Wednesday, June 27, 2007


Beat the Dollar with these Four Foreign Currency Plays
Dear Investor,

Oddly enough, as the U.S. dollar has lost upwards of 30% of its value in the recent past against other foreign currencies, Americans haven’t been the big losers...yet.

But the greenback is on a slippery slope, and as it descends, it could stoke inflation in the U.S. and smother global economies.

Thus far, you might even use “benign” to describe the impact of a weakening dollar at home. After all, a falling dollar means that everything priced in dollars is falling in value. On paper, if the dollar drops 30%, your $50,000 annual salary will slip by $15,000, and your $100,000 portfolio will decline by $30,000.

The fact that you’re paid in dollars, pay your bills in dollars and invest in dollar-denominated stocks makes this erosion pretty painless. But, ignoring reality and not taking precautions in your portfolio could be disastrous.
For the countries funding our massive debt, the weak dollar has already become a mind-numbing and money-losing proposition.

For example, for China, holders of $1 trillion U.S. dollars in its reserves, the drop equals a very painful $300 billion loss. Late in 2006, China decided to implement an aggressive sell-off of U.S. dollars before the rest of the world does so and reportedly told the U.S. delegation, “We are the largest holder of U.S. currency, and if the rest of the world unloads theirs before we unload ours, we will lose our shirts.”

Just last week, the Treasury Department announced that exporters from OPEC countries including Indonesia, Saudi Arabia, and Venezuela sold 9.4% or $10.1 billion, of their U.S. government debt securities in the three months ended in November 2006, reversing a 17-month buying spree.

Should this shift by the OPEC nations be repeated, it could easily cause the dollar dominoes to fall, with China next in line to do the dumping.

On top of that, with no plans whatsoever by the U.S. to reduce deficit spending or its ability to pay down any of its existing debt (estimated over $1 trillion in 2007 or 7.6% of GDP) without printing money, the largest foreign holders of U.S. Treasuries have already voiced discontent and concern.

If the estimates of debt are on target, it would mean that this year’s deficit would exceed the value of exported goods and usher in a significant second wave of downward revisions against all non-dollar-pegged currencies.

The result will likely be a pure, unadulterated collapse of the U.S. dollar and the impact — stealth inflation at home and global economic depression — will be very visible and painful to Americans.

That will be terrible news for the value of many of your dollar-denominated assets — particularly your checking and savings accounts, and even many stocks. However, it will mean an incredible bonanza if you invest in assets that go up as the dollar goes down — such as gold and strong foreign currencies.

You can think of today’s currency shifting — from dollars to euros, British pounds and Japanese yen — as the calm before the storm. We’re writing to you today to warn you about what might be headed your way, how to protect what you own and how to turn disaster into opportunity and profit.

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