World Currency Watch: FOREX Market, FOREX Trading BLOG

The “Feel Good” Inflation of the Year

By John Ross Crooks III, Currency Analyst
www.worldcurrencywatch.com

Inflation is back...but this time it’s a bit different.

I’m not talking about the inflation of prices. I’m talking about the inflation of lungs.

It’s almost as if every morning there’s some new stimulus bill, or some alteration to one, or some plan to fix banks, or something along those lines. And with each morning, we hold our breath...some more.

You see, the stock market hasn’t cared a whole lot what’s been told to us, what investors and others are supposed to expect going forward. Yes, we give President Obama and Benny B their opportunities to speak (whether that means three or four times a week.)

But after that, we puff up our cheeks real big and plug our noses like a 5-year old learning how to swim. And we just hope. Hope that this time the markets don’t dive. Hope that this time the pundits will like what they hear. Hope that this time the economy gets back on the tracks and starts chugging along, whatever the pace.

I’m Glazing Over Any Article with These Buzz Words…

By now, with all this hoping, most of us could probably boast the lung-capacity of a Navy Seal...or rather, a plain old seal. As we buy our time with ‘stress tests’ and the like, I’ve practically stopped reading any of the headlines with any of the typical buzz words. Words like...

• Obama
• Stimulus
• Nationalization
• Financial System
• Bernanke
• Mortgages
• Aid
• Government
• Automakers

And most of those headlines with a dollar-figure above US$700 billion...yeah I pretty much glaze over those headlines too. In fact, the Wall Street Journal online now has an entire webpage devoted to stories – new and old – that pertain to stimulus. Ha.Ugh.

I suppose if I wanted to know what all this meant, without spending hours at WSJ.com, I could just tune in to CNBC today. They’re bound to discuss the new Federal Budget Deficit estimate. I could tell you it’s about US$1.75 trillion, but then what would you turn on CNBC for?

Anyway, turning to the important stuff, the U.S. dollar is rolling over a bit this morning. Thus far it’s been a stronger week for the U.S. dollar. But it remains below key resistance going back to last week and then back to its November high.

“How Long Will the Dollar Rally Last?”

It may make sense to be cautious on the U.S. dollar at this level. In other words, stay open to the possibility of a risk-taking rally – a stock market rally from its recent test of November’s low might be in the cards. And I say that because sentiment in stocks is very much one-sided right now. Almost everyone is bearish.

A risk-taking rally, as I mentioned, could quickly throw a towel over the hot dollar. But first we’re going to have to somehow cruise through tomorrow’s economic data. The highlight will be U.S. GDP. The expectations are already low. Considering how fragile this market is, it might be good to hold your breath.

What Currency to Short As Risk Takers Make a Comeback 

Note: If you’re looking for a way to play it, the Japanese yen may make a good target. It’s already starting to weaken on Japan’s deteriorating economy while losing some of its safe-haven appeal. And if the risk-taking environment changes, that may add even more fuel to this trade.

Of course, I’m sure Barack will step up to the mic after the actual GDP numbers are released. He’ll tell us not to worry, his new plan has everything covered. We’ll probably believe him, but will it make us feel good inside?

If Only Central Bankers Knew Their History…

By Jack Crooks, Currency Analyst
www.worldcurrencywatch.com

Though it is fashion to blame the U.S. for all the ills now flowing into the global economy, I don’t think it’s quite that simple.

Remember the “global savings glut.” In short, it was the massive current account surplus accumulation of the East thanks to the massive consumption of the West. This was buoyed by the Massive “global savings glut” allowing for the creation of rocket science products called derivatives.

And yes, we’ve seen it all before. In fact, only the names at the top of the central banks have changed.

It’s All Been Done Before…

Let’s set the stage and go back a few decades. Those of you, like me, with grey hair now unfortunately growing on your face (guess it beats the alternative) may remember that back in the mid-70’s our major international banks were recycling petrodollars (OPEC stash). This led to the international lending/debt boom that eventually caused the crisis of 1982.

This time not only did we have OPEC recycling its stash through the major financial systems, we added the “global savings glut” to the party. This time around Asia had to recycle its massive current account surpluses generated by the usual way they do — suppress their currencies, and put up barriers for Western goods to flow in freely.

