Many are the plans in Washington to re-inflate the economy; and all amount to further debasing the U.S. dollar. To compliment this effort, interest rates are being artificially held down by the Federal Reserve as it steps up its monetization of U.S. Treasury debt with the direct purchases of 10-year issues. The primary reason to suppress interest rates at the longer end of the yield curve will likely subside after the majority of mortgage resets take place this year and early next. At that time, if not sooner, we may see considerable pressure on fixed-income markets with the ushering in of higher interest rates to compensate debt holders for the added risks of holding dollars. Pressure is likely to come from the largest U.S. debt holders, led by China. China has been making currency swap deals with the countries of South Korea, Malaysia, Indonesia, Hong Kong and most recently Argentina. In so doing, China has said that these countries will be able to pay for Chinese goods with the Chinese yuan instead of U.S. dollars. At the same time, calls from China and Russia for a new world currency or Special Drawing Rights (currently in use internally at the IMF) are being increasingly echoed in an effort to replace the U.S. dollar as the world’s reserve currency. It is apparent that the global financial crisis makes this effort ever more timely and arguable.

In the meantime, the stock market will likely continue to trade within a technical band until the financial sector, as the underpinning of the market, largely dissolves the “toxic-asset” issue – one way or another. Additionally, it is yet to be seen if the concerted efforts by the Treasury, Federal Reserve and the Administration’s stimulus spending will have the desired affect on Main Street and overall employment. Even if the economy is receptive to the stimulus jump-start, we believe that there will be a fundamental change in the U.S. with regard to debt and savings. As a country, we should not want to return to where we were; rampant speculation is a characteristic more commonly associated with less developed countries. At this time, we remain skeptical that the current administration understands the significance of loosing our “world reserve currency” status. We are watching the situation closely and advise continued caution by investors. We would like to see a clearer path to economic prosperity than that which is currently offered by the administration – throwing money in all directions may stop the bleeding but might not save the patient, if you will.