Theory Vs Reality

It was a decade or so ago as I was taking classes towards receiving my Masters Degree in Business Administration, and I can still remember a question one of my teachers asked each student. That particular professor was one of my favorites and wanted to know what each student wished to learn from the class. My answer, after already taking quite a few classes, was the desire to receive more real world solutions and less textbook theory. My real world goals, even then, were founded on taking the business and economic knowledge I learned as a graduate student and manifest that information into a profitable investment portfolio. Actually, creating a profitable investment strategy was one of my main goals prior to starting my MBA. Looking back, I suppose that was a pretty lofty goal, even if that professor always surpassed my expectations, because to this day I continue to filter as much information as I can in a continued effort to successfully tweak and hopefully attain a perfect investment strategy.

As I write this article the Dollar Index stands at approximately 76.25. For the sake of article space I will let you use past articles to determine where it has been since I have started to include this data weekly. (If I start repeating all the raw data pretty soon the entire column will be even less readable.) It appears Portugal’s debt problems and Germany’s election results are causing the Euro to move sporadically. Throw in Jean-Claude Trichet, President of the European Central Bank, comments about possible rate hikes and you have a pretty volatile stew. Remember, the Euro is the largest cross currency weighting in the Dollar Index. If Trichet does raise interest rates soon, I would expect some continued dollar weakness.

Japan’s nuclear crisis does not look like it will be over any time soon. It seems we continue to receive confusing or conflicting information as to the amount of radiation released and the possible damages to the reactors. Japan’s repatriation of funds to assist in the eventual recovery is also causing some dollar volatility. On a side note, I am always impressed by the courage humans can show during intense calamitous times, as stories of individual heroism are starting to pop up in the news. I continue to wish them well as they recover from a very devastating tragedy.

The Stock Market appears to be able to throw any news from its back and rally. Indeed, despite; Libya, Japan, high oil prices, debt problems, poor economic data, budget impasses, etc. the market is marching on. Normally, when the market can rally in spite of bad news it is a very bullish sign. I continue to want to tamp down the euphoria and am still somewhat cautious. I still believe that we cannot repair debt and credit problems with more debt and use dollar devaluation as a tool to enhance economic prosperity. It may not happen tomorrow or next year but I am convinced we will eventually have to pay our dues. The longer we delay the medicine the worse the eventual festering sickness. Dollar devaluation is not the way to riches or a prosperous productive economy, and cost push inflation unfortunately affects those who do not have the adequate means to counter inflation, the worst.

With all that is going on in the world there are a couple adages I normally rely on. You are never smarter than the market and the market can stay irrational longer than you can remain solvent. Theoretically, even if you are correct, the market can still prove you wrong by taking your precious money in reality. Sometimes it can all appear as a giant game but I vociferously hate that description as I do not play games with mine or anyone’s preciously invested money.

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