The Devalue or Die era is picking up steam

It is a wise person that adapts themselves to all contingencies; it's the fool who always struggles like a swimmer against the current.
Source Unknown

The US and criticizes China over is reluctance to let the Yuan appreciate and indirectly blame some of its woes (increasing budget deficits) on China keeping the Yuan pegged to the dollar. Let’s stop for a moment. Is this not the pot calling the kettle black syndrome? The US is debasing its currency and a mind boggling rate, printing new dollars to the tune of 1 plus trillion a year, and yet we have the nerve to call on China to revalue its Yuan.

If the US wanted to put an end to this nonsense it would simply follow a course that would ensure the dollar becomes stronger, this in turn would drive the value of the Yuan up as it is pegged to the dollar. Clearly, the US does not favour stronger dollar policy for though it mouths this, its actions speak otherwise. The bandits in congress want to print all the money in the world, and then they want other nations to let their currencies appreciate. China is too smart to fall for this game and the US is no longer the big bad wolf that can huff and puff and blow all the straw houses down. Now many of the houses are built with brick and steel and so no matter how hard this big bad wolf blows the Chinese house is not going to fall down.

One must remember that the one that controls the strings to the purse is the one that is in command and at this point China with its huge holding of US treasuries appears to be in charge. Thus the US can make a lot of noise out there but China will not listen because they know that all they have to do is threaten to unload their treasury holdings (they do not even have to really sell them) and it could have a severe impact on our markets. The story below clearly indicates that China is not going to be bullied into allowing its currency to appreciate against the dollar.

A Commerce Ministry spokesman repeated Chinese complaints that Washington was acting unreasonably by expecting other countries to raise their value of their currencies in order to boost U.S. exports. The United States and other trading partners complain Beijing keeps the yuan undervalued and are pressing for it to rise. "Politicizing the exchange rate issue is not helpful to coordination among all parties in the course of fighting the global financial crisis," spokesman Yao Jian said at a news briefing.

A group of 130 U.S. lawmakers wrote to President Barack Obama on Monday demanding that he take action, adding to pressure ahead of an April report in which the U.S. Treasury has the option of declaring Beijing a currency manipulator. That would set the stage for a complaint to the World Trade Organization and possible sanctions.

On Sunday, Premier Wen Jiabao denied the yuan was undervalued and said foreign pressure was unhelpful. He said Beijing plans to reform its exchange rate system but the currency will be kept at a "stable and balanced" level.

Yao rejected suggestions the yuan's exchange rate was to blame for the Chinese trade surplus or the U.S. trade deficit with China. Critics say the yuan is undervalued by up to 40 percent, giving China's exporters an unfair price advantage. Full Story=

The Chinese have adopted the Mantra, if you cannot beat them, you might as well join them, and they achieved this by pegging the Yuan to the Dollar.

Every nation is using every means at their disposal to devalue their currencies; look at the pound, not to too long ago it took 2 dollars to buy one British pound, today it takes only a 1.50.

Vietnam decided to devalue its currency twice in a matter of 3 months and 3 times in the last two years, clearly illustrating that they are not going to be left holding the back.

Vietnam's central bank declared Wednesday that it would devalue its currency-the dong by 5.44 per cent, effective Thursday. The central bank will also increase its key interest rate from 7 per cent to 8 per cent, effective on December 1. Speaking on the topic, economist Tai Hui said, "We have seen a significant amount of devaluation pressure on the dong in recent weeks. The rate hike is there to support the dong."

Trading band of the dong will also be curtailed from current 5 per cent to 3 per cent, effective Thursday. As per an estimate, Vietnam's reserves have dropped from $22 billion at the start of 2009 to about $16.5 billion. On November 12, Vietnam lifted an 18-month old ban on gold imports to check panic buying that had dragged the dong down.

