Unfortunately, as the dollar collapses, the cost of oversea labor will increase in dollar terms, dealing a crushing blow to companies whose primary market is in the US.

f) Toxic assets. In every sector of the economy, corporate balance sheets are filled with toxic assets sold to them as 'AAA' investments by the financial sector. The reason behind this mountain of bad debt are numerous: reckless lending (subprime mortgages), idiotic business models (bond insurers), mispricing of risk (overpaid financial wizards using flawed models no one understood), over-optimistic assumptions (housing prices will never fall), lack of transparency, etc… As a result, the financial health of companies across the economy is being undermined by these toxic assets.

g) Leveraged Stock Buybacks. Taking advantage of low interest rates, companies like GE issued large amounts of debt (commercial paper or corporate bonds) to fund share buybacks to juice profits and prop up stock prices. These companies are now having to roll over all that debt in a tightening credit market while consumer spending goes off a cliff, and their odds of long term survival are not good.

h) Bankrupt consumer. The US consumer is going to hell in a hand basket. At least a third of the economy (automakers, financials, etc) that he relies on for employment is about to be wiped out. States and local governments face massive budget deficits, which means more job losses, higher takes, and less government assistance/services. Gas prices are headed over 5 dollars a gallon, and this is a country with no public transportation where you need to drive everywhere. The consumer is also heavily in debt, with negative equity in his SUVs/homes and mountains of credit card debts. All this means a drop in consumer spending far deeper than anyone currently imagines, which will eventually crush an even bigger portion of the US economy.


What will be the effect of all this on US asset classes?

Here is a quick overview of what deflation and the dollar's collapse are going to do to US asset classes:

---Treasuries will be hit with deleveraging, a loss of faith in the US's creditworthiness, and inflation concerns.

---Bonds will be hit by deleveraging, default fears (especially for financials, retailers, and automakers), and inflation concerns.

---The tech stocks will be hurt as job losses, rising food/gas prices, and tightening credit cut in to what consumers have left for fancy gadgets, new computers, and flat screen TVs.

---Financial stocks will be hit by deleveraging, soaring default from all sectors of the economy, lack of a viable business model to replace securitization, failing off-balance sheet investment vehicles, inflation concerns, and shrinking dividends.