What will Happen to Gold, this week and NextDollar near decade lows! The consequences ... (By Larry Edelson)
8/26/2006 8:00:00 AM
Larry here with an update on the dollar: It’s crashed again, and now hanging on the edge of a precipice.
It has plunged to within a hair of its all-time low for the decade.
It’s sinking silently into an abyss.
And it’s sending the signal that virtually every commodity under the sun — gold, silver, oil, gas, base metals and food — is on the launching pad, about to take off.
That means there’s truckloads of money to be protected ... and boatfulls to be made. In a few moments, I’ll tell you how.
Why The U.S.
Dollar Is Plunging
Over the last several weeks the value of the U.S. dollar fell sharply against the euro ... the British pound ... and even against the Thai baht.
Right now, from what I can tell, the dollar selling is coming mostly from professional money — hedge funds, some mutual funds, and currency traders. And that alone is already having a big impact.
So when big corporations, central banks and the mass of individual investors start dumping their dollars ... watch out!
This is not being widely discussed in the media. But it’s being driven by some of the most powerful economic forces of modern times:
* The worsening trade deficit. Any glimmer of hope that the U.S. trade deficit was shrinking has been shattered by a startling $1.1 billion upward revision in the deficit for May.
For the first half of this year, that means the trade deficit is at a shocking $768 billion on an annualized basis, smashing last year's record $716.7 billion
* The dire prospects for the federal budget. The recent headline news of a smaller-than-expected deficit is totally misleading. A recent report from the Congressional Budget Office states that the federal deficit will total $1.76 trillion over the next decade! And they’re calling THAT “an improvement”?
Here’s the situation in a nutshell:
The U.S. debt picture is deteriorating ...
Overseas investors in dollars are getting nervous ...
The U.S. is in its most vulnerable international position since the Cold War ...
The chickens are coming home to roost, and ...
The consequences are far-reaching.
Consequence #1
More Inflation — MUCH More!
Already, even without a dollar plunge, inflation is embedded in today’s economy. We live in a world of fiat currencies with no ties to a gold standard anywhere. And we see only the feeblest of steps by central bankers to head off a price explosion.
That’s a very flammable situation. And the dollar plunge I just told you about provides the sparks. My view:
It’s almost impossible to imagine this kind of a dollar decline without setting off more inflation.
Consequence #2
Transportation Stocks Getting Killed
Look at the big beating that the Dow Transports is taking. Every time the dollar goes down, their cost of fuel is going to go up. They can’t jack up their prices. So their business gets killed.
Ditto for railroads, airlines, and more.
Consequence #3
Sectors Going Wild, and
Sectors Falling Apart
A sinking dollar is a powerful force. But as you’ve seen, it does not affect the entire economy uniformly. Quite to the contrary, some sectors go wild to the upside; some sink relentlessly.
The prime beneficiaries: Oil and gas companies, utilities, consumer staples, pharmaceuticals, mining companies, and virtually all natural resources.
The prime victims: Companies that depend too heavily on imported resources and borrowed money. I told you about the transportation companies. Plus, right now we think the other most vulnerable areas are real estate, banks, mortgage companies, technology, retailers, and biotech.
So when you see the broad averages going nowhere, meandering in a narrow range, don’t let that fool you. Behind the averages, the moves taking place in individual sectors has been huge. And now we’re getting ready for the next big wave. My view:
If you’re in the wrong sectors, money will be lost quickly. If you’re in the right sectors, profits can pile up faster than you can imagine!
This Is About To
Explode Very, Very Soon!
A sharp decline in the dollar is precisely why gold is soaring again, blasting nearly $12 higher this week.
It’s also a key reason why oil is back near $73. And it’s also why long-term U.S. Treasury bonds are very vulnerable to a sharp decline.
With the dollar crashing, savvy investors are not going to sit still and watch their dollar-denominated holdings lose value. They’re going to take action — to hedge ... or to move their money from weak sectors to strong sectors, looking for safety and capital appreciation.
Your goal: To stay at least one step ahead of them.
Four Steps To Take NOW
Here’s what I recommend ...
Step #1: Be very selective in the current stock market. With the exception of the market sectors that benefit from a sliding dollar, like the ones I mentioned previously, many stocks will go nowhere or, worse, decline sharply.
Step #2: Continue to steer clear of all long-term bonds, keeping a big chunk of your cash in short-term Treasury bills (maturities of less than 1 year) or the equivalent money-market fund. This is a safe, liquid way to capitalize on rising interest rates.
Step #3: Seriously consider core, long-term positions in at least two ETFs — streetTracks Gold (GLD) and Oil Service HOLDRS.
Step #4: Use ETFs in a systematic trading service that alerts you exactly what to buy, when and where. Aim to turn each $10,000 into $209,210 ... each $25,000 into $523,025 ... each $50,000 into $1,046,050 — all based on a documented, real-time track record that we’ll be glad to share with you.
For more information just check our web page or call Sarita at 800-393-1706.
Best wishes,
Larry Edelson
Editor, Real Wealth Report
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