This is the third time in the last two-year period that Vietnam has devalued its currency. Previous attempts to check a long term slide in the currency had shown little effect. Full Story

The race to the bottom that we spoke of several years ago is now picking up steam as each nation competitively devalues its currency to gain a trading edge over its neighbor. In such an environment, one has to move into hard assets as it offers the best means to protect against this outright theft. One of the simplest ways is to this is to move into precious metals, there are more complex and highly rewarding strategies that involve taking positions in lumber, oil, etc., but for those that want a simple and effective way to protect themselves from currency debasement (inflation and possibly hyperinflation) is to take a position in bullion (Gold, Silver, Platinum, etc.). The time to take action is now for once the storm starts it might be too late; an ounce of prevention is worth a pound of cure.

The weather-cock on the church spire, though made of iron, would soon be broken by the storm-wind if it did not understand the noble art of turning to every wind.
Heinrich Heine,1797-1856, German Poet, Journalist

 

The Winning Zone

Euro Woes Part II

The EU is poised to reach agreement on a potential multi-billion euro bail-out for Greece after weeks of crisis, senior officials have told the BBC.

They say the rescue package would be available if Greece asked for assistance to finance its huge deficit. Eurozone ministers are expected to finalise a proposal setting out a range of options as early as Monday.

Greece has not requested help so far. The EU says no deal has been agreed but technical work is continuing. Greece is struggling to deal with a 300bn euro ($419bn; £259bn) debt. It needs to raise about 20bn euros ($27bn) on bond markets to refinance debt maturing in April and May. Its deficit is more than four times higher than eurozone rules allow. Austerity measures aimed at reducing it have provoked public anger. The crisis has also undermined the euro. Full Story

This statement is a joke “They say the rescue package would be available if Greece asked for assistance to finance its huge deficit”. Off course they are ask for assistance, indirectly they have been begging for assistance from the very start. This aid package will trigger other beggar members of the PIIGS group to eventually join the handout club. Next in line is probably Spain. If the top members of the EU wanted to send a strong message to the weak members they should have stuck hard and fast to their previous claims that no aid would be forthcoming.

Greece should have been given a simple ultimatum, meet the requirements or leave. This marks the beginning of a new trend. As members cannot deflate their currency, they will run massive deficits as a way to deal with the inability to devalue their currency as means to make their exports competitive in the global markets. we have entered the devalue or die era, where each nation will eventually seek to devalue its currency as a means to gain a competitive edge over its peers. The US and China by pegging its currency to the Dollar are actively using this technique as a means to gain a competitive edge. Many Asian nations are also jumping aboard so expect this trend to pick up. If the EU is unable to find a long term solution to its problem, the EURO could end up becoming a relic of the past.

 

The Winning Zone

Americans are still living in the land of dreams

Most Americans still unprepared for retirement - survey

The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday. The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans. Workers who said they had less than $1,000 jumped to 27%, from 20% in 2009. Confidence in ability to save enough for a comfortable retirement hovered at 16% of respondents, the second lowest point in the 20-year history of the survey.

"Americans' attitudes toward retirement have clearly tracked the economy the last couple of years, and that seems to be the case in 2010," said Jack VanDerhei, EBRI's research director and co-author of the survey, in a statement. The percentage of workers who said they have saved for retirement fell to 69%, from 75% in 2009.

While VanDerhei attributed the decline in current savings rates to job losses, mortgage problems and the suspension of corporate 401(k) matches in 2009, he said the economy isn't entirely to blame. "In previous years, there were a whole lot of people who had nothing to begin with," said VanDerhei. The gap between what Americans have saved and what they'd need for retirement is forcing workers to prolong their working years. Full Story=

 

Clearly,  the story above indicates that the majority lived well beyond their means. It's not that they did not make enough to save, it’s just that they spent more than they made because they thought tomorrow would always be sunny. In parts of Europe the savings rate is as high as 20% of one’s income and in most parts of Asia they save as much as 35% of their income.

