- The “most powerful coordinated foreign exchange intervention” in five years…
- … and how it’s delivered an opportunity to nearly quadruple your money
- Rickards on the start of a new “weak dollar” phase that might last the rest of the decade
- Grim report on how much of America’s industrial capacity is now idle
- Why we’re still wary of pot investing
- An expensive pepper spray-public relations boondoggle… a reader has to bring up virtual-reality sex… the dollar and an unseemly interspecies encounter… and more!
Seven weeks on, the “Shanghai Accord” thesis is looking stronger than ever. And it could mean up to 276% gains before year-end. Just for starters.
Back on Feb. 26, finance ministers and central bankers from the “G-20” nations gathered in Shanghai.
The “Shanghai Snoozer” we called it, because it made absolutely no news, despite pleas from the International Monetary Fund for “bold multilateral actions to boost growth and contain risk.”
But a month later, Jim Rickards informed us of a “secret side meeting” involving the United States, Europe, Japan, China — representing more than 70% of the global economy — brokered by the IMF.
With the hindsight of three more weeks, Jim now tells us, “The Shanghai Accord is the most powerful coordinated foreign exchange intervention by major financial powers since March 2011.”
That’s when the G-7 nations stepped in to weaken the yen after the Fukushima earthquake-tsunami-meltdown in Japan.
It worked; the yen stayed weak well into 2015.
The trigger for this latest intervention wasn’t a natural disaster that set off a man-made one. “China needed currency devaluation to give its economy a boost,” Jim explains. “The last two times China did this (August 2015 and January 2016), U.S. stock markets tanked. The problem was how to devalue China’s currency without sinking U.S. stocks (and potentially other markets around the world).”
Key to this solution is a basic fact, one that too many Wall Street “experts” and financial bloggers overlook: Currency wars are a zero-sum game.
“If the dollar gets weaker, the euro gets stronger. If the yuan gets weaker, the yen gets stronger. It can’t be any other way. Currencies cannot all devalue against each other at the same time. It’s a mathematical impossibility.”
[They can all devalue against gold, but that’s a story for another day… Heh.]
Jim has an analogy, one we’ve shared before, but it’s a good one to revisit. “Think of the countries in a currency war as four soldiers fighting on a hot day. They’re tired and thirsty and they decide to take a short rest. But they only have one canteen of water to share among the four of them. What do they do? They pass the canteen.
“Each soldier is thirsty and wants to drink the whole canteen. But they’re all in the battle together; they need each other. So each one takes a sip and passes it to the other. Somehow, they all survive.”
“Passing the canteen” has been the story among the globe’s four biggest economies since 2010:
2010: An undervalued Chinese yuan. Recalls Jim: “Remember all of the complaints about ‘currency manipulation’ by the Chinese coming from Treasury Secretary Tim Geithner?”
2011: Then it’s the dollar’s turn for weakness: The dollar hit an all-time low that summer (as gold hit an all-time high — no coincidence)
2012–13: The yen-weakening plans hatched in 2011 bore fruit. “The yen weakened through 2013,” says Jim, “getting as low as 124 to the dollar”
2014–15 : Europe took its turn, first with negative interest rates and then with its own version of “quantitative easing.” The euro bottomed around $1.05 twice last year.
Now in 2015, China and the U.S. are feeling parched. “The Chinese economy is coming in for a hard landing, and the U.S. economy is flirting with recession,” says Jim. “China and the U.S. are the two largest economies in the world. If they go down, the world goes down with them. There’s really no debate. It’s time for another round of Chinese devaluation. The U.S. needs a cheaper dollar also.”
But how do the powers that be manage to weaken both the yuan and the dollar at the same time?
Jim described the essence of the Shanghai Accord here last month: Weaken the yuan by strengthening the euro and yen. With the yuan loosely pegged to the dollar, the dollar will likewise weaken.
It’s all a theory — again, no one strode before the cameras to make an announcement — but everything that’s happened in the last seven weeks has reinforced the theory. The European Central Bank signaled it was done with easing measures. The Bank of Japan delivered less “quantitative easing” than markets expected.
The Federal Reserve, meanwhile, has gone totally “dovish.” Janet Yellen’s Very Important Speech at the Economic Club of New York on March 29 touched off a huge yen rally…
“What’s most significant about this latest twist in the currency wars is that the effect will be long lasting,” Jim concludes.
“The strong dollar episode lasted over four years (2011–15). The weak yen episode played out over three years (2012–15). This new episode of strong yen, strong euro matched by a weaker dollar and weaker yuan has just begun.
“We could see the yen trade through 100 to the dollar and the euro trade through $1.20 before it’s time to pass the canteen again. That’s plenty of leeway for you to profit from the currency wars.”
Indeed there is — and you don’t have to play the risky and complicated forex markets to do it, either. On Tuesday, readers of Currency Wars Alert were clued in to a way to generate “Shanghai Accord” gains of up to 276% before year’s end. And three more related trades are on the way between now and Memorial Day.
As Jim said, the story’s just beginning. Act now for maximum profit potential.
Stocks are stagnant as the week winds down: The S&P 500 is off fractionally at 2,081. Gold is up a buck at $1,229. The big mover is crude, down more than 3% and approaching the $40 level going into a Sunday summit of oil ministers from OPEC and Russia.
