The Rude Awakening
Melbourne, Australia
Wednesday, December 20, 2006 - Important messages…still important,
- A little vigilance and prudence can be golden,
- Baht news for Thai investors, next stop Down Under and plenty more…
Eric Fry, back on the West Coast, reports… An important message bears repeating. In fact, it bears repeating often. For example, by repeating messages like, "Don't talk with your mouth full," the world becomes a more civilized place…And by repeating messages like, "Treat others the way you would like to be treated," the world becomes a more hospitable place…And by repeating messages like, "I love you," the world becomes a more comforting place…and by repeating messages like, "Meet me in the bedroom," the world becomes a more passionate place. Your Rude Awakening editors value these important messages, which is why we never talk with our mouth full. But we also value messages of caution, which is why we are not ashamed to abuse the patience of our readers by repeating our oft-repeated message: Beware of the U.S. dollar. We've been repeating the "sell dollars-buy gold" message for a very long time. So far, we are pleased to report, this message has caused little harm to our faithful readers. Over the last five years, alone, the dollar has lost one third of its value against the euro, not to mention two thirds of its value against gold. It is true that this particular message imparts paranoia, rather than any immediate benefit. But paranoia isn't all bad. Messages like, "Don't take candy from strangers" and "Look both ways before you cross the road" also impart paranoia. But paranoia produces vigilance, and vigilance produces prudent behavior. For the sake of vigilance and prudence, therefore, we present a message of caution from Dan Denning, editor of the Australian Daily Reckoning… --- Dollar Crisis Report ---
"The Only Two Investment Strategies I'll Follow This Year…" The world's most respected market analyst just revealed the two best investments for 2007…and the ONLY two money moves he intends to make over the next 12 months… ---------------------------- Dollar-Bashing
By Dan Denning
As a child, I remember seeing my dad stand in the door-frame and slowly, in an eerily controlled manner, punch the door frame repeatedly. It impressed me and, I admit, scared me a little too.
But in a big Catholic family of twelve children, there are probably plenty of good reasons to unleash what left-over energy you have on a solid wood door frame, rather than, say, on your youngest child and seventh son (your editor.) We have no idea what the old man was hoping to accomplish. He usually ended up with bruised and bloodied knuckles. But afterwards, he was always a lot more relaxed…
The U.S. dollar is our proverbial door-frame. We occasionally bash our neural knuckles against the buck, trying to punch through the splintered remains of its abstract existence. We search articles and data to get at what really matters about the greenback and why it demands our attention. And then we read on a blog somewhere about the sock puppet of Pets.com and it all begins to make sense. The dollar, this blog post suggested (we can't remember where we found it) is like an Internet stock circa 1999. Specifically it's like Pets.com. Pets.com was one of the last Internet concept stocks to go public before the Internet bubble burst in 2000. Its concept was to sell pet things to pet owners…on the Internet. It was a pretty simple business model, made famous by its sock puppet spokesman…er…spokespuppet. But some concepts are better left on the drawing board…or back in the sock drawer. "Why buy pet supplies on line?" the company's advertisement asked. "Because pets can't drive!" Flush with IPO cash, the company shelled out $1.2 million for an ad during the Super Bowl of 2000. But less than one year later, Pets.com lost its listing on Nasdaq and the company went out of business. Once Pets.com started to unravel, very few investors managed to exit the stock without incurring substantial losses. And here is how Pets.Com of yesteryear is like the U.S. dollar today: Almost anyone who held a large position in Pets.com would have been reluctant to be the first to sell. First of all, by selling, you admit that what you own deserves to be sold. Second, your selling might cause other people to sell, triggering a rush for the exits. Once the absurd spell which induced investors to buy too much of a stupid thing is broken, all hell breaks loose and panicked, undisciplined, disorderly, deeply de-stabilizing selling begins. If the dollar is like Pets.com, the sell-off that's coming is going to make the dot.com bust look like a day at Disneyland. Everyone in the world who owns dollar-denominated assets owns a drawer full of dollars. In fact, so many individuals, institutions and central banks own dollars that the "overhang" of frightened sellers could be enormous, if a rapid selloff were to begin for any reason. What might that reason be? Will the Chinese Central Bank spark a mass exodus from the dollar? We don't rule out the possibility. "The Chinese central bank warned that international holders of US dollar assets may start to adjust their foreign exchange holdings to reduce risk," Forbes magazine reports. "If the US current account deficit growth continues to be higher than GDP growth, the investment value of US assets will be questioned by global investors, and the willingness of investors to continue holding and buying US financial products may weaken, the central bank said.'" The Chinese own a lot of dollars. And perhaps that fact is beginning to make them nervous, as nervous as a long-tailed cat in a room full of rocking chairs, as the Southern saying goes. "China has been cautious in its statements about the dollar," Forbes continues. "It now has over one trillion dollars in foreign exchange reserves, the world's biggest, and about 70% of that is believed to be held in dollar-denominated assets." The Chinese have every reason, therefore, to avoid causing a dollar panic. But in today's Moscow Times comes a sober analysis of what we may witness in 2007. A political crisis in China