Charles Nenner- DJIA at 500, Major Wars

I would presume Libya is the appetizer to Nenner’s major conflict thesis. Well it seems that this recent incursion proves that over extension is another strategy on the table for the US military. In 2003, we saw the Bush administration maneuver directly into a pincer move against itself—as they opened a second front for extremists to engage the military in Iraq. It’s clear that either military or political philosophy is not Washington’s strong suit or the objective is not a quick resolution.




I am starting to believe there’s a lot more to Nenner’s arguments, especially the brooding deflationary crisis. This is not to say by any means that the dollar is a safe haven. That is because we have been in the deflationary spiral now for quite some time, primarily in terms of real wages.



The reality is that the dollar has become a dysfunctional currency. At the street level we are seeing smaller and smaller amounts of dollars chasing goods, which is in complete contrast to what we are witnessing in global capital markets.



Quantitative easing may have been part of the solution to the deflationary crisis-- had it been allocated towards stimulating industrial growth; however, money was instead diverted directly into equities, commodities and emerging where large returns on investment seem much more likely, at least for medium to short term profits.



Several factors emanating out of the two-tier economy should lead to another DJIA meltdown. Firstly, the successive rounds of misallocated quantitative easing schemes should become progressively less effective and ultimately, politically untenable. This will translate into an inability of the FED to buoy values of US securities. The second tier economy—essentially the US working class—will be forced to successively decrease their demand of good and services, as a result of the deflationary pressures brought on from the lack of credit, liquidity, and productive capacity.



Nevertheless, I still believe precious metals will continue to serve as the best hedges against the political, economic, and ecological disasters we are now witnessing.