Recent action in the foreign exchange markets suggests that the dollar's much-hyped turnaround may have been a flash in the pan. Related movements in key commodities, particularly gold and oil, seem to support this conclusion. If I am correct in reading these signals, then the risk of a near-term slump in the dollar is high. As such, those moving cautiously with regard to overseas investments need to pick up the pace -- fast.

With all eyes focused on the slight fall of the euro against the greenback over the last few weeks, few have taken note of the latest bearish indicators. On May 16, the US dollar hit a 24 year low against the Australian dollar and the euro itself managed to overcome significant near-term resistance around the 1.55 level, suggesting a near-term challenge of its 1.60 record high set in late April. If the euro surpasses that barrier and holds, look for a far more impressive move up, as those speculators who rushed to short the euro scramble to cover their misplaced bets.

It is interesting that, also on Friday, the University of Michigan Consumer Confidence Index plunged to its lowest level since Jimmy Carter was in the White House. Back then, the Misery Index (a combination of inflation and unemployment rates) was at a record high, with both components running in the double digits. However, according to the current, government-supplied statistics, the Misery Index now stands near its all-time low.

In the years since the Carter Administration there have been many recessions, including a very severe one during Ronald Reagan's first term. However, the current statistics suggest that we are currently not even in a recession and may avoid one completely. Yet despite this, consumers are less confident today than they were at any time during those prior recessions. I can only image how low consumer confidence will fall once the recession officially begins! As this disconnect persists, and widens, look for the public to shed any remaining confidence in government numbers as well.

It is rather ironic that the media will likely try to spin this index as revealing a disconnect between public perception and "reality." Of course as contrived official numbers reflect pure fantasy, it is not the public that is disconnected from reality, but the government.

Many will no doubt also blame a biased media for over-emphasizing the negatives and preventing the naïve public from appreciating the US’s Goldilocks economy. Here too the irony is that the media is indeed biased, albeit in the other direction. Despite the media's best efforts to put a positive spin on this developing economic crisis, the public is increasingly able to see thought the smokescreen. The fact that they can is the best evidence of just how severe the problems have already become. Once currency traders betting on a dollar rally also figure this out, they will make a mad dash for the exit. I urge all of you still holding dollars to get out of them in advance of this epiphany or risk getting run over in the stampede.

Peter D. Schiff ( schiff@europac.net) is president of Euro Pacific Capital, Inc of Darien, Connecticut, USA. He publishes the free, on-line investment newsletter http://www.europac.net/newsletter/newsletter.asp