PRIVATE CLIENT LETTER
This letter is intended only for accredited investors who are clients of either Blackburne & Brown or C-Loans, Inc. You signed up for this letter with Blackburne & Brown or by using C-Loans.com. Removal instructions are below. Today we'll discuss how the U.S. dollar may have just received the Kiss of Death.
Joke
Du Jour
This gal wrote: Last summer, my husband took me camping for the first time. At every opportunity, he passed along outdoor-survival lore. One day we got lost hiking in the deep woods. He tried the usual tactics to determine direction -- moss on the trees (there was none), direction of the sun (it was an overcast day), etc., etc. Just as I was beginning to panic, he spotted a small cabin off in the distance. He pulled out his binoculars, studied the cabin, turned, and led us right back to our camp. "That was terrific," I said. "How did you do it?" "Simple," he replied. "In this part of the country, all of the TV satellite dishes point south."
The Dollar Got Clobbered Yesterday
The dollar fell to $1.50 per euro on Tuesday. Less than three years ago it took only 83 cents to buy one euro. No wonder Europeans are flying to New York to shop.
Gold, which typically moves in the opposite direction of the dollar, rose $9.50 to $958 per ounce on Tuesday. In 1999, this barbaric relic known as gold was selling for just $253 per ounce.
Bigamy Joke
Do you know the punishment for bigamy? Two mothers-in-law.
Why the Dollar Plummeted
The dollar swooned after a speech given by Fed Vice Chairman Donald Kohn at the University of North Carolina’s Wilmington Cameron School of Business on Tuesday. Kohn said in his speech that -
"Inflation expectations generally have appeared reasonably well anchored, giving the FOMC room to focus on supporting economic growth. Moreover, ... for a variety of reasons, I do not expect the recent elevated inflation rates to persist [George's note: Because of the deflationary pressures caused by a rapidly shrinking money supply!]. In my view, the adverse dynamics of the financial markets and the economy have presented the greater threat to economic welfare in the United States."
In other words, the Fed is focused right now on reducing the threat of deflation, rather than fighting inflation. Shortly after Vice Chairman Kohn made these comments, the dollar plummeted and finally broke through the important technical support level of $1.50 per euro.
Homer Simpson Joke
"Alright, brain, I don't like you and you don't like me - so let's just do this, and I'll get back to killing you with beer." -- Homer Simpson
So Where Does This Leave Us?
The Fed has no choice but to keep lowering interest rates at a time when the U.S. balance of trade is extremely negative. The moment that the Fed stops aggressively and continuously fighting deflation, our money supply is going to collapse like a black star. Remember, as we discussed in my last letter, deflation is now the default mode.
Arguably we now live in the worst of all economic worlds. In fact, here's a good rule of thumb: Everything you already own is going to fall in value, and everything you regularly buy is going to skyrocket in cost.
This means that your stocks, bonds and home are all going to fall in value. It also means that oil, food and commodities are going to keep increasing in cost, at least in dollar terms. Alan Greenspan commented this week that oil prices are going to keep climbing "forever". As the Church Lady used to say on Saturday Night Live, "Well, isn't that special."
Peanuts Joke
A man visits his aunt in the nursing home. It turns out that she is taking a nap, so he just sits down in a chair in her room, flips through a few magazines, and munches on some peanuts sitting in a bowl on the table. Eventually, the aunt wakes up, and her nephew realizes he's absentmindedly finished off the entire bowl of peanuts! "I'm so sorry, Auntie, I've eaten all of your peanuts!" "That's okay, dearie," the aunt replied. "After I've sucked the chocolate off, I don't care for them anyway."
Why Buy a Home Today?
Prices will only be lower next week, next month and next year. This last statement is an example of deflationary expectations. This is the kind of psychology that the Fed is desperate to avoid. You can see how deflationary expectations could snuff out an economy. Consumers would keep delaying their major purchases.
But the facts are hard for the Fed to hide. Year-over-year average home prices fell 8% last year. During the Great Depression real estate only fell by about 25%. Home values in Stockton have already fallen more than 25%.
Map Joke
"I wanna hang a map of the world in my house. Then I'm gonna put pins into all the locations that I've traveled to. But first, I'm gonna have to travel to the top two corners of the map so it won't fall down." -- Mitch Hedberg
Where To Invest Today
The Chinese symbol for crisis contains the symbol for danger and the symbol for opportunity. You can still make money these days. I continue to recommend long-term Treasury bonds, gold, and corn farm investments.
Now be careful here. I am not recommending corporate bonds, not even AAA rated corporate bonds. If the predictions in my new book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America, prove to be prescient, even many AAA-rated corporate bonds will default.
I like long-term Treasury bonds because the Fed has little choice but to fight deflation by lowering interest rates. If oil prices continue to increase, you can even super-charge your bet on deflation by buying zero-coupon Treasury bonds.
Gold is more than an inflation hedge. It's also a bet on the falling dollar. As the Fed drives interest rates to the floor, the dollar will lose purchasing power versus gold. And remember, physical gold held in your hot little hands cannot default.
Finally, the world is competing for a limited amount of food. The president of a major fertilizer company pointed out this week that the world's reserve of grain is down to less than 57 days. More alarmingly, he stated that unless the world has another record crop that there could be food shortages and possibly even famine somewhere in the world. Americans wouldn't starve because we're still a relatively rich country, but there are many people in Africa or Asia who might not be able to afford enough food if food prices skyrocketed.
Bottom line - the world is competing for a limited amount of food. This is very bullish for grain prices and farm land investments.
Monday Night Football Joke
This gal wrote: Not quite grasping the sanctity of "Monday Night Football," I plunked myself next to my new husband one Monday night to chat. He was distracted by the action on TV, and after being shushed a few times, I gave him a "look". Immediately contrite, he picked up the remote. "I'm sorry, honey," he apologized, "I'm being rude. You go ahead and talk. I'll just turn up the volume."
Trust Deed Investments
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Shotgun Joke
A woman goes into a sporting goods store to buy a shotgun. "It's for my husband," she tells the clerk. "Did he tell you what gauge to get?" asked the clerk. "Are you kidding?" she asked. "He doesn't even know that I'm going to shoot him!"
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Chariot Stocks Joke
I have a lot of "sweet chariot" stocks. The minute I buy them they "swing low!"
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Nosey Joke
My wife thinks I'm too nosy. At least that's what she keeps scribbling in her diary.
Will You Read My New Book in Time?
Most investors can't conceive of deflation. Commodity prices are soaring. Corn prices are on their way to the moon. Gold is is selling for over $950 per ounce. Deflation? That's impossible.
If you think that deflation is almost impossible - if you think that the Fed could always just flood the market with liquidity - then your investment portfolio is probably in mortal danger.
My new book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America, is a financial thriller that explains the dangers and significant chances of deflation. You really need to read it. And it's a fun read too - lots of action and adventure as you learn a bit more about economics.
Car Wash Joke
A church choir was putting on a car wash to raise money for a special trip to Bethlehem. They made a large sign that read: CAR WASH FOR CHOIR TRIP. On the scheduled Saturday, business was very good. But, by two o'clock the sky clouded, the rain poured, and there were hardly any customers. Finally, one of the soprano singers had an idea. She printed a very large poster with the words: WE WASH. GOD RINSES. (Next to the words was an arrow pointing skyward.)
Business boomed!
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