The USD is toast.

The dollar is drastically overvalued for two big reasons.

1) China must buy as many dollar-denominated assets as the market requires to keep its mercantalism underway.

2) The "full faith and credit of the US government" still counts to markets as risk-free money, and there's not much else perceived to be.

Both of these will give way.

The US is toast

A man and his wife are driving down a mountain road. The brakes start to fail. Rather than fix the brakes, they argue about how.

We all know what happens to this couple.

The times we live in

Used to be that the US was king of the world, had a large trade surplus, was the manufacturing mecca. Emerging markets were less than nascent. Europe was economically "bogged down" by social structures that make life better for its citizens. (Heaven forfend...).

Enter the "free markets can do no wrong" folks, the end of Glass-Steagall, and the subsequent colossal crash, that was first financial and then economic.

Now we're left trying to pick up the pieces.

More than I can ever remember, the economy and the value of your investments is in the hands of a relatively few people, like Geithner, Trichet, Bernanke, the capi of the Chinese economafia, and complete moronic tools like the members of the US congress who answer to the thoroughly devoid-of-brains "Tea Party".

What an irony that what the free-marketeers have found themselves left with is a huge dependence on the whims of govt. officials.

This makes investing more about mindreading and crystal-balling than picking good companies at reasonable prices. Not good.

Diversification

While we're on the topic of Buffett, I remember reading somewhere that he opined that diversification is for people who aren't smart enough to know what to invest in.

Count me in that aforementioned group.

So I would agree with him, but put it a slightly different way:

The less confident you are in your investment ideas, the more you should diversify. The more confident you are, the more chips you should put on the table behind that idea.

What's goin' on

So Warren Buffett testified, saying, "who me?? How could -I- ever have seen the housing bubble? Heck, no one did!"

Hmmmm....ok.

But let's take him at his word. To be fair, Warren's never claimed to be a macroeconomic guru or financial wizard. One of his main tenets is, "invest in what you understand."

So, what's scary is that we're in a world where Warren Buffett doesn't understand what's going on or why.

That should give the rest of us pause.

Warren's style of investing is to look at a company that produces stuff people want in a profitable way, and looks likely to do so for a long time, then buy it when it's cheap. (I know he's done derivative trades and the famous GS trade at the pit of the crash, but largely that's what he's always been about.)

So as you mull your own investments, bear in mind that we're living in a world so complicated that it's well beyond the intellectual scope of the greatest investor ever.