Suckers!

• January 21st, 2015
• 5 Min Forecast
• Daily Issue, Issue

  One of the best features of the old National Lampoon magazine was its satirical “letters to the editor.” And one of the best letters in the magazine’s 28-year run was this one from July 1978…
[For the record: We have redacted the letter to stay at least somewhat within the bounds of what Agora Inc. founder Bill Bonner calls the Presbyterian Standard.]

Hold that thought as we proceed through today’s episode…
  “The most dramatic battle yet in the currency wars took place last Thursday,” Jim Rickards wrote this week to readers of our new Currency Wars Alert service.
Mr. Rickards speaks of the decision by the Swiss National Bank (SNB) to abandon the Swiss franc’s peg to the euro — an event that turned currency markets upside down and bankrupted several foreign-exchange brokers. “It’s the latest salvo in the currency war that President Obama started in 2010,” says Jim, “and it won’t be the last.
“It was in 2010 that the president announced his National Export Initiative designed to double U.S. exports in five years. The only way to do that was with a cheaper dollar, so the president’s policy amounted to a declaration to the world that the U.S. wanted other countries to let their currencies go up so the dollar could go down.
“The problem with currency wars is they last a long time — sometimes even 15 or 20 years. The reason is they have no logical conclusion, just back-and-forth devaluations and revaluations as countries retaliate against each other.”
Thus did the weak dollar of 2011 become the strong dollar of 2015. “No one wins, and everyone loses,” Jim goes on. “Currency wars don’t create growth; they just steal growth temporarily from trading partners until the trading partners steal it back with their own devaluations.”
  You don’t have to look far to find fallout from the SNB’s move.

In Poland, three out of every eight home mortgages are denominated in Swiss francs. As of yesterday, the franc had risen 21% against the Polish zloty. “The stronger Swiss franc means those borrowers need more local currency to pay off their mortgages,” Jim explains.
On Wall Street, Citigroup lost more than $150 million in one fell swoop. And on Friday, we noted the $200 million in losses racked up by FXCM, the United States’ biggest foreign exchange broker. Shareholders in FXCM will lose big under the terms of a rescue deal with Jefferies Group.
“Everyone from banks to hedge funds to Swiss citizens got burned,” says Dan Amoss — a veteran macro strategist here at Agora Financial, now heading up Jim Rickards’ research team.
“They had trusted the SNB’s promise that the euro peg would last, and that it would foster stability and prosperity. But the SNB lied.”
Really, it was brazen, when you think about it. The SNB might as well have issued a statement last Thursday saying, “Ha! Ha! Ha! Suckers! You suckers!! We broke the peg!!! You thought we’d keep the euro peg forever! Now you’re gonna lose millions, and your home will be foreclosed, and your trophy wife will leave you for her tennis pro! Suckers!! Ha! Ha! Ha! Ha! We broke the peg!”
  “The easiest conclusion you can draw and act on is this simple truth,” says Jim Rickards: “Do not believe government and central bank lies.”
Jim recalls a sneak currency attack by FDR in 1933: “President Roosevelt devised a plan to increase the price of gold in dollars, effectively a dollar devaluation. But he had a problem. If he increased the price of gold while Americans owned it, the profit would go to the citizens, not the U.S. Treasury. He knew that he had to lie to the American people about his intentions in order to pull off the theft of the century.
“So Roosevelt issued an emergency executive order confiscating the gold at about $20.00 per ounce and then revalued it to $35.00 per ounce, with the Treasury getting the profits.”
  The SNB pulled off much the same ruse, says Jim.

“Last November,” Jim reminds us, “the Swiss citizens voted on a referendum to require an informal link of the Swiss franc to gold. The Swiss National Bank argued against the referendum on the ground that it would cause them to break the peg of the Swiss franc to the euro.
“The people believed them and voted ‘no’ on the referendum. But now the Swiss National Bank has broken the peg anyway. The price of gold is spiking as a result, but the Swiss citizens have lost the benefit of that because the referendum is now a dead letter. The Swiss National Bank lied to the Swiss people about their intentions with regard to the peg.”
Suckers!
“The lesson of history,” Jim concludes, “is that citizens should own some gold, store it safely and not believe government and central bank lies. In fact, we could see more investors fleeing to the safety of gold in the coming months as trust in central bankers wanes.”
[Ed. note: Gold is the conservative way to play the latest round of the currency war. The idea behind our new Currency Wars Alert service is to go after more aggressive gains based on these developments — as much as 100% in only three months. And no, you don’t have to open a forex account, with all the risks that entails.
This service is not yet available to the general public. Once we open it up, it will cost $2,500 a year. But if you act now, you can secure lifetime access effectively free — along with nearly everything else we publish. Click here for details: This offer will remain open for the next week.]
  After a volatile 2015 so far, today is a rare “meh” day in the markets. The major U.S. stock indexes are modestly in the green as we write, the S&P 500 at 2,032.
Gold touched $1,300 overnight, but has pulled back to $1,291. Crude is up nearly a buck, to $47.46.
Traders are yawning at nearly every bit of news and noise: IBM delivered a disappointing earnings report. Housing starts clocked in for December better than expected. Someone dropped a rumor to Bloomberg that the European Central Bank’s stimulus will work out to 50 billion euros a month. We’ll know the actual number when the ECB issues its decision tomorrow, a couple of hours before U.S. markets open.
  With 20 days of the new year already gone by, we note one more anomaly of 2014, in which the S&P 500 rose 11.4%.

