The Crumbling U.S. Economy Will NOT
Sink the Buck This Year

Today’s comment is by Sean Hyman, Currency Director and Editor of The Money Trader.

Dear A-Letter Reader,

As I read and do research, I still find that many investors believe the crumbling fundamentals of the U.S. economy are going to sink the dollar this year.

I just don’t buy that argument for 2008. Sure, I see the dollar falling a bit from its present level. But I don’t see the dollar plummeting this year, as it has in years past.

So the crowd will get it wrong but you will be ahead of the crowd.

Many point to the eroding fundamentals of the U.S. economy and say that the Fed will have to cut rates again in 2008. And they’re right. But when the Fed cuts rates again, the buck will dip only a little in proportion to what it has done in past years. Here’s why:

Investors Buy Ahead of the Fundamentals

On Wall Street, smart investors look to buy a stock before that firm’s earnings recover. Why? They want to snatch up the bargain basement prices. They preemptively invest. So the stock starts to rise in its price even before the earnings get there.

The same thing happens in currency investing. The U.S. dollar has fallen hard over the past several years, so investors around the world are justifiably concerned about the dollar. But now that everyone is bearish on the dollar, much of that bad dollar sentiment is already “baked into the cake.” Savvy investors will buy the beaten down buck before others jump on board and run the price up.

Even in an overall bear market for the buck, there are recovery years. For us, 2005 was one of those years. Take a look at the chart below.

The Dow Crashed from 11,000 to 10,000
as the Buck Rallied in 2005!

Who would have wanted to “short” the dollar in 2005? I sure wouldn’t have wanted to be that trader.

Now that you can see that the dollar can rally even within a larger bear market, let’s take a look at why the dollar will hold up better than many currencies.

More Unemployment woes are upon us!

There’s a cycle starting in America. The Fed just kicked it off.

In December, there were only 18,000 people hired nationwide in an economy of 300 million people. But wait, it gets worse. The unemployment rate went up from 4.7% to 5%. That’s huge when you look at how large our employment base is in America.

So not only were corporations not hiring but they were even firing in December. Corporations rarely cut jobs just before Christmas because it hurts the company image. They look like the “Scrooge” of their industry. So if they were still cutting jobs out of necessity, it shows how bad things are.

Many companies that can delay firing employees until after Christmas will be laying off workers in the first quarter of this year.

Less Employed = Less Consumption

As Americans lose their jobs and unemployment grows, consumers become less eager to spend. Either they got laid off or they know someone who did.

So they worry that their heads could be the next ones on the chopping block. Therefore they cut out many of life’s “wants” and focus life’s “needs.” This starts to choke off consumer sales. And sales are corporations’ lifeblood.

As consumers spend less (like they’re doing right now), it slows corporate earnings. Earnings drive stocks, so when earnings drop off, stock prices fall. This is what’s about to happen now.

As stocks crash, investors grab their money and run. They’ll yank their assets from the Dow, Nasdaq, S&P 500, Russell 2000, etc. And instead, they’ll go looking for “safe” assets.

Usually, investors run towards beaten down assets. The market can easily pinpoint what has been beaten down and oversold by looking at what has been “sold off” over the past few years. So beaten down assets are the “safe assets.” These beaten down assets benefit when stocks drop off.

Once this analysis is done, these investors come to the conclusion that assets like the Japanese yen, Swiss franc and U.S. dollar have been sold off steadily for several years now. So for the time being, they are viewed as bargains. Therefore, money runs there to “hide” from the market fallout that will happen.

The Fall of International Markets Will
Breathe Life into the Buck

Here’s another dynamic that will be at work at the very same time. As the U.S. economy slows, so will other markets around the world that depend on exports to America. As overseas markets get more volatile and have strong “sell off” days, traders will send their overseas U.S. investment money straight back home. Even local/domestic money to those economies will run to the buck.

When that happens, investors will have to convert those investment assets out of foreign currencies and back into the U.S. dollar as the money returns home. This added buying pressure will support the buck from falling like it has in past years.

As the Dow Crashes, the Dollar Will Rise

So to sum it all up…The Dow has already shaved off 1,500 points. As it crashes through 12,500, look for the stock sell off to accelerate. As this happens, look for the dollar to hold its ground and even rally this year. Who knows what 2009 holds yet, but this year the greenback should get some much needed relief.

SEAN HYMAN, Currency Director

EDITOR’S NOTE: Each day, Sean exploits these short-term dollar trends for quick profits for his Money Trader subscribers. He tells you exactly which currency pairs to trade, why trade it and specifically how to trade for quick short-term profits each day. In short, he shows you how to trade like a professional currency trader – without the hassle of actually becoming one. Click here to find out more about his service so you can see if it’s right for you.

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Hear All About the One Metal You Should NOT Buy Anytime Soon

U.S. Virgin Islands: IRS Colonialism

After World War II “colonialism,” especially the British imperial variety, fell out of political favor. Afterwards, slowly, and sometimes violently, new independent nations took their sovereign place on the world map.

