Strengthening Dollar

Strengthening Dollar: "Gold" Is the New Gold
by Dan Denning
The Rude Awakening
Wall Street, New York
Friday, December 2, 2005

Dan Denning explains how America can have a Strengthening Dollar despite growing deficits and a gold rally.

-------------------------

-------------------------

WET INK... We haven't seen much of James Boric around the office of late...He has been busy working on two projects that can go a long way to lining your pockets with solid profits. One is his hugely successful small cap campaign, an area in the market where James believes huge potential lies for the smaller, individual investor. The other has had the poor work-a-holic in a frenzy for the past few weeks. James has been working with a renouned Indian economist, racing to get this special report out before a huge announcement blows his $200 billion secret ...and the final print has only JUST been approved for publication. The secret lies in the India nobody has been looking at. The ink on this report is still wet, click here to read it now:

India's $200 Billion Secret

http://www.agora-inc.com/reports/SRR/ESSRFC12

 Eric Fry, chatting it up on Wall Street...

"Was it as satisfying as you imagined it would be?" your
editor inquired.

"Well, to be honest, not really," came the reply. "It was
kind of anti-climactic...I mean, it was fun, but I guess I
was just expecting something a little more exhilarating."

"Hmmmm."

"Don't get me wrong; I loved every minute of it, but I was
expecting something more frenzied and unrestrained."

"Okay, but you must admit," your editor persisted, "it was
pretty satisfying, wasn't it?"

"Oh sure," came the reply, "I'm still savoring the
moment...I still can't believe gold finally traded through
$500 an ounce."

"You've been waiting a long time," your editor remarked.

"Yeah, seems like forever," said the 26-year veteran of
gold-stock trading. "I started my career in 1979, right
down here on Broad Street. I was working for a small little
outfit trading gold stocks...mostly South African gold
stocks."

"1979 huh? The first few months must have been pretty
pleasant."

"No question about it," the gold-stock broker replied.
"Gold traded at $276 an ounce on the first day I showed up
for work. Six months later, it soared through $800. But
from there, of course, it was pretty much all downhill."

"But you remained faithful to gold throughout all those
dark years," we continued sympathetically, "even when she
abused you. Why did you stick around? Why didn't you start
trading tech stocks?"

"Well I DID trade tech stocks, along with every other sort
of stock, just to maintain some order-flow. But I hung in
there with gold because I always believed in it...just like
I do now. I will admit that I went home many, many nights
despising gold...and wishing I'd never heard of it. But
still, I have always believed in its merit as the premium
store of value. And the fact that its price has doubled
over the last few years tells me that other investors are
recognizing gold's value as well."

"So you must feel somewhat vindicated that gold has
regained $500."

"Yeah, I guess, but the ironic thing is that I didn't
actually get to watch it happen. My Reuters was down all
afternoon."

"I hate it when my Reuters is down," I replied. "So what do
you think lies ahead for the gold market?"

"Well, broadly speaking, more of the same," the broker
continued. (For the record, the broker's name is Michael
Martin and he works for R.F. Lafferty in New York).
"Obviously, the market will be subject to sharp
corrections, but I would be buying every dip on the way
up...just like tech stock investors did throughout the
1990s. This bull market in gold is still young. And another
interesting thing is that many gold stocks are still
lagging behind the move in gold."

"What do you mean exactly?"

"Well gold is now on its high for the year, not to mention
its high for the last 22 years, and yet, many gold stocks
are still trailing well off of their year highs of the last
couple years. Even some of the likeliest takeover
candidates are selling well below their 24-month highs."

"Very interesting. Thanks Mike."

--- Advertisement ---

The Gold Bull is Charging!

A CD made of Gold. Invest by December 16th.

Diversify, seek higher yields, and safely invest in Gold
Bullion market returns. You can do it all with the new
MarketSafeSM Gold Bullion CD from EverBank®.

Benefit from the upside price performance of Gold Bullion
without actually investing in gold or gold coins. Yields on
the CD are based on the average 5-year price performance of
the Spot Price of Gold Bullion, based on 10 semiannual
Pricing Dates. Get the security of Gold, in an even more
secure investment product.

