's was back in the late 70's and early 80's.  Dow was around 850 and so was 1 ounce of gold.  Selling all your gold and buying equities at that point would have set you up for one of the biggest equity runs of all time.  Everything comes in waves.  Fiat and equity reign for 20-30 years, and then it's commodities.  Oh, don't forget bonds either.  After Volker (former Central Bank Head like Hanky Bernanky is now)  raised rates to choke off rampant consumer inflation, bonds have been on a 30 year tear.  The upside in bond prices right now is small, the downside is huge!  Play inverse rate bond funds to play this trend.  One I have in my portfolio right now is TBT.  

Now's your time to ask this one to dance...last chance.

http://www.youtube.com/watch?v=L5pHM-o2_Dk

Take the minor pull back today to buy some PM stocks.

Until next time...

Fiat Doubter