“Of course, if Mr. Westerner wants to build a plant and transfer hundreds of millions of technology for us to take at will — well then, come on in. We will continue to enjoy almost 100% free access to your markets while your own policymakers help us by spouting the mantra of ‘free trade.’ It’s a beautiful thing,” says the proud Easterner as he criticizes the extravagance of the West.

(Guess what Mr. Know-it-all Easterner, that double-digit fall in your exports shows that Mr. Westerner is finally getting some religion and starting to consume less and save more; so lighten up — relax.)

But I digress…

Mirror, Mirror on the Wall, Who’s the “Best Looker” of Them All?

By Chuck Butler, Editor
www.worldcurrencywatch.com

Long-time readers know my affection for the surplus/positive balance of payment countries and their respective currencies. Well, Norway always drifts to the top of those discussions because of their impressive balance sheets.

But then last night I came across a report by the research team at HSBC that graded the currencies. Their pick for best currency? Norwegian krone! 

Let’s listen in to what the HSBC researchers are saying…

"The world is in total flux and, as such, we have released our new interim forecasts for the global economy today. Based on these numbers, which make depressing reading, we look at who comes out the best amongst the G10. We give all the variables an equal weight.

“We could have quite easily given CDS spreads a higher weight, which we believe is a key driver of the FX market at the present time, but even with equal weights the answer is still the same - Norway wins hands down.

“In addition, the Japanese yen and the Swiss franc are both losing their safe haven status and the best safe haven currency is the Norwegian krone. The Norwegian krone is our preferred G10 currency where we expect a sustained appreciation over the next 18 months."

So, my colors are already pinned to Norway's mast. This is simply a choice based on the country’s excellent fundamentals and booming surplus. It has been, and will continue to be, until something changes...

An Insider Look at the Original Surplus Country

By the way, I first wrote about the surplus countries being at the top of my currency list way back in 2006. And I wrote about how surplus countries looked to withstand this credit crunch back in October in my monthly newsletter, Currency Capitalist.

And which surplus country did I mention both times? Norway!

Here’s a snippet of what I told my Currency Capitalist members six months ago…

“Norway, with their North Sea Oil, has a very healthy balance sheet. In fact, it’s so healthy that policymakers are creating one of the most enviable pension plans on earth. They actually have enough money in this mega-pension fund to guarantee every citizen receives a pension — including the next generation of Norwegians who aren’t even born yet!

“Norway’s Central Bank…now takes their place among the world’s most influential central bankers and provides price stability and effectively fights inflation.”

Looking back today, a currency like the krone really needs the euro to be underpinned for the krone to outperform the single unit. So, all I'm really saying here is that the dollar isn't the "Best Looker" in the currency world right now. That claim to fame belongs to the Norwegian krone.

Only Gold Is Winning the Ugly Contest

By Jack Crooks, Editor
www.worldcurrencywatch.com

Gold did the deed. The precious metal closed over the US$1,000 mark on Friday as the Senate Banking Committee Chairman Chris Dodd sideswiped the dollar.

Mr. Dodd, a man who pontificates on any and every subject under the sun and never lets real knowledge of a particular subject area stand between him and the nearest microphone decided to try out the N word — nationalization! Traders viciously dumped the dollar on Dodd’s “deliberation.” 

Dodd Speaks, the Dollar Sinks

And of course the games continue! 

The dollar was sharply lower on opening in Asia last night with nationalization of U.S. banks ruling the headlines. But of course the U.S. isn’t the only one flirting with bank nationalization. Take a second look at Europe and Japan (and just about anywhere you care to look) and it’s ugly!  

The euro has already reversed 200 pips from its high overnight, likely due in part to Mr. Trichet weighty assessment that Europe’s financial system is under huge strain. I say weighty because one should never confuse Trichet’s statements with anything dribbling from the constantly flowing font that is Dodd. 

We were of the opinion U.K. banks would beat others to the race toward complete bank nationalization. But it’s probably splitting hairs as de facto nationalization seems the order of the day. Why buy financials in your 401(k) when you own them anyway?

I used to tell people that currency analysis was like being the judge at an ugly contest – the least ugly wins. But now, there is little that separates the degree of ugliness among all competitors. Thus, we have gold printing over US$1,000 and who knows where from here. 

