"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
The dollar is falling, and as a result, oil prices, precious metals, and commodities are spiking. The Fed has been holding interest rates down by printing more dollars to buy our own debt which has many countries questioning the longer term solvency of the U.S. financial system.
Recently, Russian President Medvedev has joined calls by China, Brazil, and other Nations, to prepare for the collapse of the US Dollar. As foreign nations continue to halt their purchases of U.S. debt, the result has been U.S. Treasury bonds plummeting, and Treasury yields jumping.
In September, $1-trillion of US Treasuries is going to be offered to the market. What if there are no takers? Well, that's an easy one. The Federal Reserve would be forced to print massive quantities of US-dollars to pay the principal and interest on the national debt. As a result, the dollar will continue falling, and interest rates will continue climbing.
In reality, it seems the Fed already knows what the outcome is going to be for the economy, stock market, and interest rates down the road. Last week, they tried to temper investors enthusiasm when they released the minutes from their April meeting.
The Fed basically said that they don't believe a meaningful recovery is underway, and were skeptical of the sudden stabilization that many are calling for. In short, the Fed is still projecting a deeper recession and a sluggish recovery.
Is anybody listening? To me, this is a major warning shot across the bow.
We are going to use the current rally to scale back on our current asset allocation recommendations. Since I believe the markets will trade higher into late summer, I will not drastically reduce the percentages just yet. But for now, I am reducing equity positions by 10% across the board.
Our new asset allocation are as follows;
85% Equities: (Normally 95%) Aggressive
72% Equities: (Normally 80%) Moderately Aggressive
56% Equities: (Normally 60%) Moderate
36% Equities: (Normally 40%) Moderately Conservative
18% Equities: (Normally 20%) Conservative
