Bigworld, Yes, trying to figure out this market sure isn't easy. One thing that seems certain is that the dollar by itself won't be able to provide the world's huge liquidity needs forever. That may have worked after the 2008 crisis, but as Rickards says, there are limits to that approach, confidence limits. To keep cranking out endless trillions of dollars in domestic + global liquidity injections, a loss of confidence in the dollar will be the inevitable result.
That's where the planned issuance of $500 bil in SDRs comes in - to provide the liquidity to keep the global system going, so the dollar doesn't have to carry that burden by itself. The risk is if you issue too many SDRs right away, that by itself could signal they are throwing in the towel on the dollar, and start a stampede of global dollar dumping. So do it gradually, starting with the $500 bil in SDRS, and then add more over time. This approach could extend the life of the dollar reserve system for many years.
Anyway, that appears to be the plan, and as the world economy starts to recover, the need for immediate liquidity infusions will subside, and the near term crisis is averted. Then they can gradually increase the SDR's role so the US dollar reserve percentage is reduced from 70% to say 50%, with the SDR taking up the slack.
In the near term, the risk posed by the recent spike in interest rates can be lessened by the arrival of the SDRs. As Rickards points out, the SDR is basically a clean balance sheet, leveraged at only 3 to 1 vrs the US dollar, which is leveraged over 100 to 1. So the SDRs represent an almost unlimited source of liquidity.
Bottom line, for now I plan to keep my basic asset allocation model for stocks at 20-50% (no less that 20%, no more than 50%). Until things are better clarified, I have that range narrowed down to 30-40%, and may just go with 35% for now, subject to new developments. So 35% stocks, 11% bonds, 11% gold/silver, 2% REITS, and the rest (41%) in cash. Sounds like a reasonable allocation, and some of the cash can be deployed as things clarify. Moderation/balance seems like a sound approach.
I'd really like to use the cash for some additional hard assets like paid-for real estate, but am waffling on that idea for various reasons. Residential real estate around here has been red hot all winter, which seems surprising. Properties are being snatched up on the same day the listing comes out, and with multiple escalating offers. Pretty nuts considering the state of the economy, and I don't really understand the dynamics.
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