Don’t Get Sucked In

By Hans Lysglimt

What if Tokyo got flattened tomorrow by an earthquake?
Or, what if Paris was vaporized by a rouge nuclear device?

What would happen to the dollar?

We think it would rise, relatively to other currencies, because it is still seen as a safe harbor, not absolutely speaking but relatively speaking. The dollar is a terrible paper, but so are all other paper fiat currencies. This is an ongoing relative game of whether the plague or the cholera is worse – it will go on for years, in a race to the bottom – at the same time a glorious triumph for gold.

That is why we should think real hard now that the dollar has so suddenly become so totally out of vogue in this surge of confidence. What lies ahead? The recent confidence is groundless, it will soon turn around. This crisis has only just begun, there will be massive unemployment, there will be revolts, and governments will be toppled. Fear is going to come back with a vengeance. US investors will pull back whatever money they have overseas to the USA, and will need to buy dollars.

The dramatic sudden drop in the dollar could turn on a dime, temporarily (in the long run it is doomed). That why you need to be diversified carefully also into some US dollars, more importantly we strongly do not recommend shorting the US dollar. We recommend keeping some US dollars cash, and some in dollar denominated assets like gold and US based gold mining stocks.

I have predicted that the suckers rally would end this week, so I’ll stick to that, at least for today, or Monday morning. This alone could turn the tide, for the time being.

As of yesterday the rally came to the self reinforcing stage where investors are throwing themselves in, thinking they have to catch a departing train.
Do not get sucked into this suckers rally now. It can not possibly last.
The FED monetary easing is a sign of deep distress, not a cause for celebration. Get ready to go short instead.

Bernanke will speak later to day, to personally address the nation about the mess it’s in. It will be some show to watch. Remember that politicians and officials never admit failure; he will attempt to prop up confidence once more. The only confidence he can muster up is a temporary one, reality will catch up soon enough.

Gold was just above USD 968, and counting.

Comments in the forum on the thread with the same title.

March 20. 2009
Oslo, Norway.
Hans Lysglimt

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