For years, we have been warning and advising our subscribers to live 1-2 standards below their means and for those who could deal with it to push it to 3 standards below their means. In real terms 1-2 standards below means living within your means, as most have never lived within their means. Thus you would only move below your real standard if you moved 2-3 levels lower. However, any move down is a move in the right direction. We also suggested that this money should have been deployed into long term investments such as Gold, silver, Palladium and other related commodities. Strong pull backs should have been used to deploy new funds.

Continue to live 1-2 standards below your means, and deploy the saved money into hard assets. The problem going forward for those who have saved is dealing with the pain they are going to witness in the years to come. Believe it or not the current situation is still decent in comparison to what lies in store for the unprepared in the years to come. Can this path be altered? Off course it can, nothing is engraved in stone, but for that to occur, the government would have to cut its debt down, drastically cut back on new expenditures, reduce services, close its bases all over the world and stop being the police of the world, etc., chances of any administration implementing these severe changes are very slim.

 

The Winning Zone

Pension funds, taking on more risk just when they should be playing it safe

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds. But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

"In effect, they're going to Las Vegas," said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. "Double up to catch up." Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing. And some states that previously shunned hedge funds are trying them now.

The Texas teachers' pension fund recently paid Chicago to receive a stream of payments from the money going into the city's parking meters in the coming years. The deal gave Chicago an upfront payment that it could use to help balance its budget. Alas, Chicago did not have enough money to contribute to its own pension fund, which has been stung by real estate deals that fizzled when the city lost out in the bidding for the 2016 Olympics. Full Story=

The geniuses finally decide that it’s time to take on extra risk just when they should be exercising caution. If they wanted to take on extra risk, would not it have been best to do so during boom times. Instead when times were good they played it safe and now when times a bad they decide to take on more risk. Pay close attention to the mass mindset at work. It always leads you to make the wrong decision precisely when you should be playing it safe you are triggered into take on extra risk and vice versa. Pension funds are going to take a severe beating as they are betting in the wrong direction and playing the wrong trend. Net result is that many pensioners are going to find out that their so called guaranteed pensions are not as safe as they once presumed it to be. In the years to come expect payments to drop and some funds will completely bankrupt themselves as a result of this stupid new ploy at trying to achieve higher returns. One cannot squeeze water out of a rock no matter how hard one tries.

 

Our average win ratio for the past 5 years in futures is over 70%

Robbing the Old to pay the Rich

.

People who treat other people as less than human must not be surprised when the bread they have cast on the waters comes floating back to them, poisoned.
James Baldwin,1924-1987, American Author

The senate boldly and blatantly refused to give 57 million elderly individuals $250 more. The story below highlights this point.

A measure to give some 57 million elderly people, veterans and persons with disabilities a $250 check was rejected by the Senate on Wednesday, a setback for the powerful seniors' lobby.

Social Security payments for the elderly and disabled will stay flat this year for the first time since 1975 because they are tied to consumer prices, which decreased amid the worst economic recession in 70 years.

That follows a year in which payments rose by 5.8 percent, largely due to a spike in gasoline prices."It is wrong to turn our backs on seniors in this moment of economic difficulty," said Independent Senator Bernie Sanders, who sponsored the amendment.

But Republican Senator Judd Gregg pointed out that the bill would defeat the purpose of indexing Social Security payments to inflation. "The law says it shouldn't be given," Gregg said. At least 10 Democrats agreed with Gregg and joined 40 Republicans to defeat the proposal. Full Story

Under normal circumstances, I would have just ignored this story and moved along, but when I read the statement that is boldfaced above I felt I had to say something. These morons and retards in Washington would not know what inflation was if it hit them right in the face and then drove over them.

The real and only definition of inflation is an increase the supply of money. It is not defined as in an increase in price as so many economists love to falsely proclaim. The money supply has gone ballistic, our national debt has doubled in the last 10 years, and we continue to create more money and a mind boggling rate. Therefore, inflation has not gone down it has only increased; based on this simple fact these individuals should not be getting $250, they should be getting between 600-1000. The masses are being blindly robbed via this silent Killer tax, otherwise known as inflation.

