Saturday, August 6, 2011
"We seem to be entering a new stage of the currency wars where it's not just the emerging markets that are responding to broad dollar weakness," Callum Henderson, global head of currency research at Standard Chartered in Singapore, told Bloomberg. "Expect much more intervention in the future and further acrimony in terms of how the U.S. dollar is doing."
Now seems a fitting time to revisit the End of America... As you may recall, last November, we produced a video called the End of America (you can watch it here). Our thesis was simple... The United States (and the world's other leading democracies) are drowning in debt. And the subsequent money-printing ("easing") meant to solve the problem would only worsen the issue. Stocks, we posed, would languish. Gold, which would be viewed more and more as a monetary asset, would soar...
Since July 1, gold is up over 13%. The precious metal jumped $200, from $1,483 an ounce to Thursday's high of $1,683 an ounce. As we've said, the biggest reason for gold's surge is the U.S. and European debt crises (more on the latter in a bit). But it's also getting a boost from a lack of alternatives.
While we may be entering "a new stage," the currency wars are nothing new. The fiat currency market is "a race to zero," meaning all governments with paper money are racing to devalue.
On Wednesday, the Swiss National Bank cut interest rates to zero to devalue the soaring Swiss franc. On Thursday, Japan sold yen – which was near highs against the dollar – pushing it down over 2.5% versus the greenback. The Bank of Japan also increased its asset-purchase fund – which includes government bonds, corporate bonds, and real estate investment trusts – from 10 trillion yen to 15 trillion yen. And it increased a fund to encourage banks to lend by 5 trillion yen, bringing it to 35 trillion yen.
According to a Wall Street Journal article, South Korea, the Philippines, and Brazil are among the many other nations considering devaluing their currency.
This market manipulation means two things. First, gold will soar even higher as other currencies become less attractive. Second, global business growth will slow. As a business owner, it's difficult to plan for the future when you don't know what the value of your money will be.
The real jump in gold will come from the worsening euro crisis – namely the collapse of its banking system – and the eventual third round of quantitative easing in the U.S.
In a conference earlier this week, European Central Bank (ECB) President Jean-Claude Trichet said the European bond-buying program wasn't dormant... "I would not be surprised if by the end of this teleconference you will see something on the market," he said. Sure enough, European bonds rallied as the ECB bought across the board.
In addition to the reopening of the Securities Market Program, as the bond-buying is called, Trichet also said the ECB would offer a six-month tender of unlimited size next week. And it will maintain its policy of lending unlimited amounts at its one-week, one-month, and three-month operations until the end of the year.
This simply means the ECB will lend European banks an unlimited amount of money through the year. It won't let banks get caught up in a funding crisis as private lenders (like the U.S. money markets) retreat. The European banks' eventual losses will be monetized.
With this backdoor European bank bailout, you'd expect bank stocks to rally. Instead, they're getting crushed. The market knows these banks are toast. And I can't stress enough how bearish this action is... Despite a government bailout, European banks are still plunging. In particular, Deutsche Bank and Royal Bank of Scotland were down 9.3% and 10.5% on Thursday, respectively. You may recall our call to short these banks in Stansberry's Investment Advisory:
We should expect continued easing from Europe... "Continued moderate expansion is expected in the period ahead," Trichet said. "However, uncertainty is particularly high." He urged euro-zone governments to cut deficits faster and increase growth potential. He's particularly worried about one European nation. Can you guess which?
"It's urgent for all... and for Italy of course," Trichet said.
We're keeping a close eye on what these developments mean for our retired readers. In all likelihood, we can expect more bailouts, more uncertainty, and more meddling from the government... which is why our own Dr. David Eifrig created a video for our retired readers and those who plan to retire soon.
In it, David describes how over the past few years, the government has passed a series of laws that take control of some of the most intimate decisions you'll make in preparing for retirement. For example, these laws give the federal government great ability to draw down the value of your 401(k) or pension benefits. And it's putting in place huge changes to the national health care regime – including rationing of health services.
In his new video, David explains that he has laid out a plan to insulate subscribers of his Retirement Millionaire service from these changes and allow them to retain control over their finances and their health. You can watch the video here.
Date Range:7/28/2011 to 8/4/2011
Date Range:7/28/2011 to 8/4/2011