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Isn’t it obvious where the excess is? It’s in the currency markets. And just like every other time in history when the crisis hits it’s going to hit where the excesses occurred. The next crisis is going to be in the currency markets.

It began last year with the Japanese yen.

The next in the line to get in trouble will be the US dollar at its three year cycle low, due in the fall next year.

After that I expect rolling currency crises as one after another of the major global currencies begin to collapse under the strain of insane Keynesian monetary policy.

At the moment it seems to be fashionable to use the commodity markets has an indication that deflation is taking hold in the world. Nothing could be further from the truth. As a matter of fact we have massive inflation right now. It’s just that it is being stored in the stock market, bond market, and to some extent in the echo bubble in real estate. Once the inevitable currency crises began, inflation will start to drain out of stocks and bonds and into the commodity markets.

Let’s face it, it’s obvious where the next crisis is going to occur, and currency crises are not deflationary. They are massively inflationary.

US$

The thing is this: does the chart give any indication of the bubble? I would have to say no. The chart, a 25yr chart, looks like a bullish chart.

What about the 10yr Note?

10yr

Again, on a 25yr chart, it looks bearish, but how bearish?

I however agree. The financial excess of the Fed has spilled over into the currency – as it always must, but into primarily the Treasury market which affects the US dollar [and also to a lesser extent stocks]. The charts do not really tell the story, or rather they do not go back far enough.

The CPI does not provide a clear picture of the inflation. It excludes energy and food prices. It weights housing, which remains in a bear market, although bottomed, a 25% weighting which has distorted the CPI so that it is essentially meaningless.

The problem with predictions is in part the timing. If you get the timing wrong, you [i] lose money, [ii] look like an idiot. Therefore, a market neutral position is prudent. You participate in the bull phase, but if it breaks, you also can profit from the volatile downside.

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