Gold has soared against the euro, pound, Aussie and U.S. dollar; though it hasn’t made a new high yet against the buck. 

Gold Has Already Climbed Against the Aussie, Euro, Pound and Buck

We’re still sticking to our story that the world reserve currency will be buoyed at a time like this. But I have to admit that I’m covering my eyes when I see the U.S. government’s supercharged attempts to spend its way out of a debt deflation…ugh. 

Replacing public debt to the same or increasing degree in which private debt is written down (public debt really means private debt because the private sector does all the wealth creation - while government mostly destroys it trying to “help” us) is no way to allow the system to cleanse.

But with pontificating pandering politicians never more than two minutes away from a microphone, we seem to be stuck there. And I have to wonder why we aren’t seeing any “traction.” It is to cry, or maybe time to buy more gold. Maybe both!

Four Reasons Why Currencies Also Beat Out Stocks in My Book

By Sean Hyman, Currency Analyst
www.worldcurrencywatch.com 

Even some of the biggest industry players in Wall Street overlook a few simple truths that make currency trading infinitely superior to stock trading. For example…

• Trading Day Lasts All Day: Currencies Trade 24 hours, nearly six days a week: That means there’s an opportunity for tradable hours no matter where you live. You can even trade after you’ve put in a full day at the office. You can’t always do that with stocks or commodities.
• Higher Potential for Gains: Currency trading offers higher leverage than stock or commodity trading: Translation - you can put down LESS money to control more funds in the currency market than you can in stock or commodity trading. This means you have the potential to earn far greater returns faster.
• Lower commissions: There are no commissions in currency trading: In stocks you have to pay a buy commission to your broker, you also have to pay the spread (the difference between the buy and sell quotes on the stock), and a sell commission. But in currencies, there’s only one cost: the spread. You don’t have to pay commissions, so once your buy price is higher than your original sell quote, you’re at breakeven. 
• Completely Scandal Free: Scandals – the likes of Madoff or even Enron proportions – simply don’t exist in the currency markets. The currency market is simply too large (sometimes trading up to US$5 trillion a day) to be manipulated by individual scandals. 

Best Regards,
Sean

European Banks Are Leveraged 60-to-1?!

By Chuck Butler, editor
www.worldcurrencywatch.com

I have to apologize right here, right now, that I contradicted something I said and my friend John Mauldin said yesterday. (I didn’t mean to and it shows what happens when you write pre-5 a.m.)

I thought that the U.S. losses were larger than those in Europe (overall, both East and West)... But upon further review, I see that is NOT the case…

This all goes back to lending ratios, which people don't pay attention to in good times. But in bad times, they begin to be as self-evident as a hatchet in one's forehead. U.S. Banks have a loan ratio of around 26-to-1. And European Banks have one that is around 60-to-1... Uh-oh!

My long-time friend, Ed Bonawitz, sent me a note yesterday showing the rot on Europe’s vine. This stuff isn't for anyone under 13 to view, folks, it's nasty...

"Ireland's external debt, at US$1.8 trillion, equals 900% of the country's US$200 billion GDP. The United Kingdom's external debt of US$10.5 trillion equals 456% of its US$2.3 trillion GDP. Switzerland's external debt of US$1.3 trillion equals 433% of its US$300 billion GDP."

www.economist.com

Now that the credit markets are locked tight, renegotiating the terms of these loans is virtually impossible. The IMF will need to step in Big Time, and as badly as I don't want to even say this, but have to, the Bundesbank, Germany's Central Bank, will have to step in also.

There's news this morning that Germany will take over Hypo Real Estate Holding, Inc. thus paving the way for the first German Bank nationalization since the 1930's.

Here's the deal folks, the way I see it...

These European countries are dealing with their own problems, and soon they will move to protectionism measures to keep trade at home. This will happen all over the world, and for my money, it will be akin to pushing trade over the cliff. No way is trade able to recover from a blow like global protectionism, until it ends...

So, again, there's "uncertainty." And the uncertainty hedge is here to help! Yesterday, I watched gold move higher all day to the tune of US$28. That brought the price of gold up to US$970!

