While cash will become trash in the future

Market action yesterday and the day before was particularly hard on precious metals and other commodities. This behavior is consistent with a belief that QE2 will end without an announcement of additional QEs. This possibility and its ramifications were discussed yesterday in Mauldin’s Outside the Box article where David Galland was interviewed.
I am in the Galland camp in the sense that I believe the Fed may try to huff and bluff and claim that QE is over, but do not believe it is possible given government spending. The US government is no longer able to finance itself. It is dependent upon Fed “printing” in order to continue to meet its obligations.
There are two potential market killers in the short term:

1. The Fed could make an announcement any day stating its “intention” to stop QE after June. That would disrupt markets big-time and everything would be hit hard.
2. The Japanese disaster will reduce earnings. Just-in-time inventory management means companies dependent upon Japanese inputs from areas affected by the earthquake are out of parts by now or severely constrained by shortages. These dependencies affect more than the auto industry. Be ready for some serious surprises in quarterly announcements and earnings reports as a result. They should begin to show up commencing in June and intensify by July, potentially triggering a stock market sell-off.

Obviously there are many other factors that could also jump up and bite markets during this period (unrest in the Middle East, war between Israel and Palestinians, a collapse of one or more of the European states, etc.)

All in all, the next few months is an especially dangerous period for all markets. Increasing your cash position is probably prudent in the short-term.
The objective for most investors should be to get through this economic crisis with your purchasing power intact. Most of us should not be trying to gain ground, merely hold what we have. This period could last for a decade. If money were honest, going to cash would be prudent. Unfortunately it is not and that forces us to take on risk just to hold our own.
The task of maintaining purchasing power is especially difficult because cash is trash (or eventually will be) and equity and debt markets are both probably overvalued. While cash will become trash in the future, it may look awfully good over the next several months.
Whatever you choose to do, recognize the risks and be careful.