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Is there no end in sight to the decline of the buck? Many can not see the light at the end of the tunnel, or perhaps, assume it is the freight train roaring towards them. Possessing tunnel vision, I however, do see the bottom of the decline, and it will occur next year. Why? Well oil prices, high oil prices to be specific, will be the primary impetus towards the bottoming out and the gradual strengthening of the buck. In January 2004 it averaged around $34/barrel, and on 25 November it was selling for $49/barrel, a increase of 44%. The high price of oil has had little effect on the US Dollar, this year, but in the long term, high oil prices mean increased inflation, and this will occur, next year, as manufacturers, and the transportation industries can not continue to absorb the higher operating costs and pass this on to consumers, which will cause prices to rise and inflation to stir it's ugly head, again. As always, according to my economic model, with inflation, comes rising interest rates. And with rising interest rates, foreign capital will seek a higher paying, more attractive investment in Treasury Certificates and buying dollar based assets (at a bargain price), since they are almost certain to continue their slow ascent in value.

It is undeniable that the cost for almost everything has increased in the past 11 months, raw materials, manufacturing costs, and transportation costs. The one bargain has, perhaps, been the cost of capital, as interest rates have remained near their historical lowest rates in modern times. But the Fed has indicated, by their series of rate increases, that this cost will continue to rise, also.

How much will the buck increase in value? This I can't say, because the increase projected from my model is currently slightly larger than the margin of error, but when November and December's economic data are in, it will be more predictable.

So, as some of my friends in our Northern Neighbor Country, Canada, have said, the "Canadian Dollar will be equal to the US Dollar before long", will have to wait for another economic cycle for this to happen, because it won't occur this time. War, the Budget Deficit, Osama, and other pestilence will only have a minor effect in the near future, because we have a cure for these maladies, and it will unfold in the near term.




	Updated: November 28,2004