When the Master Planners devalued the dollar over the past five years, they raised the cost of living for everyone. The Middle Class is getting annihilated from this silent event. Incomes are not keeping up. This was done because this administration "equates stock market success with economic success and has directed their efforts to drive up equities at literally any cost," to quote one of our subscribers. This is pure fallacy as market declines are proven to be beneficial to Middle Class investors who use the safe, time-tested investing strategy of Dollar Cost Averaging (occurring in 401(k)'s for example), where stock market declines can actually accelerate wealth generation. All this administration has accomplished is to ensure that Wall Street Banking Firms continue to make huge profits. This is not to bash Republicans, as this was not the case under Republican Ronald Reagan.
M-3 remains hidden by the Fed, so that We the People can't know what the Federal Reserve is up to, like supplying the PPT with money to buy markets. Where's the transparency Ben? We continue to monitor the monster charted below - it tells you all you need to know about what the Fed has been doing with M-3:
The situation has deteriorated as we see a decisive break below the neckline. The Dollar could drop faster than perhaps anyone thought. The pattern is a Head and Shoulders top. These patterns are highly reliable. It is now a "confirmed" pattern, meaning prices dropped decisively below the neckline, below 80.00 to 77.00ish. This means the probability of the minimum target of 40.00ish being hit is great. Now that the Dollar dropped down to 77.00, we are in a high risk situation of a devaluation of the dollar all the way down to 40.00. Remember, this mess started with the Dollar at 120.00 five years ago. 40.00? Not all at once, but over the course of several years. Perhaps all at once, should the government elect to flat-out issue an edict that a dollar is now worth 50 cents. Would they? Maybe. Why? It is a way to repudiate half of all the debt in the United States. Why would they want to do that? Perhaps if a recession became a depression, or the risk thereof. Perhaps if Housing was to absolutely dive into the tank. It would be a way to relieve mortgage holders of a huge chunk of their obligations in lieu of mass foreclosures, and bailout financial institutions holding substantial portfolios of mortgage backed securities - IF households can get their hands on enough of these hyperinflated dollars.
However, the problem for the middle class, is will any of this monetary hyperinflation find its way into their checking or savings accounts? Will their incomes rise from this artificial economics policy? We don't think much of it will. The Master Planners figure if they give the money to Wall Street, enough of it will trickle down to enough of the small folks on Main Street to alleviate widespread economic distress. But how can this happen if folks do not own the equities that this master plan requires folks to own? No, Wall Street will get richer and that is about it.
If the plan is to monetize our nation's debt through extraordinary injections of money supply in exchange for Treasuries, if the plan is to support equities through injections of money into Plunge Portection Team Wall Street surrogates who then support stock prices, how does that help mom and pop with their debts? How does that help them pay for rising insurance premiums, and real estate taxes, and tuitions, and home repairs, and on and on? It won't.
If the Master Planners are going to devalue the Dollar another third or by even half, they better figure out a way to get all those freshly printed dollars directly into the hands of households.
This is all extraordinarly good for precious metals, the HUI Gold Bugs index, and other inflation defensive assets. But will Main Street be holding enough of them to keep breath above water?
October 27, 2007
Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.
Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.