U.S. Dollar Under Heavy Fire, China’s Coming Crisis, A New Energy Frontier and More!

by Addison Wiggin & Ian Mathias

  • Dollar gets ambushed… Chinese government, “Black Swan” and Moody’s fire shots across the bow
  • Dan Amoss with a Chinese problem big enough to change “the consolidation of state power”
  • America’s savings crisis: States out of money to pay tax refund, individuals woefully unprepared for retirement
  • Plus, Byron King with a great (yet often overlooked) new energy frontier — Namibia


  “What I don’t understand,” China Premier Wen Jiabao begins today’s 5, “is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism.”

There was a time, long ago — like way back in 2007 — when the only mud slung from the Far East came from the hands of “radical” professors and low-level government officials.

A year ago — almost to the day — Wen expressed his first formal “concern” with the dollar, the “safety of [Chinese] assets” and America’s ironic demands that China get its currency in order.

Yesterday, at the close of the annual National People’s Congress, he turned it up a notch: “We are very concerned about the lack of stability in the U.S. dollar. If I said I was worried last year, I must say I am still worried this year.”

  “We are facing an environment with a huge amount of debt,” our friend Nassim Nicholas Taleb said in a speech in New Delhi — just as Wen was dishing dirt on the dollar. “The next mistake is going to be overprint, which is going to be the way out for them, which is why I fear hyperinflation.”

  “If there is inflation,” Wen ominously added, now referring to his own country, “plus unfair income distribution and corruption, they will be strong enough to affect social stability and even the stability of the state’s power."

Inflation is already rearing its ugly head in China. And lord knows large income gaps and corruption are no strangers there.

  “An authoritarian government,” warns Dan Amoss, “with control over a printing press and a banking system can sustain the unsustainable for much longer than skeptics expect. Imagine how much bigger the credit and housing bubbles in the U.S. could have grown if politicians, rather than risk-averse bankers, had control over the banking system. Markets force investing mistakes to be corrected quickly, while politically driven economies compound investing mistakes until they run into insurmountable resource constraints, or destroy confidence in the integrity of the currency.

“As long as the status quo in China remains, artificial pressure on commodity prices will likely remain in place, with periodic pullbacks. If Western consumers’ appetite for Chinese exports wanes (which is likely), then the Communist Party will likely redouble its infrastructure stimulus to keep a restive population in a state of ‘harmony.’

“With yesterday’s announcement that China’s money printing and lending is seeping into its consumer price index, we’ll probably see a more aggressive effort to tap the brakes on the Chinese banking system. If so, we could easily see a sharp decline in the prices of steel and aluminum. China is normally a large net exporter of these products, but its stimulus plan has directed much of its production toward office towers, autos and bridges.

“With the long-term trend toward urbanization, demand for steel and aluminum will likely be up, but in 2010, we could easily see a free fall in pricing with all the new low-cost production capacity coming online.” Count on Dan to have his Strategic Short Report readers ready for such a decline. If you want to play these trends for maximum gain, see details here.

  The oddly relevant Moody’s warns today there will soon be “downward pressure” on the U.S. AAA credit rating.

“If [the budget deficit] trajectory were to materialize,” the rating’s agency disclosed after examining last week’s Treasury Budget, “there would at some point be downward pressure on the triple-A rating of the federal government.”

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” added Pierre Cailleteau, Moody’s managing director of sovereign risk. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”


We won’t hazard a guess as to what algorithm, chicken bone or tarot card reading inspired Moody’s to issue this press release today, instead of last week… last month… last year … or last decade.


Still, that makes for one U.S debt “warning shot” each from Fitch, S&P and Moody’s in 2010.

  Despite the notable forecasts above, the dollar index is a touch stronger this morning.

Or we should say the euro is lower.

Euro traders are still antsy over a Greek implosion, and this weekend yielded no major developments in EU efforts to bail the Spartans out. Thus, the dollar index rose a few tenths of a point, to 80.1.

  “The Swiss franc rose to its strongest level in nearly 1 1/2 years against the euro this morning,” notes EverBank’s Chris Gaffney. “A Swiss government report showed annual producer and import prices declined at the slowest pace in more than a year, dampening fears of deflation.

“Economic growth seems to be taking hold, and the Swiss National Bank has been quiet in the currency markets, letting the franc appreciate. The SNB sold francs last year in order to hold down its appreciation versus the euro, but they seem to be willing to accept a higher franc given the recent economic data.

“With the Greek debt problems continuing to keep the euro volatile, investors may be wise to look at the Swiss franc as an alternative.”

  Gold is holding tight today, considering the dollar’s little rally. The spot price is hanging in at $1,105. Oil, on the same pressure, is down almost 2%, to $79 a barrel.

  “Good news!” write Joe Weisenthal and Kamelia Angelova at the Business Insider this morning, picking up on a theme we’ve been following for a decade, “The Federal Reserve announced that capacity utilization is ticking back up, a sign our idle factories are starting to hum again.

“The bad news: as shown by the blue line, even during boom times, peak capacity utilization continues to trend lower, and has been since the peak in the late ’60s.

“What’s interesting is that capacity utilization and the employment rate used to be tightly correlated, but the employment rate during the last two peaks looked much stronger than what the capacity utilization rate might have predicted.

“The last two peaks were also major bubbles (dot-com and real estate).