This is the latest addition to EverBank's popular line of
MarketSafe CDs. You'll enjoy many of the same great
features and protections as the rest of the line, including
100% principal protection, market-driven upside potential,
no account fees, and FDIC insurance.

A conservative investment with great reward potential, the
MarketSafe Gold Bullion CD is a smart new way to invest in
the Gold market. Click here to open yours today!

www.everbank.com/main.asp?idpage=pro_mscd&affid=eb&referID=11925

-------------------------

GOLD IS THE NEW "GOLD"
By Dan Denning

How can the dollar strengthen, even while America's
monstrous deficits are growing? And how can the dollar
strengthen, even while gold is rallying? The readers of my
investment letter, Strategic Investments, have been asking
many questions like these over the last few weeks.

To respond, let me begin by quoting a currency-trading
colleague in London. He correctly forecast the dollar's
rise in 2005. But like me, he's an avowed dollar bear.
Here's what he wrote recently on dollar strength:

"It's true that this phenomenon seems to have a lot of
people wrong-footed and confused, but there are some very
clear and straightforward reasons why this is happening:

"-- Market consensus runs the other way: One of our biggest
calls toward end of 2004 was that the USD would surprise
everyone with its strength in 2005. During the final blow
off rally in EURUSD in December, the market was massively
bearish the dollar, which, as you know, was then completing
three consecutive years of weakness. End 2004 was the first
end-of-year when I saw most market participants forecasting
continued weakness the following year. In the previous
years of the dollar sell-off, most end-of-year forecasts
were for a dollar rebound. With most players lined up
against the dollar, market positioning actually favored
dollar strength this year.

"-- Repatriation flows: U.S. corporations are repatriating
profits earned abroad under the U.S. program allowing them
to do so at much lower corporate tax rates than normal.
This tax break expires at year-end, and I expect there are
still several tens of billions heading back. Hence further
flow pressure expected to favor the dollar.

"-- Oil: In the long term, high fuel prices lead to
conservation, but in the short term, demand is relatively
inelastic. Factories don't shut down, airplanes still run
on schedule (well, largely), and my nephew still leaves the
light on when he leaves the room. The United States
consumed 22 million bpd in January, and consumed roughly
that amount yesterday. Ditto the rest of the world. Since
globally we still require the same amount of oil every day
(indeed, overall demand is still growing), and oil is (for
now, at least) still priced in USD, the world requires more
USD every day to fund oil demand.

Strengthening Dollar: Further Pressure for a Stronger Dollar

This adds further pressure in favor of a stronger USD. Gold
is another commodity adding upward pressure to the USD,
though, of course, it's a much smaller market.

My friend brings up several interesting points worthy of
elaboration. First, the effect of high oil prices on dollar
demand. Because the dollar is the world's reserve currency,
global commodities trading takes place, for the most part,
in dollars. In other words, if you want oil, you need
dollars to get it.

Rising oil prices, then, actually create demand for
dollars. That's one way of explaining how both oil and gold
can rise along with the dollar. Usually, if oil and gold
(commodities) are rising, it means the dollar is falling
(inflation). What we have now is a relatively strong dollar
due to demand for the dollar as a unit of transaction.

In fact, this line of thinking led me to recall a study
from McKinsey & Company that pointed out just how vital the
dollar is to global financial flows. The dollar is the unit
of global liquidity, as the chart below shows. Cross-border
financial transactions of any sort have to be conducted in
some currency. And for now, the dollar remains the dominant
currency.
 

Strengthening Dollar: Equal Liquidity

Any currency that replaces the dollar will have to provide
for the same amount of liquidity. Either that, or a massive
breakdown in the dollar will tighten global liquidity and
will probably mean the death of central banking and the
printing of money out of thin air. It's possible, of
course, that the dollar's dominance in certain markets can
be replaced by another equally liquid currency.

