"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."
Today 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...
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Since July 1, gold is up over 13%. The precious metal jumped $200, from $1,483 an ounce to today's high of $1,683 an ounce. As we said yesterday, 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.
Yesterday, the Swiss National Bank cut interest rates to zero to devalue the soaring Swiss franc. Today, 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 today, European Central Bank 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 are down 9.3% and 10.5%, respectively. You may recall our call to short these banks in Stansberry's Investment Advisory:
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In last month's issue ("New American Socialism"), I reiterated my position on the European sovereign debt crisis and the special role the major Italian bank UniCredit will play in unleashing the next crisis… |
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There's no reason to dwell on the things already explained. But I must point out UniCredit in particular and Italy in general dominated the headlines last month. This will continue until actual sovereign defaults occur. The only question now is... will a European sovereign default before America does? |
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We don't know... and that's not bullish for financial assets of any stripe... sell short Europe's two leading banks – Deutsche Bank (NYSE: DB) and Royal Bank of Scotland (NYSE: RBS). – Porter Stansberry, July 2011, 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.
The European bank bailout will mirror the U.S. bailout. We'll see an eventual outright capital injection into the banking system (and much of that will likely come from the U.S.). Everyone knows it's coming... Well, everyone except the CEO of Italy's largest bank, apparently. Federico Ghizzoni, the CEO of UniCredit, recently did an interview in Milan. Here are a few highlights from that interview...
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– "It's a matter of confidence. I don't think the fundamentals of Italy are justifying this overshooting in the market. So, we have problems, the debt is very high but on the other side the debt is only 23 percent of the total wealth of the families so Italy is still quite a rich market." |
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– "We need to reply to a few questions about the market. One is political stability. We have to improve perception in this respect. We need to work further on the budget; I think it would be good to have anticipation of the balance approved for 2012. We need to give signals about the possibility to bring back the country to a growth path. This is a real problem – growth is not yet there," said Ghizzoni. "I am by nature an optimistic person so I think with this pressure on the market the government and all political institutions will react in a positive way." |
And finally...
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– "I don't see any connection between the big fluctuations we see in the stock versus an issue like capital. We know that there's this debate about capital with UniCredit, that this will be addressed with our industrial plan, but the fluctuation of 4-5 percent each day up and down that we've seen in the last three, four weeks has nothing to do with the capital issue." |
Would you believe a man at the helm of a company whose stock looks like this?
If your portfolio has taken a hit in the past week, be thankful that at least you're not seeing the kind of losses Steve Cohen is seeing.
Cohen, the billionaire founder of hedge fund SAC Capital, is the largest holder of Dendreon (DNDN) stock, with over 8.2 million shares (5.63% of the company). Today, shares of the biotech company plunged over 67% after it announced sales of its prostate cancer drug, Provenge (its only drug on the U.S. market), were growing slower than expected. The company also pulled its 2011 revenue estimate.
Based on Yahoo's reported numbers, Cohen's fund lost nearly $193 million.
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New 52-week highs (as of 8/3/11): Royal Gold (RGLD), U.S. Ecology (ECOL).
In today's mailbag: birthday wishes to a subscriber. How can we help you celebrate? Let us know here: feedback@stansberryresearch.com.
"When my semi-wealthy sister turned me on to you guys a couple of years ago I was unsure what my subscription would get someone that doesn't have millions to invest. I bit the bullet and paid my subscription and then I read everything you sent me. I still don't have millions, but I have never been more confident in my investing. I rid myself of bank retirement plans/funds and now have a self directed retirement plan through my bank. I have made more money than I ever dreamed I would. I learned about DRIPS, the importance of dividends, REITS, and on and on. Following your research and guidance, my stock portfolio today has very few items, but I have an unrealized gain that is better than 15% for the past 3 years. If I can keep this up, I might be a millionaire someday! I don't think the average investor can say that. Thank you!!" – Paid-up subscriber Chip Graham
Ferris comment: You're right. The average investor can't say that. Keep up the good work. They may be our ideas, but it's your money... And you are handling it well, during a time when it's difficult to do so.
"I like having what i own in hand, don't like paper ownership (cynical, well educated, farmer/rancher). Today's my birthday so i want to do something different. my question is – can i buy silver and have it in my possession literally?" – Anonymous
Goldsmith comment: Of course... We recommend Van Simmons at David Hall Rare Coins (800-759-7575) and Rich Checkan at Asset Strategies International (301-881-8600) for buying silver bullion.
Or if you're interested in learning how to buy physical silver for as little as $3, I'd advise you to watch a short video from Dr. David Eifrig, who writes Retirement Millionaire. He's discovered the absolute cheapest way to buy "hold in your hand" silver. Learn more here.
Regards,
Sean Goldsmith
Baltimore, Maryland
August 4, 2011
The Global Currency Wars... Revisiting the End of America... Gold is up 13% since July 1... A race to the bottom... The euro crisis pushes gold higher... Porter's two bank shorts... Ghizzoni speaks (gibberish)... SAC down 66% – in one day!... USD's reserves status "slipping"...