The world's biggest "crack up" boom is now in full swing. Make no mistake, most central banks and governments are destroying the purchasing power of their currency; thus, as responsible citizens, you should assist them by getting rid of your depreciating cash reserves.

Wednesday, the world's most efficient money creating establishment announced that it plans to create another $600 billion out of thin air. Furthermore, it made it clear that it will lend this money to the bankrupt US government, supposedly, in an effort to boost the ailing economy. Under this new quantitative easing program, the US Federal Reserve will buy $75 billion worth of US Treasury securities each month until June 2011.

So, there you have it. An insolvent government is now being financed by newly issued money and this is precisely the route all banana republics take. Throughout history, whenever governments have run into trouble, they have usually resorted to the printing press and the end result has always been very high rates of inflation or hyperinflation. Therefore, if history is any guide, the US (and as a result, the entire world) is about to experience the dire consequences of severe monetary inflation.

Turning over to the financial markets, a rising monetary tide (inflation) lifts all boats, therefore, all assets appreciated after the Federal Open Market Committee (FOMC) meeting. Global stock markets rallied sharply and it looks as though the multi-month consolidation phase is over. Thursday, most of the European and American indices managed to close at a new recovery high and this suggests that the next up leg in the ongoing bull market has commenced. Furthermore, it is notable that a number of the developing stock markets are either at or close to record highs. The fact that most stock market indices are rising in tandem is evidence that we are in a powerful primary uptrend.

Asian stock markets will likely be the prime beneficiaries of this "crack up" boom. At present, both the Chinese and Vietnamese stock markets are on the bargain table. Given the fact that the Central Government has vowed to stimulate domestic consumption, companies related to rising local demand should prosper over the following years.

Over in the energy market, crude price has climbed to $87/barrel and it is now within spitting distance of its recovery high. Over the following months, oil prices are expected to rise and within the next two to three years, crude should be trading at a record high. The ongoing monetary debasement and looming oil shortage are good enough reasons to allocate capital to upstream energy firms and the oil services stocks. At present, the offshore oil drillers are undervalued and worthy of new investment capital.

As for precious metals, both gold and silver rose sharply Thursday. Precious metals will likely continue to shine and the ongoing rally should continue until next spring. Gold mining stocks are incredibly undervalued currently and have the potential to play catch up with the physical metals.

In the currencies patch, the American currency is weakening and the US Dollar Index has fallen below the 76 level. More importantly, it has violated an important trend line support, thus opening up the possibility of a waterfall decline. Given the facts that the US establishment wants to devalue its currency and the US dollar offers the lowest yield in the world, the world's reserve currency should continue to face intense selling pressure. Conversely, other major currencies should appreciate against the US dollar.

Finally, in the government debt market, yields seem to be in the process of bottoming out. For now, the government debt is being artificially supported by various quantitative easing programs; however, the path of least resistance is downwards. The lengthy bull market in bonds could have ended in December 2008 and government debt securities are now in the early stages of a multi-year bear market. With interest rates at a historic low, we see no value in this overpriced sector.

(HK Edition 11/06/2010 page2)