“Bottom line, if historical trends stay in place, capacity utilization won’t even rise to the last level of the last boom. So if we want anything approaching full employment, you better pray for another economy-distorting bubble.”

We expect that bubble will be in alternative energies and green tech, replete with the charlatans and hucksters that were common in the last two. We intend to ride the wave, but will be wary all the while. And keep our eyes peeled for advances in old-school energy, like this next bit, too:

  Namibia is becoming one of the great new energy frontiers, says the intrepid Byron King. You may already be aware of the nation’s compelling offshore oil and gas opportunities. In fact, Byron’s Energy & Scarcity Investors are up 178% on the Namibian offshore play we were writing about two weeks ago.

“There’s a whole lot of uranium there, too,” Byron told his readers. “Namibia is quite underdeveloped. It is a large nation in terms of geography. Its area is almost 319,000 square miles. That’s over 500 miles wide and 600 miles from north to south. Namibia is not quite as large as, say, British Columbia. But it’s 25% larger than France.

“And the population? It’s pretty small. There are only about 2.1 million people in Namibia, or about the same population as the city limits of Paris, or the metropolitan limits of Vancouver. Just imagine what it’d be like if the rest of, say, France or British Columbia were almost empty. Wow.

“Much of Namibia’s population is located in and around the capitol city, Windhoek. If you do the math and think it through, you can see how Namibia boasts one of the lowest population densities in the world.

“So we have a large, dry, underdeveloped nation, with not a lot of people. Add to that the fact that Namibia is quite underdeveloped. The flip side of that is that there’s immense opportunity there.”

Byron just gave ESI readers the ticker for a company that’s early in this coming development — one with all the critical African permits and roughly 75.5 million pounds of measured U308. Quite an opportunity for nuclear bulls… get the details by subscribing.

  Four more banks failed late last week, bringing the yearly total to 30. We note a rare Thursday closure, of LibertyPointe Bank in New York. The employees are predominantly Jewish, and the FDIC didn’t want to botch their Friday evening Sabbath plans.

  If you’re expecting an income tax refund this year, don’t hold your breath. Budget officials in Alabama, Hawaii, Idaho, Kansas, North Carolina and New York have already announced plans to delay tax refunds.

Heh, with a budget shortfall of $9 billion, how does New York expect to pay out $500 million in refunds? We certainly don’t know… nor can we say why California and Illinois aren’t on that list. The Golden State delayed returns and ultimately issued billions in IOUs last year.

  Just 16% of American workers are “very confident” they’ll have enough money to retire, says a survey today from the Employee Benefit Research Institute. Of those already retired, just 19% say they aren’t worried about running out of cash.

And worst of all, 31% of respondents have saved nothing for retirement — not one cent. While we don’t know for sure, we doubt the suits at EBRI ventured into neighborhoods like west Baltimore… thus, that number is probably much, much higher.

Even those who have saved, the majority — 54% — have less than $25,000 stashed away. Speaking of which, we have one resource in particular that’s very useful for retirees and those looking for reliable income. Look here.

  “I ran into financial hardship,” a reader writes, referring to the “wrong house repos” happening at Bank of America, “and started getting late in payments. BoA was my new mortgage holder after it bought my loan from Quicken Loans.

“It became clear that we would not be able to keep up our payments. So we contacted a realtor friend who knew our situation and they suggested a short sale based on hardship. They had helped others in the past and knew what to do. They even have a person doing just that. We decided the two years against our otherwise perfect (over 40 years) credit would be better than seven years.

“I submitted the required paperwork and supporting documents [to BoA]. I resubmitted it via Internet when requested to do so. My realtors did the same. I was told to call and ask for a postponement of the foreclosure sale date. I did so. In five different calls on five different days, from five different reps, I received the same answer… we have no information that you have submitted on your loan… and you cannot request postponement except seven days before it is to occur. Fine, I marked the date on my calendar.


“Meanwhile, my realtor could not get a negotiator assigned, and had to resubmit ALL of the forms that they had sent in. That was crazy.


“I called in on the seventh day before the foreclosure and requested the postponement based on short sale with approved buyer (contract). They said they filled out the form and sent it to the short sale department (Equator) for assignment of a negotiator… we had been told about 15 days before that that a negotiator would be assigned within five-10 days. I was told to call back in two days to verify that the postponement had taken place. I did so, same number, and they could find no record of it… or the application. I asked to please put it in now and was told that this was awfully short notice and they weren’t sure it would go.

“I explained the past trouble and they said they would submit it again. I called back two days later and was told that they didn’t see it on the computer, but they did see where a negotiator had been assigned… call back the next day… but the next day, before I called, at about 8 a.m., I got an e-mail from my realtor that said when they checked, they were told that the house had been foreclosed and was no longer mine.”

The 5: While we may empathize, historically speaking, you can expect reports of callous behavior of banks and nameless employees within to be on the rise.

  “A friend of mine told me about your 5 Min. Forecast,” the last reader writes. “I have read the last week’s, and I think it is great. How can I receive this each week?”

The 5: Thanks. The best way is to be a paid subscriber of one of our services. If you are, we’ll do you one better and e-mail The 5 to you every day. Another way is to agree to provide useful feedback on our newest service, Apogee Advisory. The details of this second offer can be found, right here.


Addison Wiggin

The 5 Min. Forecast

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