Yesterday, the USD broke down and closed below the March "Flash Crash" low. This officially signals a change in trend in the USD. It now has experienced a lower high and a lower low. It could bounce off this strong area of support and rally for a bit but in time, I expect the USD to move far lower. And I believe the the US$ (actual currency) will decline more against emerging currencies and hard assets than the USD (US dollar index which is primarily comprised of European currencies and Yen).
Our investment thesis is simply that nothing detrimental to the US equity markets will take place until the FED's ability to carry out QEi is compromised. We believe there are three potential catalysts that may cause this to take place. One is a run on the USD. If the USD continues to decline, the FED cannot carry out QE as it is based on the idea that inflation remains controllable. And we all know that the majority of stock market and bond market gains have been a result of the FED's QE schemes. So without the prospect of further QE, stock and bond market gains will evaporate.
Our view is that it ultimately comes down to economics - the good ol' law of Supply and Demand. When something is in infinite supply, then the price of the good goes to zero. And the same holds true with currencies. If the FED is willing to print an unlimited amount of dollars, then the value of the dollar will eventually go to zero. Terms like "cheap" or "free money" are oxymorons. in our opinion, there is no better way to hedge a declining currency than to invest in hard assets. Therefore, we created a strategy, which we have dubbed our C3 Strategy which should perform quite well in an currency debasement / real asset inflation environment.