If Senator Judd and everyone who voted against this bill feel that we have no inflation, why are they are not lowering their salaries to compensate for this so called low inflationary environment? It will be a cold day in hell when anyone in congress voluntarily takes a pay cut. Senator Bayh was right, every incumbent needs to be kicked out and replaced with new blood; while not the perfect solution, it will send a message to these guys that it’s time to do something. When you bite the hand that feeds you, you are doomed to lick the boot that kicks you.

To add insult to injury this money is lent out to bankers all of which played a huge part in making a bad situation even worse. The Feds inflate the money supply and then freely give this money out to individuals who really don’t need but those who really need it have a hard time even getting $250 bucks.

We can see the effects of inflation everywhere;

Higher gas prices, higher heating prices, higher rents, cost of basic staples increasing, etc., etc

Gold one of the best measures of inflation is up roughly 400% from its lows. If we were in a low inflationary environment the price of Gold would not have risen so much. Oil is up over 800% from its lows and not too long ago was up almost 1400% from its lows. The average person’s salary has in no way kept pace with this torrid rise in the price of commodities.

We spend money defending other nations and trying to promote peace and justice in the world. Why can’t we spend some of this money on individuals that really need it? Where is the justice there?

What will congress have to say when Gold eventually trades past the 2000 mark and then hits the $3000 mark? They are now projecting that our national debt will hit 20 trillion in the next 10 years; at the rate we are spending, we would hit this mark well before the decade is over.

While we could provide reams of data illustrating how inflation has robbed and sent millions to the poor house, this time would be better spent on dealing on some of the basic measures one can implement to protect oneself.

The best hedge against an inflationary environment is to be in hard assets. That means anything that cannot be mass produced or just created; basically almost anything to do with the commodity's sector. Some of the easiest ways to hedge oneself are to buy Gold and Silver bullion. The best way to protect yourself from the evil effects of inflation is to live 1-2 standards below your means and use all this extra money to put it investments that will hold their value over time such as Gold or silver. Over 100 years ago one gold Coin purchased a very good handmade suite, 100 years later one Gold coin can still purchase the best handmade suite and if you go to Asia it will purchase even more. Can one say the same for 1 dollar?

Other means of hedging oneself involve purchasing shares in the companies that produce these essential commodities or dealing in ETF’s that track these commodities, some examples are, USO, FCG, GDX, GLD, SLV, CUT, KOL, MWE, MOO, etc.

In a follow up article we up article we will spend more time dealing with the specific measures one can utilize to hedge oneself against inflation.

Nothing in the world is more haughty than a man of moderate capacity when once raised to power.
Baron Wessenberg

 

Free Stock market tools

Precious Metals and the Dollar

Keep on sowing your seed, for you never know which will grow -- perhaps it all will.
Albert Einstein,1879-1955, German-born American Physicist

The dollar has rallied very strongly easily taking out the lower end of the targets we projected several months ago. It almost closed above 81 on a monthly basis. Had it done this, it would have made the outlook even more bullish. The dollar has gone on to put in series of new 9 month highs and thus by contrast one would have expected Gold and the other precious metals to do the opposite. However, this has not taken place.

If we look at the chart of Gold, we see that while Gold went to put in a 9 month new high, Gold did not even put in a 4 month low. This is a very strong development and suggests that there is a very good chance that Gold could rally to the 1170-1200 range before pulling back. On the longer time frames, Gold flashed several strong intra market negative divergence signals; the most important two are mentioned below. .

The most impressive metal, however, is Palladium. The massive rally in the dollar has had almost no impact on the price of Palladium; it is still trading very close to its highs. If the precious metal's sector continues to hold up like this, one can expect it to literally explode upwards once the dollar rally fizzles out. From late 2008 to early 2009, when no one was paying attention to Palladium, we were strongly pounding the table on it. Palladium turned out to be the top performing precious metal last year and is still holding up a lot better than the rest.

