Missile Fired in Currency War?

by Addison Wiggin

  • The “mystery missile”… First shot fired in currency wars?

  • G20 summit preview: China premier tells U.S. to “face their own problems”

  • Markets sell off, silver down nearly 8%… The rumor that may be behind it all

  • Why Patrick Cox sees the election results as “a good thing for investors and innovation”

  • Readers go off on fellow reader: “Indestructible fantasy world” and Nazi name-calling

Hmm. The G20 summit starts tomorrow amid the prospect of global currency wars… and… this…

As viral video goes, chances are good you’ve seen the “mystery missile,” captured from a TV station’s helicopter roughly 35 miles off the coast of Los Angeles.

“It could be a test firing of an intercontinental ballistic missile from an underwater submarine,” Robert Ellsworth, a former U.S. ambassador to NATO and former deputy secretary of defense, told a CBS reporter, “to demonstrate, mainly to Asia, that we can do that.”

Never mind the Asians have probably known “we can do that” for some time now.

The Pentagon then denied it was one of “our missiles,” touching off panic that it was an Asian power, trying to send the U.S. a message. What that message would be we can only speculate: “Back off QE2… or else?”

Now the Pentagon says it wasn’t a missile at all. Oy, whatever.

We have no idea what it was. So we’ll confine our ruminations about global currency wars to what we perceive to be as ominous, even without any missile intrigue.

For starters, the Chinese credit rating agency Dagong just downgraded U.S. government debt… again. The rating had been AA, but after the Fed’s announcement of $600 billion more in quantitative easing, it’s been knocked down to A+ — with a “negative” outlook.

Dagong made a splash in July by issuing its first sovereign debt ratings — giving China higher marks than the United States.

We didn’t notice any movement in Treasury rates as a consequence of yesterday’s announcement. For now, Moody’s and S&P remain the go-to authorities in this realm, even after the subprime debacle shot their credibility all to hell.

Go figure.

The Chinese also just reported one of their highest monthly trade surpluses in two years — $27.1 billion. Heh, that should be a burr in the saddle of President Obama and his advisers going into tomorrow’s meetings in Seoul.

Actually, if you break it down, the balance of trade between China and the United States was unchanged from September. But it remains near record highs, so “Blame China” will be a big theme, starting tomorrow.

“We do want to make sure that everybody is operating with an international framework,” said President Obama from his “boyhood stomping grounds” in Indonesia, offering a preview of what the U.S. contingent’s attitude is going to be at the meeting, “and sets of rules in which countries recognize their responsibilities to each other. That’s true for the United States, that’s true for China.”

For his part, Chinese Premier Hu Jintao encouraged debtor nations to “face their own problems.”

“China will try to run its own affairs,” he added, “and not blame its problems on others.”

Heh. The news bytes that get released from the meeting ought to be entertaining, at the least.

World Bank chief Robert Zoellick continued to warn G20 leaders they can’t ignore gold’s growing role as a monetary asset. He called it the “elephant in the room” during a conference in Singapore.

Zoellick made a splash over the weekend with an op-ed in the Financial Times urging the G20 leaders to adopt a new monetary system with multiple reserve currencies, and a role for gold when assessing inflation expectations.

A lot of people jumped to the conclusion he was advocating a gold standard, which he was not. “Gold has become a reference point,” he explains, “because holders of money see weak or uncertain growth prospects in all currencies other than the renminbi, and the renminbi is not free for exchange.”

“So, in relative terms, gold is appealing to people who ask ‘where should I put my money?’ It is a hedge against uncertainty.”

 Gold is among the many assets in a sell-off this morning. It’s down from $1,410 in overnight trading to $1,387 now. Silver’s been whacked nearly 8%, down from over $29 at one point yesterday to $26.79 now. The Dow and the S&P are both off about 0.5%.

 It looks as if hot money is seeking the greenback today. The dollar index is up nearly 1% and has pushed back above 78.