The big earnings number of the day comes from Citi, and it’s the same story as the rest of the Big Four commercial banks — profits are down, but they beat the vaunted “analyst estimates.” XLF, the big financial ETF, is on track to close the week up nearly 4%.
The big economic number of the day comes from China: First-quarter GDP grew 6.7% year over year, right in line with the government’s target range. (It’s at this moment we’re compelled to remind you of Premier Li Keqiang’s candid remark years ago that Chinese GDP figures are bogus, although the literal translation was “for reference only.”)
Here at home, industrial production fell 0.6% in March, worse than the most pessimistic guess among dozens of economists polled by Bloomberg. All three components of the number — manufacturing, mining and utilities — were in the red.
The capacity utilization number was also a big fat miss relative to the “expert consensus”; 74.8% of the nation’s industrial capacity was in use last month, the worst reading since — gulp — August 2010.
The news of the morning does nothing to dispel our long-standing qualms about marijuana investing.
A firm called MassRoots is applying to list its shares on the Nasdaq. That would be a first. Yes, there are 300 pot-related companies that trade over the counter… and the Nasdaq does list a British-headquartered firm working on pot-based pharmaceuticals…
Reports the Financial Times: “MassRoots does not ‘touch the plant,’ in the industry’s parlance — it makes money from selling advertising to people who do — but this week’s regulatory filing announcing its plan to list on Nasdaq still includes a gnarly risk factor: ‘We may be deemed to be aiding and abetting illegal activities.’ Law enforcement might shut the company down ‘and our investors could lose their entire investment.’”
Yeah, good luck with that Nasdaq listing. Until companies that “touch the plant” can also touch the banking system, we won’t hold our breath.
Your tax dollars at work, California edition: Turns out the University of California, Davis spent $175,000 on consultants to scrub the Internet of negative postings about the casual pepper-spraying of peaceful student protesters by campus cops.
Oh, yeah: We recounted the incident at the time in November 2011, the peak of the Occupy Wall Street movement…
It was an episode of The 5 called “Police State USA”
“Some payments were made in hopes of improving the results computer users obtained,” reports The Sacramento Bee, “when searching for information about the university” — or about chancellor Linda Katehi.
“It is troubling,” says state Assemblyman Kevin McCarty, “that the administration chose to spend scarce public dollars and to nearly double its PR budget when tuition soared, course offerings were slashed and California resident students were being shut out.”
Hell, the effort didn’t even work. Years later, you can still find scads of Photoshop memes inspired by the incident…
On the other hand, Katehi still has her job. The cop collected $38,000 in worker’s comp on account of his “psychological pain and suffering.”
And the students collected about $30,000 each from a lawsuit settlement — about $1 million total, or more than five times the amount spent on the consultants.
“The biggest application of virtual reality and augmented reality technology,” writes a Platinum Reserve member, “will certainly be porn or other sexually related applications.
“Tired of making love to your wife? Been eyeballing the neighbor’s hot wife, but have resisted the urge? Now you and your wife can each strap on your VR headset and go at it. You get a roll in the proverbial hay with the next-door neighbor while your wife has a romp with George Clooney. Avoids the messy divorce and keeps relations with the neighbor on good terms. And they say a good fence makes for a good neighbor…
“Of course, lawyers will suffer, but they will likely make it up on suing the VR manufacturers when Grandpa is found stroked-out lying on the floor of the retirement home, a half-empty bottle of sexual performance drugs on the nightstand with his VR headset and a few strategically placed haptic feedback devices securely strapped on.
“Love The 5!”
The 5: Earlier this month, a Japanese company came out with a VR “sex suit.” The videos of the suit are described as “too horrifying for words” (Maxim) and “as disturbing as it sounds” (RT).
But at $400 a pop — VR goggles not included — it’s already sold out.
As you might imagine, we think there are other, more palatable VR investing possibilities.
“I LOVE the humping animal pictures,” reads an email that landed in our inbox yesterday. “It’s a reminder of everyday life in corporate/government America. Gotta keep your sense of humor!”
Odd… We’ve shared no such pictures this week.
But it quickly came back to us.
In November 2010, China and Russia announced they would bypass the dollar in their trade with each other, using yuan and rubles instead.
The Monday after Thanksgiving, our fearless leader Addison Wiggin kicked off The 5 thus: “While you and 78 million other American families gobbled down turkey over the long holiday weekend, China and Russia were engaged in their own unsavory activity on the other side of the planet:
“I don’t appreciate your humor,” one reader objected. As the week wore on, other readers rose to our defense — including the one we quote above.
Why this email suddenly reappeared in our inbox yesterday, we have no clue. Microsoft Outlook gremlins? Something that poked a pinhole in the space-time continuum?
Whatever’s responsible, we’re glad it afforded us the chance to reminisce as the week comes to an end…
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. Did you play it? This morning, Ray Blanco urged readers of Technology Profits Confidential to sell their remaining position in a cancer-vaccine developer. Previous sell recommendations were good for gains of 211% and 321%… and the final third was still good for a 60% gain.
There are plenty of quality biotech picks in Technology Profits Confidential… but for the best cutting-edge investing potential right now, Ray says virtual reality is the real deal. If you haven’t seen him make the case yet, you don’t know what you’re missing.