Silver has taken the most severe beating so far and this breakdown could be (key word is could) providing an early warning signal.

Silver’s inability to trade past its 2008 highs strongly suggests that all is not well in the precious metal's sector, especially the gold sector.

On the longer time frames Gold has flashed many strong negative divergence signals the strongest of which were

1) The dollar putting in a higher low instead of a lower low when Gold went on to put in a series of new highs

2) The inability of the GDX, XAU, and HUI to trade to new highs when gold bullion surged to new highs

The potential for Gold (precious metals) to remain in a prolonged consolidative phase is still rather significant. The longer Gold trades sideways the more explosive the subsequent rally is going to be. However, there is the possibility that Gold could still mount a rather sharp correction if and when the Dollar surges past the 82 price point level.

A possible early warning of a longer correction/consolidation in the precious metal's sector will be given if the dollar can close above 81 on a monthly basis, or it can trade above 84 for 3 days in a row.

So far we have laid out the technical perspective for short to intermediate term rally in the dollar; our initial targets have already been fulfilled. It’s time to provide some fundamental reasons as to why the dollar is in trouble long term and why the precious metals sector and the commodities sector stands to benefit from these dollar woes.

1) The US has a massive current account deficit and it only seems to be getting bigger. The economist’s plays with numbers by stating that one month is less than the other and so forth, but the trend is up. It now comes close to 6% of our total economic activity.

2) The US needs to attract a whopping 1.8 billion dollars a day to compensate for the current account gap. This trend is simply unsustainable.

3) While Government officials talk big of a strong dollar policy, they actually favour a weak dollar. This serves two purposes, it helps increase exports and it allows the government to pay its debt with lower valued dollars. As long as the Government continues to borrow at these mind boggling rates, it is going to unofficially favour a weak dollar.

4) By inflating the money supply the government is imposing a nefarious silent killer tax on the masses. The only way to hedge against this outright theft is to hedge yourself by getting into hard assets (precious metals, lumber, oil, etc).

5) Our national debt is 12.4 trillion an increasing. However, this does not take into consideration all our unfunded liabilities such as social security and Medicare. If these are combined the Debt levels soar to well unimaginable levels.

6) 44 states are facing budget shortfalls. California is leading the way as it is expected to spend 50% more than it will generate this year. Now that is a really scary thought. Since 2007 US states have collectively spent 300 billion more than they have generated. These deficits means higher taxes and so far 33 states raised taxes but collections have plummeted to their worst levels in 46 years; you cannot squeeze water out of a rock. No jobs, means no revenues but states are selling new bonds at a record rate to raise funds; a recipe for a long term disaster.

7) Eventually the Feds are going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill this fragile economy. Precious metals thrive in a high interest rate environment. From a long term perspective the bull market has only just begun.

Conclusion

The dollar has exhibited unusual strength; it simply refuses to correct, refusing to trade below 80 for any decent period of time. A close above 81 on a monthly basis will be the strongest signal that it could potentially trade to and past 90 before topping out. In the short term time frames, the Dollar is overbought and normally one would expect a pullback from current prices to roughly the 78 ranges. Gold, on the other hand is also picking up strength; this is clearly illustrated by its refusal to match the dollar by putting in a new 9 month low, instead it has gone on to put in a higher low.

On the longer time frames though Gold has still flashed several very strong negative divergence signals that need to be neutralized; two of these negative divergences were mentioned above. Thus the potential for Gold to correct/consolidate for several more months remains high, until off course the above signals are neutralized or a new buy signal is issued on the weekly time lines.

Right now Gold is holding up remarkably well In the face of a stronger dollar. If this pattern continues, then the next break out is going to be very explosive in nature; the dollar is not expected to mount a long term rally. Our long term outlook for the dollar is that it’s going to put in a series of new all time lows in the next 12-24 months.

From a long term perspective, all strong pull backs should be viewed as buying opportunities.