“Only 2% of the stocks in the S&P contributed about a third of its gains,” says Jonas Elmerraji of our trading desk. “Just 10 of the biggest stocks in the S&P were responsible for almost 32% of the big index’s performance last year.”
No wonder small caps struggled most of the year. But Jonas sees that changing this year…

“The Russell 2000 small-cap index has been in a persistent uptrend since the stock market bottomed in 2009,” says Jonas, “and we saw the small stock index bounce off a key price floor in 2014. If history is any indication, that should mean that 2015 is a particularly good year for small stocks.
“That’s not just observable on a stock chart — the statistics bear it out as well. According to EidoSearch, an innovative new statistical tool for institutional investors, the Russell 2000 has as much as 9.3% upside potential in the next six months. EidoSearch determines that by looking at previous periods when the Russell posted similar price action and then looking at how investors followed up on that pattern.”
A 9.3% gain in the Russell could spell very good things for the picks in Jonas’ Penny Stock Fortunes portfolio…
  “I have been subscribed to Agora for years,” a reader writes, “and while I enjoy most of the content of your writers… The email below seems to be 100% click-bait.” The reader was responding to a recent edition of our Sunday 5 New Ways to Build Wealth.
“Why is everything ‘You won’t believe this one weird trick!! Click now before it’s too late!!!!!! THE GOVERNMENT DOESN’T WANT YOU TO KNOW?!?!!!!!$$$$!!!!’?
“Just wanted to point that out. I hope this isn’t the new style for all your future publications. Don’t fall victim to side-boob trap, curiosity gap click-baiting. It comes off as cheap. You can do better than assuming your readers are mindless clicking idiots.”
The reader then resorted to a time-honored tradition of our longtimers: “I dare you to publish this.”
The 5: Works every time.
Don’t fear; we’re not changing a thing. Please note the Sunday 5 New Ways to Build Wealth consists entirely of sales messages — it’s a weekly digest of our industry’s best deals. So yes, it’s going to be a little more, uh, in your face.
  “Civil asset forfeiture is just another thing on top of the pile that discourages young entrepreneurs to take risks and invest,” a reader writes after yesterday’s episode.
“Enterprise creation is down in U.S., you said in a previous edition of The 5, and I am not surprised. Courage, imagination and hard work are replaced by craziness. This is the main quality a young entrepreneur needs today to deal with patent office extortive rates and delays, environmental laws that contradict others, bureaucracy at all levels, increased public services costs, Obamacare and everything else.”
  “Interesting,” a reader writes, “that U.S. manipulation of the oil market (in cahoots with the Saudis) is well accepted, while U.S. manipulation of the commodities markets (in cahoots with the Fed and big banks like JPMorgan Chase, CITI, etc.) receives little credibility, despite the availability of hard, supporting data.
“Precious metals have been particularly victimized. The price of precious metals will rise to realistic prices when the manipulators allow it. Or, more likely, when at least one of your Jim Rickards’ snowflakes falls, creating a circumstance over which even the late, great U.S. government and its bankster minions have little control. Maybe an oversimplification, but still on the mark.
“My heaps of gold are stashed. Let it snow!”
The 5: The dam might be breaking. Marc Faber was on CNBC yesterday. “Gold has a lot of upside potential,” he said, “because I think people will wake up finally [and realize] if they could sell short central banks, that is the trade of the century. The central banks will be exposed for what frauds they commit.”
OK, so he wasn’t allowed to say this on the actual TV channel, but instead on a 15-minute Web-only show called Futures Now. But it’s a start…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. The State of the Union dog-and-pony show last night went about as we expected. Lots of yakety-yak about higher taxes.
And as we said yesterday, don’t count out the sort of “compromise” you can get only from Washington: The White House gives in on higher defense spending in exchange for the Republicans giving in on higher taxes.
In which case, you won’t feel much incentive to work harder and earn more… and you’ll want to find ways to generate as much income as you can with as little effort as possible.
We have just the solution — as you can see at this link.
 

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.