After an exciting week of financial changes, it is appropriate to see what the markets are up to - - or down to. At this point, it seems that wait and see can be appropriate. In the meantime, perhaps looking at the so called "big picture" may be edifying. That's may, like in maybe yes and maybe no, because the view is cloudy. In fact, it's doubtful that anyone can possibly discern the actual big picture. With this three week up-move of Daylight Saving Time, most of us were probably too sleepy this week to get an accurate view, anyway,

The view which seems to be partially visible is one of a financial system run wild. When we see derivatives totaling about ten times the gross domestic product of the USA, when the US Federal Reserve gives an impression of overreacted by "loaning" a lot of dollars to Wall Street firms, and when the US dollar is sliding on a slippery slope, it seems that the economy and hence the markets are in confusion. The picture which emerges from the fog is that dollar printing is being used to over-paint continuing financial problems. By creating more dollars, the USFed is essentially gutting the purchasing power of current dollars.

The loss in purchasing power of the US dollar may be somewhat compensated by actions that individual investors can take. As I mentioned in a previous "Market Observations", investing in foreign currency funds provides reasonable hedges. I like some foreign currencies including the Japanese yen, the Australian dollar, and Swiss franc. Their ETF currency funds are, respectively, FXY, FXA, and FXF. Other such funds are the FXE (the euro), the FXS (the Swedish krona) and, of course, the FXC (the Canadian dollar - otherwise known as the "Loony"). With markets in turmoil, having cash can be reassuring, but cash that is losing purchasing power at a lesser rate than is the US dollar is obviously preferable.

It has been usual for individual investors to move funds into bonds when market volatility threatens equity investments. However, doing that now is not a good idea for two reasons. First, as noted above, the purchasing power of the US dollar is decaying. Second, interest rates are going up. No, not short term interest rates which are dictated by the USFed, but real long term rates. - - And, as we know, when rates go up, bond prices go down. Thus, even the safest US Treasury bonds are not safe in this environment. Maybe foreign bonds are, but the present environment is, in general, less than promising for bond investments.

Investments in commodities have proven to be valid. Among institutional investors who were surveyed last week, about a third of them plan to increase their investments in commodities, despite the fact that commodity prices are at or near record levels. From this, one might surmise that commodity prices will remain firm and will provide hedges against the continuing dollar slide. Precious metals traditionally provide safe harbors for wealth during times of currency instability; as this decay of the US dollar progresses, investments in precious metals can be comforting. In my last "Market Observations", I mentioned some ways to invest in precious metals. Other ways include investments in funds such as the Tocqueville gold fund (TGLDX), US Global's World Precious Minerals fund (UNWPX) and the Midas fund (MIDSX).

Other commodity funds provide similar advantages. IShares S&P GSCI Commodity Indexed Trust (GSG) tracks a broad index of 24 commodities weighted according to the proportion of the commodity flowing through the economy. A slightly more diversified commodity fund is the iPath Dow Jones-AIG Commodity Index Fund (DJP); this ETF fund tracks both industrial and agricultural commodities plus precious metals. ETFs of agriculture products also have provided some excellent returns. For example, PowerShares DB Agriculture Fund (DBA) is an ETF that invests in corn, wheat, sugar, etc.; it is up about 65% from a year ago.

At this point, commodities offer bright investment spots in an otherwise dreary investment picture. During the last couple of weeks (since my observations of March 1^st) equity markets continued providing bad news. Were it not for the emotionally charged jump in index valuations on March 11^th, market indexes for this recent week would be in very poor shape, indeed. My own approach was to invest in inverse market index funds such as SDS, QID, DXSSX, etc. When markets rally, such funds can generate a lot of pain, so I invest with caution. I wish that there was more to say, but this cloudy view which is exacerbated by the USFed's actions makes it difficult to make reasonable market evaluations.

Recently I heard a discussion of the Russian economy. The impression is that the Russian economy is strong. The economy is being lead by consumers and is coming on strong. Businesses profits are increasing (particularly in the oil sector) and foreign reserves are increasing at better than 50% from 2007 to 2008 (estimated). The Russian market seems poised for much better growth than in the USA. An investment that I like is US Global's Eastern European fund (EUROX). It can be evaluated at http://www.usfunds.com/funds/regent_doc.asp.

The current financial situation brings to mind the quote that Ollie typically used in disapproving of Stan, "look at the fine mess you've gotten us into now". I feel that way about the financial mess which the Fed's easy money policies have gotten us into. Well, no, I don't think that I am smarter than these highly educated hot-shots who are running financial activities here. However, I have seen a lot more simply because I'm older. For example, I recall being in Europe in the late 1950s. Then, US dollars were valuable. Four Swiss francs could be purchased for a dollar. Today, a Swiss franc is worth exactly a dollar. Kind of makes a person wonder.

It‘s easy to wonder who's really responsible for the chaotic state the US dollar. Probably no one is. In evaluating the "fine mess", Napoleon's comment puts such in realistic terms: "In dealing with governments and with other large groups, consider incompetency over conspiracy and ineptness over deviousness". Of course, he used French in making his comments, so I'm sure the thought was expressed more elegantly.

The comments above are made only for their entertainment and educational value and are in no way to be considered as suggestions or ideas that should be implemented. I write these "Market Observations" more to define my own approach to investments than to pass on any advice to others. For full disclosure, I have a number of the investments noted above.

Bud Wood