There are two ways of exerting one's strength; one is pushing down, the other is pulling up.
Booker T. Washington, 1856-1915, American Black Leader and Educator

www.tacticalinvestor.com

An Illustration of the Mass Mindset in Action

It's not the bulls and bears you need to avoid -- it's the bum steers.
~ Chuck Hillis ~

1= Stock is going no where; its pure junk, let me look at something else.
2= Lucky break, its going to definitely crash.
3= What, it's still going up, earnings are not so good, people are definitely getting carried away, its going to pull back and crash.
4= Ahh, see I knew it was going to crash, thank God I did not buy. (Mistake the mass mindset misses the main point here. Yes it pulled back, but look where the pull back ended--miles away from its first break out. A losers mind can only see the picture for what it is not, by replacing it with a picture from his or her imagination. Since they live in a losing sphere they focus on the negative aspects but not on the positive aspects.
5= What happened here; this stock was supposed to crash, how the hell did it get here? Perhaps I should have bought, I could have made a lot of money; this looks like a sure thing. (So only halfway through stage 5 will the mass mindset decide its safe to venture out. Now this person finally musters the courage to buy.) Wow it actually went up, great, I'm making money.
6= This stock is going to go to the moon; let me tell all my friends about it; it looks like a sure thing.
7= What happened? it pulled back. Ahh, I am not going to fall for this like I fell for it last time (look at number 4). Time to buy more, buy on the dip, that’s it.
8= I knew it, its going up and I made more money, wish I had bought more. Next time I will invest more on the pull back. (Notice the loser’s mindset does not bother to take time to notice that the stock did not put in a new high. All that matters is that it went up.)
9= It's going down again, time to really load up; I don’t want to lose this opportunity. Earnings are great so it must be a good time to buy some more.
10= First dose of bad news and the stock takes a big hit; okay, this is just temporary; it's going to go back up. (Blind faith huge mistake, one of the main ingredients of a losing mindset). Let me buy more and average down.
11= Maybe I should sell now; things don’t look good, but you know what, let me just hold for a bit longer. Maybe things will change. Yeah, things have to change; look how fast this stock went up and it has pulled back so much. The worst is over; it has to go up.
12= This stock is dead, I have to get out; it's not going anywhere (this is when the stocks start to bottom. The secret programmed desire to lose syndrome has completed its mission. Trader is in state of extreme distress and shell-shocked). I am never going to look at this stock again; I knew it was garbage, why did I ever buy it in the first place?
13) Slow base formations and the possible start of new up trend and the worst part is that this trader is out.

Conclusion

Take a close look at the above picture; the masses will react in the same way when it comes to this commodities bull market. They will dump when they should be buying and then they will try to buy when they should be selling. Nothing in this world comes easy for if it did, it was not worth it in the first place. So make sure you’re positioned well to take advantage of the coming spectacular bull market. So far we have just barely begun the first run.

This is not to be confused with the concept of buying and holding. Every now and then it's prudent to take some profits off the table and invest this money when there (gold, silver, oil, etc) is a pull back. However one should always maintain a core position as long as the long-term trend is up. That’s exactly what we did; we took profits in November-December 2003 on ½ our positions and are waiting for an opportune moment to add to them again. When we wrote an article suggesting that individuals take some profits on their gold and silver positions, we were attacked on the basis that we were trying to promote a sell off. We specifically stated that one should not sell their core positions, but only take some money off the table; but everyone seemed to miss the last part of our statement. If you look closely most of 2004 Gold stocks did not really do anything and in most cases actually lost money. However, this type of behaviour is quite normal. First you have a massive move up, then sideways to down, and then a final quick pull back to flush out all the weak hands. Now just when everyone should be studying the charts to look for new entry points, the weak hands will start to unload their core positions and this will indeed be a fatal mistake.

It is what we think we know already that often prevents us from learning.
~ Claude Bernard 1813-1878, French Physiologist ~

 

Tactical investor.com

You can also follow my latest posts here

http://seekingalpha.com/author/sol-palha/articles