FINANCIAL SENSE

As the world reflects on the earthquake and tsunami tragedy still unfolding in Japan, investors are seeking to understand the economic and financial market implications. There are some general observations that one can make at this point, the most important of which is to recognize that, in much the same way that the Japanese authorities are responding to the disaster with monetary stimulus, other major governments around the world continue to implement stimulus of their own in a futile and counterproductive effort to restore high rates of economic growth following the global credit crisis of 2008.

I get a lot of email from readers. I recently got an impassioned letter from very-long-time reader Bill K., who asks some very pointed questions about austerity and spending cuts. It is a rather lengthy letter, so I will only quote part of it and use it is the launching pad for this week’s letter, where we look at today’s employment report, but from a little different slant. This letter will no doubt anger a few other long-time readers. I argue this week for the middle, but do so as a survivalist.

While most investors are familiar with the Dollar Index, it is actually a poor tool in gauging the strength of the USD given its weightings and only being a six currency basket. To truly see how the greenback is performing on a global scale one needs to look at more than six currencies and include precious metals. When one does this it is truly amazing how much the purchasing power of the USD has declined since 2009 after two rounds of quantitative easing (QE), and it is this loss of purchasing power that has the potential to at least cause another growth scare like 2010 or even a bear market.

Right now, we’re in that weird in-between time of financial crises: The Global Financial Crisis of 2008 is behind us, while the next global crisis is not here yet—but it’s on its way.