This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Sunday, June 7, 2009

United States on clearance

The big news recently has been GM’s filing for bankruptcy, a move that has been priced into the market for some time now. The former auto giant is being split and sold in pieces — Hummer possibly to the Chinese, Saturn to one of 16 interested buyers.

Interestingly enough, auto sales were actually up month after month, according to the most recent reports. Not only did sales rise, but they did so in the face of oil, which is now more than $68 per barrel on expectations of inflation and economic recovery.

Also up were home sales, despite mortgage rates beginning to creep back up. Mortgage rates are based on the 10-year Treasury bond, whose rate has been climbing recently as investors begin to recognize the inflation coming in the near future. Our advice, to readers looking to take advantage of this market, is to purchase a home soon because neither mortgage rates nor property values will stay this low much longer.

We continue to believe that prices will be increasing in the near future due to both inflation and the recovery of the global economy. We see signs of these things emerging every day.

First off, the Dow has lately seen some volatility around the 8500 level as the market argues over whether it will continue higher or head back south. In recent days, the Dow has broken through the 8500 level and seems poised to head higher.

Both China and Australia are in expansion mode, with particular emphasis on purchasing finite resources (commodities). In previous articles, we’ve documented cases of China buying up everything from oil drilling operations to precious metals mines.

In fact, some of the sellers of these assets are American — case and point: GM. In recent weeks, the U.S. dollar has collapsed in foreign exchange markets, reaching new six-month lows against the Euro.

However, this isn’t entirely a bad event, as a weaker dollar makes American assets — cars, real estate and stocks — more attractive to foreigners, since they can get more dollars in exchange for their respective currencies than they could before.

In fact, since February the dollar has declined just more than 10 percent against a basket of other major global currencies. This means, in essence, that the United States is on sale. To foreign investors, American assets are 10 percent cheaper than they were February, strictly from a currency exchange perspective. Of course, they may be even cheaper, depending on how individual assets have fared since then.

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