Interest Rates, The Dollar, and 2007

The fed left rates unchanged today as many suspected, but once again stated their desire to root out inflation. This appears to be a recurring theme in Federal Reserve speeches and honestly does not surprise us one bit. We find it troubling that they have decided to focus their sights on something that may turn out to be a phantom menace. Keep in mind that in order to have a healthy, growing economy that some inflation is necessary at moderate rates. We believe that at today's inflation rates we are very well within the 'safe range' and are puzzled, if not troubled, by the Fed's infatuation with stopping out very low rates of inflation. Remember it was only a few years ago that many were troubled by the fact that the US could be entering into an era of deflation (this is when we all decided that inflation was in fact A GOOD THING AT MODERATE RATES...and a necessary evil in the eyes of the Fed).

Now I cannot speculate as to why the Fed is so concerned about stomping out inflation, but am willing to bet that Bernanke might be trying something else altogether. This was the man who wanted to target inflation to a range instead of to an exact number, so he is somewhat going against his nature by trying to get us as close to zero as possible. Much more likely he is beginning to realize that that the Asian Financial Crisis supplied the dollar with an unwarranted spike in value instantly creating billions, if not trillions, of overnight buying power which then allowed for extra American spending abroad for unneeded items. This spike in the dollar could also have added flame to the fire for the great bull run of the late '90s. We had an unprecedented inflow of foreign funds into our securities markets which created that extremely high demand for stocks already in a very tight supply/demand market.

The way I remember the end of what we call 'The Bubble', the demand was so high for these technology stocks of any kind that the market was flooded with sub-par issues that were not suited for investment by main street investors. Where there is a supply, there is a demand. Now although I suspect that Bernanke is attempting to force Americans to stop spending while keeping rates high enough to entice foreigners to keep their reserves of US Dollar denominated securities as well as the physical greenback itself, I believe that the past should be used for the future.

I believe that US securities will have a good year in 2007 with two mild downturns. This is of course disregarding any terrorist attacks of major proportions in any Western, or Western aligned country. We state this for two reasons, 1.) Because investors (not truly investors, but those who believe that gambling is investing) are stupid and 2.) Because professionals love to screw the little guy. When the guy at your local coffee shop starts becoming up-to-date on the daily fluctuations on the Euro/US$ trade, something is about to happen. The dollar has been in decline (not a total straight decline, but overall decline over the past 3 years) for quite some time and led many US investors overseas in order to benefit from a falling dollar and rising Euro. That trade seems to have worked out quite well for some, but now may be when that trade starts to reverse, not long-term but for a short-term run. The gains seen here in the US may have been a result of a cheaper dollar, but that could be enough to bring some money home in order to invest in US securities once again. Once the gates open and the trade appears to be breaking down, hedge funds and other big investors should begin to lower their risk if they have not already. As little as a $.02 move could trigger this as these investors must load up on literally thousands of futures in order to make big money. This is why we believe that the market will spike up as this currency trade winds down for a period of time. It appears that the dollar Is valued somewhere around these levels right now, although we think it should be about $.04 higher for the fair trade right now. Just right now we would rather bet on 'The Dollar Family' which consists of the Canadian, Australian, and US dollars as stated in previous posts.

2007 should be the year when the Junior Uraniums become 'investable securities' for wall street and main street alike. After this drill season we should know who has something and who possess frozen tundra. We got duped into buying frozen tundra once, but it was from Lambeau Field from the '96 Super Bowl season, so hopefully it still has some value (but sentimental will suffice in the absence of actual dollar value). We still believe that Canalaska still has one of the most promising drill areas, and so far we have been backed up by the drill results. For those who have not noticed: THIS IS PLAYING OUT JUST LIKE McARTHUR RIVER DID. Pitchstone is also still one of our favorites with very good potential and a big chance of finding something as they are in the historical mining district of Saskatchewan (for uranium).

Our best priced stock at this point which we believe will double from these levels is BQI. We have been a fan all the way down, but our personal portfolio bought in at an average of $2. We have continued to add on the way down and added about 10% to our holdings on Monday. Uraniums took off early this season, and we missed the boat on that, but still available is BQI which has the potential to double and possibly triple. Watch for them to return drill results that prove they were successful on 80% of their drill holes (they did it last year and they will do it again). This might just be the Aurora Energy of the oil sands, because they have a resource now and they will simply go in and add to the resources and venture out to find other bodies of bitumen to develop.

We have also added a new link to the right for Cabin Fever which is a new advertiser for us and allows for us to continue supplying our research and thoughts to you for free. Please support them as they help support us and in turn hopefully your bottom line. Until next time, good luck and good investing.