Saturday, January 10, 2009

Inflation coming back - Impact to the markets?

Another bearish call on the U.S. dollar

As we print $$$ to finance our deficits (because we likely won't be able to sell all of the bonds we need to finance our national debt/deficits) it will cause the U.S. dollar to fall in value.

The problem with this is that it will commodies like corn, oil, etc to rise in price since they are priced in U.S. dollars. The major commodity markets of the world are based here in the U.S. and have been priced in $$$ for years :)

A falling dollar will, in turn, keep interest rates from declining more.

I was optimistic re: lower rates this year, due to continued weakness in the U.S. economy as we try to deleverage the system. We hit the 4.5% interest rates I thought we would hit in the market (I know folks that got rates as low as 4 3/8% and 4.5% with 1 point down on 30 year fixed notes) but I think that might be the bottom.

With the dollar collapsing interest rates will get FORCED upwards by the market, thereby eliminating the refinancing market in mortgages that is EXTREMELY strong right now. I hope it doesn't happen but that is what my gut is saying will happen.

What are your thoughts on the market? Let me know in the comment section.

Dan Ross

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