yes, i start out with top-down analysis, which led me to the resource sector. with commodity stockpiles drawn down, and a lack of investment ever since bre-x blew up, mining looked like it had better potential than just about anything else.

certainly fraud and corruption are rampant among the smaller issues, which are not well regulated. most of my money is in the larger producers, the ones i mentioned plus (of course) kinross. but i invest small amounts of money in juniors because a little can go a long way. if i get one ten-bagger, that makes up for a lot of other companies going bankrupt.

i don't expect the us dollar to collapse completely like the continental. i do expect to see stagflation like the 1970's, only worse, because the problems are much larger this time around. america is a debtor nation this time, not a creditor. it imports far more oil than it used to. it doesn't have the manufacturing base it once had.

a lot of things have to go right to keep the us dollar afloat, and the government has to resort to more and more extreme measures to keep the financial system functioning from day to day. at some point there will be a loss of confindence in the dollar, but i don't know what will trigger it. there could be one bank failure too many, or one small country halfway around the world decides to sell its treasury bonds.

there is an old saying that you'll see cracks in the plaster before the roof falls in. i think we've seen plenty of cracks already. huge sales of physical bullion to india, silver and gold eagles being rationed...it all adds up to a growing distrust in the currency. people don't hold an asset that pays no interest if they believe in their currency.

herr paulson and helicopter ben have now pledged $8.5 trillion worth of assorted bailouts and rescues (so far) and the total economy is only about $13 trillion. i understand why they spent that money; had they not done so, the economy would have melted down. in these conditions, i don't think there will ever be a shortage of dollars. soon the world will be awash in them.

when derivatives with a notional value (no one knows what they're really worth) of $600 trillion are being liquidated, those debts have to be repaid in us dollars, so we have seen a huge spike in demand for dollars. the same thing has happened in the japanese yen, which has been even stronger than the dollar. the japanese economy is in recession too, but the money being repatriated to japan to repay those loans has made the yen the strongest currency in the world, at least for now.

i believe the strength in the dollar is only temporary, but it has depressed the prices of commodities and the related shares. the deep recession and unemployment to come will cause large amounts of public spending, and the money will be created out of thin air. whether the money is spent on building needed infrastructure, or just having one group of guys digging ditches, and another group of guys following them around and filling up those ditches, the money will be created and spent. the government will fight unemployment, and in doing so they will create more inflation.

i doubt we will have to wait much longer. it looks like the lame duck bush administration is just trying to hold things together until january 20, and then let obama worry about cleaning up the mess. by then the fed funds rate will be 0.5%, and he won't have much to work with, other than monetization.

of course the new administration could engineer some kind of economic miracle, but at this point i think that may require divine intervention. in any case i will hold onto my mining shares to see what develops.