An Embarrassing Day for America: What it Means for Your Investments
By Dr. Steve Sjuggerud
Tuesday, June 2, 2009
Yesterday, a bunch of Chinese people laughed at us...
What was the joke? U.S. Treasury Secretary Tim Geithner told a crowd of students in Beijing that the trillion dollars worth of U.S. government bonds the Chinese hold are "very safe."
Students laughed. They know the truth.
It was an embarrassing day for America. I never thought I'd see it...
In my career, I've learned there's nothing surer in finance than this: When a Treasury Secretary explicitly tells you "your money is safe," then your money is in big trouble.
I started my career covering emerging markets. One of our running jokes was "He's as honest as a Latin American politician on the eve of devaluation."
You see, the statement "we will not devalue the peso" was one of the simplest indicators we followed. When we heard that from a Latin American politician (and especially a treasury secretary), we knew the peso in that country was about to be devalued. It was almost a lock the country's currency was about to crash.
Why? The simplest answer is, when your country's currency is safe, you don't have to tell people it is... You never hear the Swiss or the Norwegians begging you to "just trust us," for example.
And it's not just Latin America...
On June 30, 1997, Thailand's prime minister declared, "We will not devalue our currency." Two days later, Thailand's currency lost half its value. That was the first domino to fall. Soon after, several Asian countries devalued their currencies. And yes, before each devaluation, each finance minister said the currency wouldn't be devalued.
While it's not so rare in emerging markets, it hasn't happened in recent times in large, stable countries – particularly countries like the U.S. The last time I can remember is back in 1992...
In August 1992, England's treasury secretary Norman Lamont said, "There are going to be no devaluations... We will do whatever is necessary, and I hope there is no doubt about that at all."
Soon after, George Soros made $10 billion betting against the treasury secretary. England devalued its currency, and Soros became a billionaire on one of the most famous trades in history.
This week, U.S. Treasury Secretary Tim Geithner meets with Chinese leaders. His top goal is to reassure them their money invested in U.S. dollars is safe.
But I think the treasury secretary doth protest too much. The historical record is terrible. Position yourself accordingly.
Good investing,
Steve
P.S. One of the best ways to protect yourself from a currency crash is with gold, which is up from less than $300 an ounce earlier this decade to nearly $1,000 an ounce today. For the highest-reward, lowest-risk way to buy gold right now, I encourage you to come on board as a True Wealth subscriber. You can learn more details on True Wealth and this gold investment here. |
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AS PREDICTED, HONG KONG IS SOARING
The headline of our April 21 issue was "Hong Kong Is About to Skyrocket."
The argument Steve laid out (first to paid-up readers of True Wealth) went like this: Hong Kong stocks were priced low – at levels that often precede huge booms... and super-low interest rates would stoke interest for assets in the small Asian banking haven.
So how does the market like our theory? As you can see from today's chart, it loves it. Our favorite way to track the action in Hong Kong is through the iShares Hong Kong fund (EWH). This ETF holds a basket of the biggest and best companies in Hong Kong... many of them dealing in banking and real estate.
Like all assets, EWH suffered a terrible selloff in 2008. After striking a bottom in November, the fund moved sideways and caught its breath. It then "broke out" to a fresh six-month high in April... and has climbed 32% since. As long as stocks are running higher, Hong Kong and its business-friendly environment will continue its extraordinary climb...
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Economist Edward Yardeni says the rise in bond yields and mortgage rates threatens to stall any economic rebound.
The founder of Yardeni Investments coined the term 'bond vigilantes' in 1983 to describe bond investors who dump their holdings when huge budget deficits threaten to spark inflation.
"Bond vigilantes may have more power right now than they've ever had," Yardeni tells Bloomberg Television.
"Clearly with the backup in the 10-year bond yield from 2 percent at the end of last year" to a six-month high of 3.75 percent last week, "that could put upward pressure on mortgage rates."
And that in turn, "could really squash any recovery we might have in housing sales," Yardeni says.
– Newsmax
Gasoline and oil prices continued a recession-defying march higher Friday, doubling in the past six months largely on optimism of a strengthening economy.
Oil rose to a six-month high above $66 per barrel, marking its largest monthly percentage gain in more than a decade, after U.S., Japanese and Indian data suggested the economic downturn may be easing.
Oil prices jumped around 30% this month, the largest monthly rise since March 1999, buoyed by expectations of a global economic recovery later this year, which helped push stock markets higher.
– USA Today
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