U.S. Dollar vs. the Law of Gravity

 |  Includes: DXD, SDS, SFK, SJH, UDN, UUP
by: Fritz Hottinger

Stay tuned, folks - take your Prozac and fasten your seatbelts! The battle of the century has begun. In one corner we have the challenging U.S. dollar tag team of Bernanke and Paulson, who we understand have been taking steroids to improve their talking abilities. Their worthy, and still unbeaten, opponent is the Law of Gravity - who in this match is teamed with "world opinion". "W-O" had been expected to serve as a referee but instead chose to side with the "L-o-G", so this match will proceed without a neutral party in the ring.

There you have it - the ultimate in historical fights to the finish, where one contestant or the other succumbs or else capitulates. We have seen the early rounds, and already there is much B&P blood on the canvas, not to mention that which has been splattered on spectators closest to ring-side.

Odds-makers have made "L-o-G"/"W-O" the favorite in this monetary Superbowl, though sideline speculators have had some success manipulating market indexes like the Dow and S&P 500 into some wild daily and intra-day swings (see June 5, 6, 12).

With no rules and no timekeeper, it is anyone's guess as to when this match will end.

We expect it to drag on, through November, and well into 2009. Much like the dance marathons of old, where exhaustion claimed the participants and the last couple standing was awarded the prize, the winner here will be determined by capitulation, that point at which the loser no longer can rise from the canvas to accept more pain and punishment.

When this moment is reached, one of these events will have occurred:

a) unlikely but possible: the B & P team will have resurrected the "gold standard";

b) more likely: the B & P team will have linked the dollar to the euro;

c) less likely, but still a probability: the B & P team will concoct a new North American currency called the "Pelican", from the dollar, the peso, and the loonie.

d) somewhat likely: the Mid-East oil potentates, having bought most of U.S. real estate and corporations, have now purchased the U.S. Congress in order to halt the annual deficit and continuing erosion of the dollar.

Readers are encouraged to contribute their own scenarios. From our viewpoint, there is still much to worry about, and little hope on the horizon. Bettors are still short the dollar, and long on oil, gold and natural resources. Astute investors should be carrying some SDS, DXD, SFK, SJH in their portfolios.

Disclosure: long