This morning, there has to be a ton of profit taking, as gold has backed off by US$6. I'll say this again for anyone who missed class on two different occasions last week. It appears that the large investors are moving to hard assets, like gold and not to fiat currencies.

Oh, Woe Is the Euro – at Least For Now

By Chuck Butler, Editor
www.worldcurrencywatch.com

It looks like the euro is destined to suffer for the time being.

This time, you can blame the euro’s suffering on the rot on the vine in the Eastern European countries. These Eastern European countries are taking on water from bad loans, or loans gone bad. And of course, you know who the lender of last resort is on these loans don't you? Yes, Eurozone banks. This opens a whole new can of worms folks...

The euro has already taken hits from Spain, Italy and Italy in this round. Previously, the euro also took a major hit from France in 2005. Yet, the euro survived them all. And it will survive this round... But not until it sees more weakness vs. the dollar.

I would look for the euro to revisit its previous low of a few months ago in the 1.23 handle. This could get ugly, as this Eastern European bad loans scenario has just popped up, and we've got to work through all the rubble to get to a base, before the euro can come back even stronger.

This will obviously represent some cheaper levels to buy, and diversify into foreign currencies as the euro drops. (EDITOR’S NOTE: Click here for one all-encompassing investment strategy that gives you access to all the truly beaten down currencies.)

So, the Big Dog, euro getting taken to the woodshed for its indiscretions with Eastern European loans. But remember I’ve told you before that European bank losses are nothing compared to those in the United States. My friend, John Mauldin, said that they "Dwarf those in the U.S."

And, remember, the Eurozone began this meltdown in a position of strength. The U.S. was on its knees begging for foreign investment to finance their IOU's when this mess started.

Uncle Sam Wants to Help Pay YOUR Mortgage?

By Chuck Butler, editor
Currency Capitalist
www.worldcurrencywatch.com

I hear the new administration is working on a new plan for mortgages. There are reports suggesting the Obama administration is hammering out a program to subsidize mortgages.

In a major break from existing aid programs, the plan under consideration would seek to help homeowners before they fall into arrears on their loans.

That's nice... You know, years ago, when my beautiful bride and I didn't have two nickels to rub together, we still paid our mortgage no matter what. At no time, EVER, did I think someone, would bail me out!

And I know I'm not unlike the majority of people in this country. So, you have to wonder what happened here? The government is stepping in to "help" you.

I've told you before that Ronald Regan used to say that the scariest thing you can hear is "Hello, I'm from the government, and I'm here to help."

“But Which Type Of Gold Investment Should I Be Buying?”

(HINT: The Kind You Can Save $600 An Ounce On, Duh!)

Yesterday, Tim Geithner stumbled out before the press and managed to say everything - and nothing - at the same time.

Let’s start with the obvious - “The recession is putting great pressure on banks.”

Really, Tim? We had no idea.

By saying nothing of substance, Geithner confirmed Wall Street’s worst fears: that Washington doesn’t understand the fix we’re in. (And even if they did - could they do a darn thing about it?)

We just watched the Dow plunge 382 points… And I wouldn’t be surprised if our next stop was 7,000.

However, One Investment Is Bucking The Trend…

Since December, gold has jumped 22.5% (from US$767 to US$940 an ounce). And I firmly believe we’ll see it trading for US$1,500 (even US$2,000) an ounce in the not-too-distant future.

If you’re thinking about buying some physical gold, you are not alone. Depending on where you look - you might even get shut out!

High demand for the yellow metal is rippling across the globe - from estate sales to eBay to the halls of Wall Street hedge funds.

Heck, I even heard that a luxury resort in Abu Dhabi is serving gold - sprinkling it on ice cream sundaes. (I’m not kidding - diners have literally devoured over US$500,000 worth of gold flakes!)

Now I’ve heard of “biting” a coin to see if it’s real - but swallowing it whole? That takes “Gold Bug” to a whole new level.

“What’s The Best Way to Hold Gold?”

Obviously - it’s not in your stomach.

Lately, my reader mailbag has been full of questions about bullion bars, mint certificates, e-gold and coins.

I’ll admit - it can be confusing to know what to buy or how to get a good deal.

My view is that every ounce counts - and you shouldn’t overpay just because some guy tries to “spook” you into a sale.

