I have commented in recent weeks that the market's volatility is a direct result of the market attempting to discount the effect dollar weakness would have on the stock market. Would the Fed be forced to raise interest rates? Moreover, if so, to what extent? One thing I did not discuss was the Federal Reserve and its G-7 trading partners (seven leading industrial nations) taking measure to support the dollar.

The Fed and G-7 evidently sold gold into the market and then bought dollars. The result was a plunging gold and silver price, as well as an increasing dollar value. There were no real fundamental reasons why gold and silver prices plunged other than an intervention by some or all of the G-7 nations.

The sudden and unexpected strength of the dollar spooked those shorting the market. I coin the term "unexpected" because a day or two before, the Wall Street Journal's headline advised that the dollar would be allowed to fall. According to the article, intervention was never planned. The result was the second highest short covering in history. Although nothing has changed, we know the Fed will intervene on behalf of the dollar. The Fed will also intervene in order to hold gold's price below $330 for as long as possible.

When looking to the past for answers, we note that intervention works only for the short term. It can be argued that intervention does more harm than good. For example, in the late 1970s, the dollar was consistently making lower lows, regardless of massive gold sales and dollar intervention. What eventually turned the dollar's value around was a political change that allowed a massive increase in interest rates. Rates were pushed so high that over the next several years they drove much of our nation's industrial production abroad. Thus, there can be little gain in attempting to force the change in direction of a drastically weak currency, unless, however, it brings great pain.

There was great pain in the 1980s. Countless people lost the jobs they had held for several decades. Others were forced to retrain in order to make career changes. Therefore, it takes more than interventions to affect long-term fundamental change. We cannot expect things to return to where they were in late July 2002 where the dollar was moving lower and the price of gold was moving higher.

The stock market will find itself competing for fewer and fewer investor dollars. The market will eventually turn bullish, however, it will be a very long time before we see a 12000 Dow. That does not mean there will not be a lot of money to be made. Patience and fortitude should guide you through this nightmare. Selected stocks in selected sectors and industries should provide good bargains.