Manarin Investment Counsel, Ltd.

It's because of the insane level of derivatives being trading throughout the global financial markets - about $700 trillion.  There's not much new here for me to comment other than I still view derivatives as THE biggest threat to owning dollar-based assets in long term positions.   

However, if this is a new topic for you, the below piece from 60 Minutes does a nice job of explaining what derivatives are and how they work, in common sense language:   

 

 

 

Even if the derivative house of cards does not collapse any more than it already has, I am no less long term bearish on the dollar and other currency-based investments.  Eventually the American greenback will return to its slide in buying power and investors that own hedge positions will be thankful.

My favorite method to hedge against a devaluing currency is with gold - both through direct ownership in gold bullion and by owning shares of a gold-mining mutual fund.  So if you have concerns over the Fed's devaluation of our currency then this is where you should be. 

To put the Fed's actions in perspective, consider this:  Eight years ago there were just over $5 trillion circulating through the system.  At last check this number had risen to nearly $9 trillion - almost a double in the quantity of paper money.  That action, historically, spells inflation. 

Recently I returned from Europe to see firsthand how our friends across the pond were being impacted by this economic environment.  Not surprisingly, things seem very similar to life in the States.  The shopping centers were busy, the restaurants were full, and the only negatives I witnessed were in regard to the financial industry and media's drumbeat of doom and gloom. 

Purchasing power parity tells me that the dollar is currently undervalued compared to the euro and the fact the stock market is rising in the face of negative economic data tells me there is a very good chance that we saw the market bottom back in November. 

Of course there are no guarantees but what I do know is that the economic news will continue to worsen but the upside to ownership investments look a whole lot more promising than the downside.

As of now, it looks like by mid-2009 we will be facing a rapidly improving economy and that's why the stock market has been rising in the face of all the current bad news.