“Colonialism” accurately can be defined as one nation controlling or exerting government influence over another dependent country, territory or people.

Colonialism has also been described as a stronger country exploiting a weaker one. That’s exactly what the U.S. Internal Revenue Service is currently doing to the U.S. Virgin Islands.

Many Americans know very little about our national history, much less our own colonial past. So let me give you some background. Our colonial past began with the U.S. military victory in the Spanish-American War (1898). As a direct result, America gained control over Puerto Rico, the Philippines, Guam and the Caroline Islands.

The United States Virgin Islands – St. Croix, St. Thomas, St. John, and Water Island (pop. 109,000) – have been U.S. territorial possessions since the U.S. peacefully purchased them from Denmark in 1917. The U.S. Department of the Interior oversees USVI and the Virgin Islands have a non-voting delegate in the U.S. House of Representatives.

Just 1100 miles southeast of Miami, Florida, USVI is one of the most impoverished jurisdictions under the American flag.

But most Americans only know the islands as a vacation venue with beautiful resort hotels, white sandy beaches and blue lagoons. The territory’s per capita income is a pitiful US$18,652. That’s less than half the average income in the continental United States and US$10,000 less than in Mississippi, the poorest state.

Under a unique special federal income tax arrangement applying only to the USVI, it is possible for U.S. nationals and others who make the islands their main residence to enjoy substantially reduced income and corporate taxes compared to mainland United States.

To attract investment and help the poor island economy, the USVI government grants generous tax relief packages. These include a 90% exemption on corporate U.S. federal income taxes for VI chartered corporations, partnerships and limited liability companies.

Owners of VI entities who are bona fide residents are eligible for a 90% exemption on taxes on income these entities produce. Because the VI has no state or local income tax, bona fide residents pay an effective U.S. federal income tax rate of just 3.5%. That has drawn wealthy Americans from the mainland and created a sustained economic boom.

These lower taxes make the islands an offshore tax haven option for very wealthy U.S. citizens, entrepreneurs and foreign nationals seeking U.S. citizenship. The USVI Economic Development Commission (EDC) has strongly promoted these generous tax breaks to attract capital to the islands and provide much needed jobs.

All went well until six years ago, when the IRS noticed a rapid increase in the number of high net worth individuals moving to the USVI. Now the IRS is engaged in hundreds of audits of USVI residents.

And the IRS is making the extraordinary claim that there is no statute of limitations on such audits. They’re even saying that the IRS can go back as many years as they wish in every case.

Click here to read my blog to get the full story on this extraordinary IRS invasion, and what the USVI policymakers have to say about it.

BOB BAUMAN, Legal Counsel

P.S. In the meantime, if you are interested in America’s own tax haven, click here to find out how you can legally qualify for its special tax breaks.

Wealth

Another Sub-prime Casualty Waits in the Wings

Today, it’s the fallout from the sub-prime housing bust that’s impacting Wall Street.

But the collateral damage may soon create another credit crunch casualty – Wall Street’s supposedly “independent” credit rating agencies. A recent article in Bloomberg details the whole sordid mess.

Near the peak of the late-great U.S. housing boom, “Wall Street marketed a new type of security backed by high-interest sub-prime mortgages issued to the least credit- worthy homebuyers.” The Wall Street money machine has never come up short on innovation, churning out exotic new products at the blink of an eye.

Sub-prime mortgage-backed securities were just such a shiny new “product” created by the financial wizards. But since investors might question the quality of a security called “sub-prime,” Wall Street needed a helping hand to sell its new securities. In other words, they need favorable credit ratings.

Big institutional investors such as pension funds, mutual funds, and most state and local government investment funds must follow strict rules that prohibit them “from buying securities that don’t carry investment-grade ratings.” These institutional investors are Wall Street’s bread-and-butter, so an investment-grade rating was essential in selling sub-prime.

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Today’s comment is by Bob Bauman, JD, former U.S. Congressman and now Senior Writer and Legal Counsel for The Sovereign Society.

Dear A-Letter Reader,

If you watch late night American TV, you may encounter a local lawyer claiming that you’re in dire need of something you never even thought of – a trust.

These late night legal brains usually tout these trusts as the best way to protect your assets, cash and investments from claims and lawsuits. And indeed, I’ll grant them America is one of the most law-suit happy nations in the world.

So what’s a trust? And who really needs one anyway?

Stripped to bare bones, a trust is a three-way legal device. It’s a contract of sorts, that allows one person (the trustee) to take title and possession of cash or property and hold, use or manage those assets for one or more other persons (the beneficiaries).

The person who creates the trust (the grantor) decides what it will do and donates the property to fund it. You actually create the trust by writing and signing a trust declaration, usually as part of an overall estate plan.

