GOIH Capital Markets: The Falling Dollar---A New Economic Paradigm.

Our economic models predict a coming economic crisis in the US. The Fed is helpless to make an meaningful effect on the economy now that the worlds capital markets are integrated and linked to each other. We are building a new Monte Carlo simulation that will model global economic and political events and make recommendations for investment.


Our economic indicators foresee a crisis in the value of the Dollar against other major currencies. Currently the Dollar is at an all-time low reflected in the dollar index which is trading below 80.

The Fed's rate cuts add pressure on the Dollar relative to countries that have a higher interest rate. Dollar denominated assets are now less attractive due to the lower rate of return offers by the lower US interest rates.

The lower US interest rates will cause imports into the US to rise in price, especially oil which made a new high on last week. Although the official estimate of inflation is 2%, our models indicate the real rate of inflation is closer to 6%. Home prices were up more than 20% over the last 3 years; gasoline prices averaged $2.65 up $0.40 cents per gallon, auto prices up about 9% in three years.

Because the US imports a large portion of its energy, which trades in the international market in dollars, which is at an all-time low, means that the consumers' price has to increase to compensate the exporters for the loss on the currency.

If the Fed continues to cut interest rates expect to see continued weakness in the dollar. The US exporters will benefit from the falling Dollar, MCD, KO, BO and other multinational exports who generate a majority of their sales outside the US.

Inflation will heat up and US importers will continue to be weak. Long term interest rates, i.e., the 10 year bond, which mortgages are priced against will rise due to the inflation threat.

If the 10 year bond increases in yield mortgage rates will increase offering no benefit to the Feds cut in the discount rate or Fed’s Fund rate. Housing will continue to be weak now that we are in this spiral downwards.


We have positions in MCD, KO, BO.