For example, the Iranians hope to open an oil bourse in
Tehran where oil is priced in euros, rather than dollars.
Such a bourse would allow crude buyers and sellers to
bypass the dollar altogether. This has several major
implications. First, it means oil-exporting countries would
no longer generate petrodollar surpluses. They'd generate
petro-euro surpluses.

That also means the huge dollar surpluses that have up to
now been ploughed back into U.S. asset markets would
disappear. In other words, foreign support for American
stock and bond prices would fall once it's no longer
necessary to sell oil in dollars and invest those dollars
back in America. You'd see a lot more investment in other
markets. And it's interesting to note that as this
discussion takes place, the Dubai Stock Exchange opens for
business.

The United Arab Emirates may very well become the capital
market of choice for Middle East oil exporters who no
longer want to buy U.S. government bonds or American
stocks. Granted, it takes a long time for new exchanges to
mature and become vital. But if we're talking about the
beginning of a new global currency regime, the introduction
of new exchanges where the dollar is not king is certainly
a beginning.

Or more properly, the beginning of the end of the dollar's
reign. Maybe today's gold-buyers understand that the
dollar's recent strength is merely a fleeting fancy.

[Joel's Note: One way to capitalize on the run of the
raging gold bull is to invest in a CD made of gold. As the
dollar wanes, wise investors will diversify their portfolio
to retain their solid footing. Over the years we have
developed a close business relationship with Everbank. They
offer a safe way to reap the rewards of gold without the
hassle of actually investing in it or buying coins.

For a simple way to ride the gold bull all the way to the
bank, check out the Everbank Gold CD right here:

Riding the Gold Bull
www.everbank.com/main.asp?idpage=pro_mscd&affid=eb&referID=11925

--- Advertisement ---

The ONLY Stock You Need to Own...

This stock is seriously the ONLY stock you will need to own
over the next 10 years.

In fact, it's looking to be the next Berkshire Hathaway.
Buffett already has over $300 million in this company...
it's one of the biggest in his portfolio, even though it's
hardly a household name!
 
Find out how you too can get in on this amazing
opportunity!

http://www.agora-inc.com/reports/FST/EFSTFC03

-------------------------

Back due to popular demand...

The Agora Financial Reserve was such a runaway success when
released back in September that we have decided to reopen
the doors. A quick word of advice here for Rude
readers...we experienced a huge rush in the final weeks and
days last round and some folk had trouble getting in before
the closing date. We would hate to see you miss your chance
at employing the Agora Financial think tank this time. A
substantial discount will be offered from now until January
1, 2006. Read on below and get in before the holiday mayhem
begins:

The Agora Financial Reserve – Our Very Best
www.agora-inc.com/reports/AFR/WAFRF9B2/
 
[Joel's muttering: Does your portfolio already contain a
hefty mass of shiny yellow metal? Are you a rapper with
enough gold "bling" to buy up a lot in Laguna Beach? If you
cheered and popped the cork when gold barged through the
$500 mark, feel free to write in and boast about your savvy
investment aptitude. All emails to your dollar- poor
managing editor at aussiejoel@the-rude-awakening.com

Cheers,

JOEL

And the Markets...

	Thursday	Wednesday	This week	Year-to-Date
DOW	10,913	10,806	-19	1.2%
S&P	1,265	1,249	-4	4.4%
NASDAQ	2,267	2,233	4	4.2%
10-year Treasury	4.52	4.50	9.00	4.48
30-year Treasury	4.72	4.70	6.00	4.67
Russell 2000	690	677	7	5.9%
Gold	$503.40	$492.85	$7.32	15.0%
Silver	$8.49	$8.24	$0.27	24.7%
CRB	320.71	314.27	6.04	13.0%
WTI NYMEX CRUDE	$58.42	$57.41	$1.06	34.5%
Yen (YEN/USD)	JPY 120.50	JPY 119.80	-0.87	-17.5%
Dollar (USD/EUR)	$1.1734	$1.1788	-9	13.4%
Dollar (USD/GBP)	$1.7306	$1.7294	-7	9.8%