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Temporary Dollar Strength, Long-term Commodity Strength

The Associated Press is reporting this quote from President-elect Obama:

WASHINGTON (AP) – President-elect Barack Obama says the nation probably faces huge deficits for years to come, but heavy spending is needed now to spur the economy.

Obama said Tuesday the deficit appears on track to hit $1 trillion soon. Speaking to reporters after meeting with top economic aides, Obama said: "Potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on."

In looking at investment strategy, we have historically tried to find the over-riding trends that will impact markets for several years. This, if it comes to pass – and every indication is that it will – will have extreme consequences for the dollar, inflation, fixed income investments, gold, oil, and all other commodities.

The dollar will fall against a basket of other currencies. Inflation will rise to levels not seen in years. Fixed income markets will crash BUT yields will go up to the advantage of those keeping maturities short. Gold, oil, and all other commodities will soar in value.

If you look at the Commodity Channel Index in my previous post, you will see that it is already responding to stimulus.

This is a significant piece of news that we will follow closely and act on accordingly.