Stunningly easy money continues to be shoveled into the markets. The negative effects are apparent to those who are paying attention, as highlighted in this Bloomberg article:

“The dollar will go to new lows as the U.S. attacks its currency (out emphasis),” said John Taylor, chairman of New York-based FX Concepts Inc., which manages about $14.5 billion of currencies.

As we discussed earlier, the dollar appears to be in decline again. Whether it will turn into a full-fledged “run” on the dollar at this time remains to be seen. But the surge of the last few months brought on by year-end settlements appears to have run its course and is evaporating as we watch. The Fed’s actions and Bush / Obama pronouncements are pouring fuel on the fire.

The immediate outcomes? Commodity prices, which are declining significantly in “real” or even “Euro” or “Yen” terms, are likely to be flat to increasing for Dollar-based consumers. The tailwinds that bring an economy out of recession will be weak or non-existant. Stagflation is likely.

Disruptive events notwithstanding, this is going to be a terrible time to be in the dollar. Occasional 4% surges in the Dow are meaningless when countered by coincident 4% increases in EURUSD (better than $1.40 as of now)!

Investing in currencies looks like a good course of action, but understanding the details of how to do that wisely is important. (Any experienced suggestions are appreciated!)