Loonie Parity, Saudis Doubt the Dollar, Spanish Spur Gold Prices, Big Dubai Buys, and More!

by Addison Wiggin & Ian Mathias

  • Dollar and loonie parity! Are we one step closer to the “Amero”? Reader’s and The 5’s thoughts below…
  • Saudi Arabia’s “catastrophic” news for the dollar… why Byron King suggests you stock up on ammo
  • The market that’s suddenly contracted 20%… Eric Fry on a “slow-motion crisis” picking up speed
  • Gold continues to soar… how some old fogies in Spain are shooting the yellow stuff “to the moon”
  • More bad news for global grains… and great news for readers
  • An image that will surely fill The 5’s inbox… probably not with praise

We begin today with two firsts.
The Canadian dollar reached parity with the U.S. dollar for the first time since 1976. And for the first time ever, Saudi Arabia refused to adjust rates in lock step with the Federal Reserve.

The greenback is now at parity with the loonie.
The loonie is up an amazing 15% versus the dollar this year.


Readers comment on loonie-buck parity below.

The dollar continued to fall overnight against other global currencies, too.
The euro inched up a full cent to $1.41 — another record high. The pound regained $2.01. And the Swiss franc rallied to $1.17 — a 32-month high for Europe’s most neutral currency.

Overall, the dollar index maintained its 15-year low of 78.

Iran, Iraq and Kuwait have already dumped the dollar… will Saudi Arabia be next?
Keeping its interest rate unchanged may signal Saudi Arabia’s desire to break its dollar peg.

“This could be catastrophic for the U.S. dollar,” opines Byron King, “as well as for the U.S. economy. From the standpoint of grand strategy, four years of U.S. war in Iraq and nearly 40,000 U.S. casualties (dead and wounded) could all be for naught if the dollar decouples from the benchmark price for oil. It would be utterly calamitous to the U.S. position in the world.

“What is one to do? For now, buy gold. And accumulate silver. If possible, take delivery and bury the treasure in your backyard. Buy a good gun, and lots of ammo.”

Byron jests… mostly.

Gold’s ascent showed no signs of weakness overnight.
Dollar woes pushed up the shiny stuff to $739 overnight — a new 27-year high.

The Spanish central bank yesterday announced it will not sell gold for the rest of 2007.

The Spanish central bank has sold 149 tons of gold this year. So with this announcement, not only did the world’s biggest seller of gold promise to stop inhibiting prices, but buyers everywhere rushed into the market in hopes of other central banks following suit.

“Back up the truck!” our friend Doug Casey is wont to say. “Gold is not just going to through the roof, it’s going to the moon!”

“Over the last six weeks,”
writes Eric Fry in this morning’s Rude Awakening, “the (formerly) $1.2 trillion U.S. asset-backed commercial paper market has contracted by a whopping $245 billion.

“In other words, one-fifth of this market has simply disappeared. Unfortunately, these funds still need the $245 billion that nobody will lend them. Without the money, they must liquidate their portfolios of subprime mortgages and credit derivatives.

“So far, the slow-motion crisis in the commercial paper market is unfolding behind the veil of institutionalized obfuscation,” Mr. Fry comments. “That’s because all of Wall Street wishes to keep it that way.” If you missed it, you can catch a full explanation of this crisis, including ways to play it, in this morning’s Rude Awakening.

“Prices are going to fall much lower yet,”
predicted Alan Greenspan from a conference in Vienna yesterday. “It’s a difficult situation. There is an enormous overhang on the real estate market. Many buildings which just have been finished can’t be sold. So far, prices have dropped only slightly.”

Thanks for telling us what you really think, Mr. Magoo. Too bad you waited until you had a book on the shelves before dispelling the myth of Fed supremacy you helped foment as its chairman.

Wait, did we say that out loud?

To his credit, Greenspan told USA Today earlier this week that Bernanke has a more difficult environment in which to make decisions. Bernanke doesn’t have the luxury of cutting rates during every global crisis he will face… because if he does, the dollar will burn. Thanks again, Magoo.

Traders, hung over from their rate cut buying spree, returned to the daily grind yesterday.
Domestic indexes retreated about half a percent on average. Across the globe, no market gained or lost more than 1%.

Oh, except this thing called the Shanghai Composite Index. It jacked up 1.4%, to yet another record high.

Borse Dubai, a government-controlled exchange, announced yesterday it plans to buy 19.9% of the Nasdaq
— the exchange, not the index. And the Nasdaq’s entire 28% stake in the London Stock Exchange.

“We’re going to take a good look at it as to whether or not it has any national security implications involved in the transaction,” said President Bush upon hearing the news. Shocker. Politically burned by its approval of the Dubai interest in ports around the nation, the White House couldn’t possibly let this deal pass without comment.

Along with its 20% stake, the Dubai government would gain two of the 16 seats on Nasdaq’s board and 5% of company voting rights. Bring it on.

A different arm of the Dubai government also announced yesterday it’s agreed to buy a 7.5% stake in the private equity giant Carlyle Group.
Featured prominently in that loudmouth Michael Moore’s Fahrenheit 9/11, the Carlyle Group is reputed to facilitate connections between U.S. defense industries, the Bush family and various oil sheiks, including members of the bin Laden family.

