The Associated Pest

As America prepares for Christmas this year, not all is well with its economy or the world economy for that matter. A recent article in the New York Times outlines how home prices have fallen over the last year. The downturn in home prices has evaporated equity the American economy has been relying upon to increase its standard of living. Concurrently, The Economist ponders how long liquidity worries will plague Wall Street. The article notes that many banks are hording cash because of the great debt exposure enigma. That being: nobody really knows the full market exposure to sub-prime loans and bad debt.

Something had to give. The strength of the dollar has been weakened by almost every measurable standard. Gold is up. Oil is up. The Euro is up. The Pound is up. The list is enumerable. Where does that leave us?

All the analysis I’ve read indicates that the dollar’s value has been suppressed by speculation in commodities, foreign currency and fed rate cuts. Speculators beware: the tide of speculation seems to have crested. Today Bloomberg is reporting that Goldman Sachs has downgraded both Silver and Gold to sell. Likewise, Forbes interviewed a long time oil-industry expert George Littell this month for an article debunking the reasoning behind this year’s surge in oil prices. Fed Chief Ben Bernanke today indicated that he intends to cut the fed rate come December 11 when the Fed convenes next. What can we glean from all of this?

I suspect we’ll see a rise in the dollar to the tune of 15-25% in the coming year against foreign currencies and commodities even with a rate cut or two by the Fed. However the housing debacle may still weigh down the overall global economy. By all accounts, no one expects there to be a quick recovery from this murky debt situation. Many of the government’s proposed solutions are long term in scope. The LA Times today reviews state law makers plans to regulate the sub-prime mortgage industry. However, their state legislature doesn’t even meet again until January.

What investment opportunities are appealing right now? If you’re a betting man try shorting gold and oil on margin. Otherwise you might want to look into the pre-foreclosure business for the next 6-12 months. Other more sane options include seeking out Mutual funds heavy in American manufacturing.

What investments are have you been eying?

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