Selling Cows to Buy Milk

I saw a great analysis the other day, saying that the U.S. is selling cows to buy milk. Allow me to explain:

Recently BHP Billiton and Rio Tinto, two Australian based mining companies, offered to buy Alcoa. Alcoa is an aluminum mining giant here in the U.S.

What does this all mean? It's just more consolidation, why does it matter? Let me tell you. Just holding the U.S. dollar used to be good enough for most foreign investors. For the most part, it would appreciate against most local currencies (except the Swiss Franc). Then folks wanted these bonds and treasuries. They were less liquid but it was a win-win situation in the long run. The investor would receive whatever the yield return happened to be regarding that specific bond/treasury, plus the appreciation of the USD compared to the local currency.

Now the USD is depreciating against most of the major currencies of the world. Foreign investors, if not completely turned off by the whole idea, are nervous about owning any USD denominated investment.

Now foreign investors want to invest in the tangible goods that are being produced in the US. Rising commodity prices are due, in large part, to the monetary inflation here in the U.S. The gold bull market, is a world bull market, but the price of gold, along with other commodities, is rising at a faster rate here in the U.S. than in other countries. There is good money to be made in the commodities market here in the U.S., so foreign investors are now looking to get a piece of the action.

Instead of buying bond/treasuries anymore companies like BHP Billiton and Rio Tinto are purchasing into the U.S.' ability to mine and refine its natural resources. The offers have been in and around $40 billion (USD). I would like to look at this transaction. $40 billion more paper dollars go into the U.S. while BHP or Rio, Australian based companies, get the access to the natural resources here in the U.S. Hence, we are selling our cows to buy milk.