Image from WSJ Article: "States in the Red"

The dollar continues near its four month lows while oil and silver are picking up where they left off last weekend. Silver closed at $33.94-- breaking through its previous highs.  It’s starting to look like it may be telegraphing another week of gains. 

Oil is down, but it is holding up its resistance due to the ongoing turbulence in the Middle East along with the growing realization that peak oil may be more than just talk.  I’m not as certain on crudes short term performance as opposed to metals, but a floor could be forming. 

If you are in the paper oil & silver markets, another profit taking sell off may come within a few more weeks. However, it is clear that the residual bullish sentiment on equities, from the holiday months is well behind us. Things aren’t looking good for the dollar, municipal bonds and even stocks, as states flirt with insolvency.

Stocks are coming off their 52 week highs – spurred on by steady rounds of QE2, yet the underlying weakness in the economy, including joblessness remains unchanged.  This anomaly will continue to threaten to set the SP500 into a post-QE2 correction.  We are now flirting with another nosedive due to political destabilization-- as attempts at imposing austerity measures have been met with resistance within the Mid-East and here in Wisconsin. 

What the infamous Wall Street Journal map depicts is an overly leveraged and woefully mismanaged political structure that is on the verge of imploding due to years of catering to corporate demands, including tax credits, subsidies and a total lack of governance. Essentially corporations have either demanded to operate rent free here or chosen to go abroad and benefit from wage arbitrage. As a result, corporations and the ever increasing unemployed are creating huge voids in government coffers; as they’re now both on the doll.   All of this is being bankrolled by the US government’s ability to print money. We should see states seeking FED funding within the year. And if the states aren’t bailed out the municipal bond market will become the 2011 version of the mortgage back securities crash of 2008.

Eventually this domino line will stop at the US dollar. And we wonder why silver and gold investments are quickly becoming household names. 


Relevant Articles:


BusinessWeek- Dollar Drops to Almost Four-Month Low on Prospects for Fed, ECB


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