could spell the end of the dollar, muses Alexei Bayer, "So far, China has avoided the kind of financial crises and political upheavals that have repeatedly blindsided smaller exporting nations around the Pacific Rim over the past two decades. The Beijing government has used carrots and sticks to keep its vast and rapidly changing society quiescent. "Past success, however, does not mean that China will be able to keep the lid on this cauldron forever. Economic growth has unleashed tremendous energy and creativity in the Chinese population. But it has also created severe pressures - social, political, economic and demographic. Hundreds of millions of peasants have abandoned their centuries-old way of life and migrated to urban centers. The gap between the rich and the poor has widened…These pressures -- or other problems that cannot be currently predicted -- could plunge China into a crisis that could be quite severe. "China has emerged as probably the only nation in the world that can single-handedly undermine the U.S. economy," Bayer continues. "If China suffers an economic or political crisis, the United States will likely be plunged into a severe recession -- if not an outright depression. "This scenario is ominously similar to that of the Great Depression of the 1930s, which was largely a U.S. crisis taking place after a decade of breakneck economic growth," Bayer concludes. "The stock market crash occurred on Wall Street, but its shockwaves promptly spread around the world. Ultimately, the Depression marked the demise of British economic dominance and the end of the pound as a global currency. While the next global economic crisis is likely to originate in China, it will almost certainly mark the end of the dollar as the linchpin of the global financial system and a substantial diminution of the central role of the United States." So far, very few investors dare - or bother - to imagine the dire consequences of a forced Chinese dollar liquidation, and what it might mean for stocks (very bad) and for gold (very good.) But according to a recent New York Times article, the wisdom of individual investors is beginning to trickle up to the boardrooms of the world's central banks. "Central banks will eventually take the same cue…if they continue to see the value of their dollar-denominated reserves plummet," says Professor Richard Portes, who teaches economics at the London School of Business. "People say central banks don't care if they lose money. That's just not true. I've talked to central bankers who have said, 'I'm not going to be the last one out of this room if a fire breaks out.'" No one wanted to be the last one out of Pets.com either. But the biggest problem wasn't deciding when to get out. The problem was being "in" in the first place. Such is the problem for today's dollar-based financial world. And the bigger problem is that there really is no "out" in the sense of escaping dollar risk entirely. Gold, presumably, would rally as the dollar's value tumbled. But most other financial assets would tumble right along with the dollar. Neither stocks, nor bonds, nor even foreign currencies would offer certain protection against a dollar debacle. Almost certainly, a dollar debacle would become a worldwide financial market debacle. Buying gold sometimes feels like smashing knuckles into a door - it's painful and counter-productive. But this is not one of those times. As 2007 unfolds, we expect to find the world's dollar-holders wincing in pain, not the owners of gold. Joel's Note: Yesterday your Rude editors took the liberty of exercising yet more prudence and vigilance by issuing a special report for 2007 investing. Included in this special report are the only two investments you will need in the coming year. There may not be a whole lot you can do to influence the state of the Greenback…but you certainly don't have to stand for it killing off your hard earned investment dollars. A five-minute read of this report may be the best five minutes you invest for the new year. Take a look here… The Only Two Investments You Need For 2007 ---- Your Own Money CD ---- Thinking about buying the Australian dollar? Buy the Australian dollar using a money market account or certificate of deposit at EverBank®. It is one of the simplest ways to buy foreign currencies---low minimums; easy online access; FDIC insured. · Go to http://www.everbank.com/main.asp?IDPage=pro_wc&referid=11925
· Or talk with one of our expert Currency Specialists live at 800.926.4922 EverBank is an equal housing lender and member FDIC
©EverBank®, 2006
06EWMGNET001 ---------------------------- Enjoying a cappuccino on the house in Thailand, Joel Bowman reports… Finally, some good news for the embattled, dollar-holding folks of the world. The Greenback is soaring…against the Thai baht. Okay, so it's not exactly so much good news for dollar-holders as it is bad news for baht-holders. Despite popular opinion, we here at the Rude Awakening are not eternal pessimists when it comes to the dollar…just pessimists for the foreseeable future. As such, we must look for silver lining wherever it may come. Earlier this week the Thai Baht suffered its steepest single-day decline against the dollar in over four years. That's pretty impressive considering the dollar's recent plight. In an effort to curb what it calls, "Baht speculation" Thailand's central bank imposed stringent regulations on foreign currency inflows. Reacting like a startled feline, Thailand's stock index (.SETI) gave up almost 15% yesterday alone. The Baht promptly followed suit with a sharp dip of her own. That's bad news for Thai investors, good news for baht poor journeymen short on caffeine with a 10-hour layover ahead of them. Next stop, Down Under. Cheers, jOEL -------------------------------- What the Demise of the Dollar Can Do for Your Investments… Right now, for $11.02 you can gain access to the same kinds of investing techniques of the world's richest investors. Namely, you can learn savvy ways to turn the roller coaster ride of the U.S. dollar into one of the most important investing decisions of your life. Read on for details… | 