The Dubai-Carlyle deal is worth $1.3 billion. Hmmn…

“If you think agriculture prices are high at these record levels,”
warns our commodity counselor Kevin Kerr, “think again.”

Huge global demand, biofuels, drought, poor harvests and this week’s news of early frosts have already put most grain prices at multiyear highs. But Kevin still sees them going higher… much higher.

“With an early frost in the plains, we have new worries,” says Kevin, “but the snow isn’t quite here yet… more pressing concerns right now are disease.” Minnesotan farmers are beginning to report small outbreaks of “ear rot” — a fungus aided by hot and dry conditions that plagued farmers much of the summer.

Ear rot doesn’t bode well for what’s left of the corn harvest. Dry conditions and the huge growing demand from ethanol junkies don’t help the situation much, either.

Australian wheat farmers, too, are suffering nasty weather.
They’ve drastically cut forecasts after the hot and dry growing season. On Monday, they pulled back their harvest prediction by a whopping 31%. Resource Trader Alert readers didn’t mind… they just sold their wheat plays for 147% profits in less than a month. Don’t miss Kevin’s next set of trades.

“Years ago when I visited Washington D.C.,”
writes a reader, “I went to the Treasury and stood amazed at the printing presses. They were printing what the government calls money at newspaper speed. Right then and there, I knew we’d been had. You could wrap fish in it for all it’s worth. Now the euro is kicking butt. What if the Chinese counter and issue a call for a pan-Asian currency to counter the euro and dollar, with the yuan as the anchor currency?

“Will nations even matter in the future or is, as Laura Ingraham presciently surmised on Hannity & Colmes a few weeks ago, the world is heading for marketing centers? The North American Union, despite the denials from the feds, seems to be coalescing right in front of us with not too many peeps from anybody.”

“I think that the Bernanke put is significant,”
writes a reader. “If I am correct, it signifies that the Fed has given up saving the dollar, and has made its goal saving the international market. Both political parties are dedicated to internationalism. The maintenance of the global market requires that the American consumer continue buying foreign goods in great profusion until the local economies in the emerging markets, especially the BRIC counties, are able to sustain themselves without significant American assistance.

“Both political parties have assisted in promoting the development of China; not only have they signed the requisite treaties, but in the case of the Clinton administration, Ron Brown, the commerce secretary, flew businessmen into these countries in order to encourage investment.

“Both parties have also encouraged the illegal immigrants, even though it is technically against current laws. Eventually, when more of them have acquired dual citizenship, they will transform American culture greatly. The independent white middle class, and especially the upper-middle class, will be reduced, considerably.

“The leaders of both political parties and their backers should be delighted with the Canadian dollar’s move toward parity. What they need is for the U.S. dollar to more closely approximate the peso. That way, America can be more comfortably made a part of Bush’s North American Union.”

The 5 Responds:
Perhaps. But aren’t both of you assuming that the rest of the world wants to “internationalize” with the United States? This morning, we received this e-mail from a Canadian reader:

“Not only does Canada have universal health care and gay marriage, the nation’s No. 1 news magazine is allowed to put out covers like these!:”

Given the enormous cost –some $6 trillion — of the Medicare drug benefit signed into law by the Bush administration in 2003, universal health care is probably not such a great idea for the U.S. The feds can’t even afford the promises they’ve already made.

But having a free press? That would be a welcome addition to the national character.

Warm regards,

Addison Wiggin,
The 5 Minutes Forecast

P.S. If you haven’t heard, we’re currently offering Kevin Kerr’s Resource Trader Alert at a substantial discount.
Kevin has recommended 70 commodity plays during his RTA tenure, 59 of which have been winners. The average return on his picks, including the rare losers, is an amazing 69%. You’ll be hard pressed to find a better track record, especially in the options trading world.

Click here to learn how you can profit from Kevin’s insane winning streak – free for the first three months.

P.P.S. “Your book, Empire of Debt,” writes another reader, “inspired my wife and me to do this.
It sparked a good discussion in the crowd — Canadians well aware of the Canadian dollar almost at par with the U.S. dollar… and a few Americans in the crowd that had no idea about the U.S. dollar.” Ed. Note: Imagine that.

“Enjoy the brief reading from EoD at a minute and 10 seconds into the song:


“Or not. It was quite audible (and is credited at the end) in the crowd (and is credited at the end), but not so much from where the camera sat. Anyway, cheers, and keep up the great work!”

The 5 Responds:
If you listen to Empire of Debt rock video above… the sound quality is not so good. But we were able to identify two of three passages the reader cites from the book. The first is a caption from Page 184 showing the growth of M3, or “cash”:

“The cost of administering the empire requires an ever-expanding supply of the imperial currency. Since the U.S. currency has become untethered to gold, the quantity of paper dollars flowing around the globe has ballooned significantly, rendering each dollar a little less valuable than the last.”

And then from Page 186:

“The dollar is merely a piece of paper, and since Nixon slammed the gold window shut, it is backed by nothing more than the full faith and credit of the United States Treasury. How good a promise is that? No one knows for sure.”

She goes on to read more… and ends with the words Empire of Debt. If you can make out the rest, let us know. Cheers.

P.P.P.S. Since we’re feeling the love from our friends to the North this morning,
we thought we’d take a moment to mention the dates for Vancouver 2008.

July 22nd – 25th… cancel your plans, clear your calendar, save the dates. Click here to learn more.


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