Sooo…

Before You Spend Even a Penny On (Any Form) of Physical Gold,
Here’s What You Need to Know:

One of the most popular ways to buy gold is through a certificate program - like the one made famous by Australia’s Perth Mint.

You hand over some cash - they give you a certificate that proclaims, “100 ounces of gold are being stored in your name.”

Don’t get me wrong - this is normally a safe way to own gold. The only downside is, you’re holding a piece of paper and THEY have your gold. In a time of economic crisis - this could pose a problem.

For example, what if, God forbid, international communications break down? Meanwhile your gold could be tied up, thousands of miles away.

I say this not to scare you out of holding gold certificates - but to prove the point that no one should hold all their gold in one location.

Okay, But What About…Bullion Bars??

Bullion bars offer an easy way to acquire 100 to 1,000+ ounces of gold - and pay a minimal “mark-up” or “premium” over the spot price.

That’s why I recommend them as part of your overall portfolio.

But still, there are two drawbacks to consider:

First - bullion bars take up a good deal of space. They can be expensive to insure, and store. In that way, they lose a little bit of their price advantage.

Secondly - I’m wary of another round of government confiscation. If the Obama administration follows in the footsteps of Franklin Roosevelt and outlaws gold ownership - bullion will be one of the first gold investments that gets seized and carted away.

How About American Gold Eagle coins…
Are They Good??

Bullion coins are enjoying a renaissance of sorts. In fact, yesterday’s Financial Times reported that coin sales have reached their highest level since 1988!

Last year, panicked investors stormed the U.S. Mint and bought up every Gold Eagle and Buffalo coin they had in stock.

Today, they’re still struggling to keep up with demand.

Yet I would NEVER advise you to buy a single coin from the U.S. mint.

I’m serious. Don’t touch them. They are way overpriced. Just because thousands of people are fleeing paper money doesn’t mean you should join their bidding war.

Here’s a BETTER Alternative… That Could Save You $600 an Ounce!

Recently, I’ve been researching different ways to own gold - and two months ago - I came across a little-known form of the yellow metal.

The shocking thing is, it has outperformed “normal” gold investments by a factor of 10… or more!

During the great Depression - it soared 69% overnight. And according to the indicators I track, it has equal potential today. Bottom line, it belongs in EVERY investor’s portfolio (at least in my opinion).

There’s just one problem - there’s very little to go around.

Here’s what I mean: Last year when 1.2 million of these “little guys” were offered, they sold out in just 11 months…now…this year a similar offering has been made, except, and this is critical - that 1.2 million has plummeted to just 50,000. That’s all that are being made available in 2009 - creating huge demand.

On eBay, “gold bugs” are lining up to pay over US$1,500 per ounce for this little-known investment… The World Gold Council says demand has spiked by 121%…causing national mints to shut down production.

Truth is, and it’s unfortunate, but only 1 out of every 300 our readers will even get an opportunity to invest in this rare form of gold - again, I’m sorry, that’s just the way it is - I don’t control the mints (especially not the foreign ones).

However, thanks to a recent cocktail meeting with a high-level gold executive - who wished not to be named - I’ve discovered a ‘weird’ little technique that could enable you to secure possibly as many as 10 (or more) of these wealth-builders - in the next 10 days - assuming you “get in” before they completely sell out!

FREE Webinar Reveals: How To Save $600 An Ounce,
Limited Seating, Register Now!

Listen. Come closer. This is no time to mess around.

The Feds are meddling with the economy to an extent I’ve never seen before - these “trillion dollar actions” have clear-cut consequences for your portfolio.

I will not say this little-known gold investment will not cure your every ailment, it will not. There are no magic “one-size-fits-all” solution. However, I can say with absolute confidence, those who sit idly by, watch passively, and remain paralyzed as the storm continues to “blow” will suffer the worst.

Doing “nothing“ is not an option. Not now.

As of this writing, 2,372 other “gold bugs” have already registered, re-arranged their schedules - and best of all - chosen to be proactive. Spots are limited - please click here to see if you qualify to attend.

You will discover there is simply no better way to own gold, right now, than in this rather peculiar little form.