Rumors abound that Ireland will get a bailout from the International Monetary Fund (IMF). The rate on a 10-year Irish bond has blown up from less than 8% to over 8.6% in just a few hours. If Greece in the spring is any indication of what’s to come… we’ll be making jokes about four-leafed shamrocks and phantom pots of gold long before St. Patty’s day this coming year.

“Food price fears as U.S. warns on crop yields,” reads the headline in the Financial Times, echoing a theme we’ve been writing about extensively across several publications.

For the third straight month, the U.S. Department of Agriculture has cut its forecast for the corn crop. “The combined production shortfalls and dramatic potential stock drawdowns mean a much tighter supply picture than just a few months ago,” says the USDA’s report.

Yesterday, corn prices shot past $6 before pulling back a bit. As we explained in a radio interview last week, we’re expecting grain prices to remain in an uptrend, both as a short-term reaction to the monetary policy being pursued by the Fed and the long-term growth in demand from emerging markets around the globe.

[Ed. Note: Have you been taking advantage? Readers of Resource Trader Alert have already grabbed gains of 83% and 172% on corn this year. And that’s in addition to 173% on sugar, 206% on silver and 221% on gold. Right now, Alan’s on one hot trading streak. He’s 10 for 10 in 2010…

If these markets are a mystery to you, Alan Knuckman has a plain-English explanation of how it works, and how you can profit, right here.

Last week’s midterm election results will, if nothing else, prove to be “a very good thing for investors and innovation,” says our technology maven Patrick Cox, “primarily because they will slow down the spending spree that has robbed financial markets to feed the government sector. The global market, including America, is going to reap the benefits of this awakening for a long time.”

“Once again,” Patrick says, “I find myself returning to the same advice. Learn from those who realized, during the darkest days of the Great Depression, that another world was coming.

“They imagined a world filled with untold technological wonders that would change every sector of the economy. They invested in the burgeoning industries of electronics, radio, nylon and other new man-made materials, and they got rich.

“Today, the innovation that is just around the corner, waiting for just a little investor confidence and liquidity, far surpasses anything that arose during and after the Depression. Biotech, in particular, is on track to lengthen lives, eliminate diseases and turn microorganisms and chimera trans-species cells into astonishingly productive factories.”

The innovation that has Patrick most excited right now is a treatment for Alzheimer’s — not just the symptoms, but the disease itself. You still have a chance to learn about the immense profit potential from this treatment… and to grab a significant discount to Breakthrough Technology Alert. Learn what the urgency is all about, right here.

Yesterday, we were treated to a rather unique response to the housing bust:

After having made the decision to buy her home in Baltimore four years ago with an interest-only mortgage, she’s picketing across the street from the governor’s mansion in Annapolis, promising to starve herself to death if the state’s chief executive doesn’t do something about “all the problems” with foreclosures in the state, including reducing her own increased property tax burden.

Upon reflection, we haven’t decided which of the two decisions she made — taking out an interest-only loan to buy a home or going on a hunger strike to protest a financial transaction — is more dissociated from reality.

At least the latter doesn’t appear it will have much of a negative effect on her… not for a few weeks, anyway.

“I have never e-mailed The 5 in the many years I’ve been reading,” writes a reader, “but the guy who started out with ‘maybe I’m naive is not only naive but must be living in an indestructible fantasy world for the ignorant and moronic.

“Aside from destroying the retirement wealth so many of us have spent a lifetime accumulating so we won’t be a burden to our children or society, this writer is correct in the statement that there is little downside for the federal government as an institution.

“Unfortunately, we live in the reality which is the result of what our government does. If we don’t change course, it will not be pretty, and I hope this fool does not show up on my doorstep for a handout. I adhere to the philosophy of ‘Guns, Gold and God’, and pretty much in that order.

