Will the state of federal finances have any effect on the battling Australian dollar? A Friday article by Fed mouthpiece John Hilsenrath in the Wall Street Journal floated the idea that the Fed is looking for ways to wind down its $85 billion per month in QE in a way that doesn't crash stocks or disrupt order in the financial markets.

Financial markets were promptly disrupted, especially the currency markets. The Aussie dollar slipped beneath parity with the US dollar. It later collected itself and got back above parity. But the move had more grim determination in it than real conviction. The dollar is on the edge.

If you were reading a newspaper column about the ramifications of an imminent dollar fall, this is the point where we'd talk about sectors in the market that benefit from a weaker dollar. But that would be a giant waste of time (almost as big a waste as a detailed analysis of who's getting most of the budget loot).

Let's run a more useful idea by you, courtesy of our colleague Vern Gowdie: Australia's in a secular bear market and things are about to get a lot worse. Vern's going to begin making his case later this week, including a definition of what a secular bear market it is, and why we're in one. He's one of the first Aussie financial planners we've ever met with the courage to tell his clients that stocks for the long run are a losing bet, at least at this particular moment in Australian history.

But we'll let Vern make his own argument. Right now, it's not clear to everyone that the dollar IS falling. But it will be soon enough. Confidence in long term currency trends can turn quickly. Everyone loved the Aussie for most of the last ten years. Now, doubts appear about the longevity of the China boom and the long-term quality of all government debt.

Don't be surprised when the move in the Australian dollar is bigger, faster, and harder than everyone expected. When it comes, there won't be any obvious winners in the share market. Shares will suffer as the capital flows that supported them suddenly head for the exits.

That doesn't mean there isn't an investment consequence that you can take advantage of. If the Australian dollar falls against the US dollar, it will also likely mean lower commodity prices. That means lower oil prices. And that's probably the right time to take a look at major oil and gas companies to see if you can pick up a world-class company at a good price.

If we can find a good oil stock, we'll invite it right into our 'fortress' portfolio. There's a small list of global companies that would constitute fortress stocks - the kind of place you could hide your money with relative safely during the middle of a global currency war where AAA rated bonds are riskier than ever. But now is the time to look for them.

True, this tactic is more about capital safety than capital growth. But 511 central bank cuts into the false recovery, it's becoming more apparent that there won't be more growth until there is less debt. In the meantime, money interested in self-preservation is flowing to the core of the global financial system. The safety in numbers is only relative. But it's better than counting on stupidity to suddenly get smart.

Regards,
Dan Denning
for The Daily Reckoning Australia