Sincerely, Eric Roseman
Investment Director

P.S. Who would’ve ever thought it’d be possible to buy gold at a savings of US$600 an ounce? Certainly not me. My goal for you after this webinar is for you to immediately shutdown your computer, hang up the phone, and start using the strategies I share with you. Pretty cool, huh? See you there - register now!

The Case for Gold Confiscation

Very few people alive can remember the great “gold grab” of 1933.

That’s when President Franklin Roosevelt declared gold ownership to be illegal. Once he forced enough Americans to turn over their gold - in exchange for paper money - he revalued the price of the yellow metal from US$20.67 to US$35 an ounce.

What a rip-off!

That meant everyone was left - in the heart of the Depression, mind you - holding dollars that were worth a fraction of their former value.

Now, back then, most people didn’t hold gold coins. They held dollars that were “gold certificates.” They looked a lot like today’s greenbacks - except they were redeemable in gold - on demand.

Why would Roosevelt want to put a stop to this?

Simple. The government had issued far more of these gold certificates than there was gold to disperse. They painted themselves into a corner and were stuck!

So they did the only thing they could do - they simply voided the “gold contract” that was printed on the dollar (and every other gold contract - public or private). Problem solved.

But in doing so, the Feds created a massive headache for investors…

All of a sudden their gold certificates were worth a fraction of their former value. They had been duped! Paper gold was not gold after all. It was subject to government manipulation.

What does this have to do with 2009?

Well - once again, millions of investors have put their faith in paper gold. They’ve bought e-gold…mint certificates…and plenty of gold mining stocks.

Some of these investments have done remarkably well. And I wouldn’t advise anyone to sell all their “paper gold” holdings.

But I also strongly advise investors to hold certain types of physical gold. In times of a real crisis, nothing can provide more solid financial protection …

The Ghost of 1933 Returns

During the Great Depression, only one type of gold investment was exempted from confiscation.

And by confiscation - I don’t mean, “Pretty please hand over your gold.” Those who failed to turn over their metal could be fined US$10,000 and imprisoned for 10 years!

Given the choice between their gold and the pokey - millions of Americans parted with their gold…

Bullion bars were taken away…Double Eagle coins were turned over to authorities.

It was madness!

Could It Happen Again? Unfortunately, Yes…It Could

We’re in the middle of the worst recession since 1981-82. (Some might even call this environment a “soft depression” as banks are largely bankrupt.)

If the global financial system remains in tatters, gold could come under attack.

Should the government’s ongoing “stabilization efforts” fail; it would not surprise me to see gold top US$1,500…US$2,000 an ounce or more. And at that point, we would likely see some sort of concerted government action to freeze gold prices or even confiscate gold outright.

One thing is for sure - the Fed and its central bank buddies don’t want to see gold at these levels. Their actions could have a disastrous effect on gold exchange-traded funds, gold stocks…even gold coins.

That’s why I’ve raced to put together a report on the one form of gold (in the world!) that central bankers and panicked politicians simply CANNOT take away.

Not surprisingly - this rare form of gold is in short supply. (Heck, it’s been sold out or rationed for months.)

But a small quantity remains on the table for those who choose to grab it.

Save $600 an Ounce by Buying This Form of Gold

I don’t want to dedicate too much time to this Depression-era secret in this letter… because Executive Editor Justin Ford and I are putting together a special webinar (as we speak).

To be honest - we haven’t been this excited about gold in a while. Not only have we found a form of it that’s likely to be confiscation-proof. We’ve discovered a way you can get your hands on it and save up to US$600 an ounce!

If you’re perfectly happy with stocks - and trust the government to take care of your retirement and bank accounts, then this webinar is NOT for you.

However, if you’re suspicious of paper money - and the “dirty tricks” governments use to protect it…or if you’re curious about gold and want to know how and where to get some - and save US$600 an ounce in the process - then this FREE online event is definitely for YOU.

There’s just one catch… In order to attend, you need to sign up in advance.

To find out how and when you can tune in - simply click here.

Talk to you tomorrow,
Eric Roseman,
Investment Director,
The Sovereign Society

P.S. We can only accommodate so many viewers for this free webinar, so I urge you to reserve your spot now so you don’t miss out. Remember sign up is free, and it takes just a minute to register. Click here to sign up.