“I would like him to explain to me how taking all that the productive members of society have created and giving it to others who have done little or nothing is going to be a viable long-term solution. He is truly stupid as well as ignorant to believe that the wealthy haven’t already prepared for the possibility of inflation and will benefit greatly from it when it comes.

“To paraphrase Rush Limbaugh, you can’t teach a true liberal anything. You just have to let them find out the hard way. I hope I don’t have to live in this idiot’s fantasy world while he finds out the hard way.”

The 5: Hey, watch who you’re paraphrasing. This is a family letter. The reader was engaging in a thought experiment. He was not actually advocating QE into infinity and confiscation of gold.

“He sees no problem with printing all the money our government wants,” another reader writes, piling on. “He then suggests the gov’t take away all gold from its citizens at a large discount (stealing) and calmly dismisses the huge inflation we’ll all suffer (more stealing) and it’s OK with him if we are all sealed in this country’s borders (imprisonment).

“Yes, he’s both ignorant and arrogant AND sounds like a NAZI to me.”

The 5: Like we said, please take a deep breath.

“Finally someone explains why there may be some great consequences of inflating our way out of debt!” says another reader who sees far more significance in what Mr. Maybe-I’m-Naive was saying than perhaps even the naive did himself.

“Those freakin’ Asian Tigers have all sorts of artificial import barriers in place to guard their economies from facing foreign competition, and all you free traders seem to be OK with that, but let the U.S. retaliate in the only way we can without all the right wingers in Congress whining, and you guys cry a river!

“I’m on the record as being FOR QE2. I’ll invest in mining stocks and high-yield CDs and I’ll come out wealthier just like I did in the 70s. Quit your whining and keep giving us great strategies to get through this and everything will be fine!”

The 5: Um… yeah. We’re happy to furnish the strategies. Here are a couple more.

“Why do so many people,” writes our final reader, thoughtfully taking issue with some of the underlying assumptions of Mr. Naive’s exercise, “and shockingly many of the few thinking analysts, believe that a devalued dollar will help…

“a. ‘Huge U.S. liabilities magically evaporate.’

“The U.S. earns dollars and spends/owes dollars, they may be worth less outside after a devaluation, but relative to the U.S. economy, they are the same dollars).

“b. ‘The U.S. balance of trade improves quickly and significantly.’

“This is incorrect. The exports do benefit, but the imports do not. And by virtue of the fact the U.S. is a net importer, the effect is very adverse.

“c. ‘With more exports, jobs are created.’

“The U.S. has lost much of its industry. Will it go into further debt to rebuild its industry? I don’t see Dell rebuilding plants in the U.S., do you? They won’t until wages are at Asian levels. By then, I agree, imports will be way down. Welcome to the so-called Third World. Or is it the Fourth World?

“Large devaluations are only an act of admission, one that acknowledges the fact that a country has been living far past its means for quite some time.

“They are necessary to reflect economic reality and, on the long run, unavoidable, but I can’t see reasons to find them to be a good thing. They are only the beginning of readjustment and pain across the board.

“I live in Argentina. I have, regretfully, seen it a few times too many.”

The 5: “As rich as an Argentine,” we’re told, was a common superlative used at the turn of the previous century. How come nobody says that any more?


Addison Wiggin

The 5 Min. Forecast

P.S.: Another innovation on Patrick Cox’s radar is what he describes as “a unique way to make your body’s sugars work for you instead of against you.

“This research is very new. Not many people outside the scientific community even know about it yet. It could have huge potential for cancer, obesity, diabetes, heart disease… And you can currently snap up shares of the company working on it for as little as $1

“This company’s ‘sugar science’ focuses on what are called galectins… how these sugars work in your body… and how they affect disease. Any new treatments could be radically lucrative.”

It’s one of three companies profiled in Patrick’s latest report, which you get as soon as you sign up for Breakthrough Technology Alert. You can secure membership at more than half off the regular fee — but only through midnight tomorrow.


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