Before I go further, let me say: Setting up a trust requires expert advice and a careful review of existing arrangements that affect your estate.

One special kind of trust that I often recommend, the offshore asset protection trust (APT), can place your wealth well beyond the easy reach of claimants, creditors, an irate ex-spouse and even the government of your home country. More about that in a moment.

Trusts, Like Governments,
Are All About Who Has the Power

Most offshore asset protection trusts are discretionary trusts, a form that allows lots of planning flexibility.

Discretionary may mean the trustee is given power to decide how much will be distributed to beneficiaries and, in some cases, who qualifies as a beneficiary. A trustee often is given the authority to recognize beneficiaries in a class of persons (“my children and their heirs”). Or the trust could contain what is known as a “power of appointment.” This allows the trustee to choose beneficiaries from a class of eligible persons. A trust may be created for any purpose that’s not illegal or against public policy.

A trust can own title to, and invest in, real estate, cash, stocks, bonds, negotiable instruments, and personal property. Trusts can provide care for minor children or the elderly; or pay medical, educational, or other expenses.

A trust can provide financial support in an emergency. They can also help with an older person’s retirement, pay for a young person’s education, administer financial plans during marriage or divorce, or even carry out premarital agreements.

The Farther Away the Better

One of the most popular asset-protection devices in trust form is the foreign asset protection trust (APT), a personal trust created and based in a foreign nation.

This kind of APT shields your assets far better than any domestic trust, because it is located outside the United States or your home country. Distance makes the trust grow stronger. This trust shields business and personal assets against demanding creditors, litigation and other unpleasant financial liabilities in your home country.

The key to creating such a trust is simple: planning. You must plan and create your offshore asset protection trust long before you really need it, at a time of personal financial calm.

You can’t use an asset protection trust as a last-minute response to a sudden financial crisis – it won’t work. In fact, if you try to set up an offshore trust when you’re in the middle of financial upheaval, you could face civil liability for concealing assets or fraud under the fraudulent conveyance laws.

In litigation-crazed America, you shouldn’t wait for trouble before taking offshore precautionary measures. As a practical matter, placing title to property in the name of an offshore APT cannot really protect assets if they physically remain within an American court’s jurisdiction.

Assets actually transferred to the APT’s foreign jurisdiction, like funds moved to an offshore bank account, are usually safe from a U.S. creditor, even if he knows the account exists.

Seven Reasons Why Trusts Are So Darn Useful

A few reasons why offshore APTs have proven to be so effective:

1. Start-Over: In many cases, the courts of foreign “asset haven” nations will not recognize the U.S. or other nations’ domestic court orders. A foreign judgment creditor seeking collection must re-litigate the original claim in the local asset haven’s courts after hiring local lawyers. He may be required to post a bond and to pay legal expenses for all parties if he loses. The legal complexity and cost of such an international collection effort is likely to stop all but the most determined adversaries and promote quick settlement.

2. Minimal Requirements: An offshore trust does not need to be complicated. You can create one by signing the formal documents and opening a trust account managed by your local trustee in a foreign bank of your choice. Respected offshore banks traditionally provide experienced trust officers to handle offshore trust matters. U.S. asset protection attorneys routinely work directly with such offshore banks and trust companies. Most international banks have U.S. dollar denominated accounts, often with better interest rates than American banks offer.

3. Greater Protection: Under the laws of asset haven nations, assets placed in an offshore asset protection trust have far more protection than under domestic U.S. trust law. The law in such countries provides an asset protection “safe harbor” that is unavailable in the U.S. and many other nations. With an offshore APT, foreign-held trust assets are not subject to the jurisdiction of your local or home country judicial system.

4. Fast Acting: The statute of limitations imposed on initiating a foreign creditor’s suit varies. In many asset haven nations, the statute begins to run from the date you establish the asset protection trust. Some haven nations, such as the Cook Islands, have a limit of one year for initiation of claims. Others impose a claims filing limit for certain creditors of two years after APT formation. As a practical matter, it may take a creditor longer than that just to discover you have a foreign asset protection trust.

5. Confidentiality: The offshore APT can provide greater privacy and confidentiality, minimization of domestic, home country inheritance taxes, and helps your heirs avoid the probate tax process after your death. It provides increased flexibility in conducting affairs in case of personal disability, allows easy transfer of asset titles, and avoids domestic currency controls in your home nation.

6. Estate Planning: An offshore APT can serve the same traditional estate planning goals achieved by domestic strategies. These include using bypass trust provisions to minimize estate taxes for a husband and wife, trusts that allow maximum use of gift tax exemptions through planned giving, and trusts that provide for maintenance and tax free income for a surviving spouse. An APT also avoids the problems, delays and costs of the domestic probate process in the U.S. and other nations.

7. Profitable Investments: An offshore APT is an excellent platform to use to diversify investments and benefit from global tax savings. The asset protection trust permits access to some of the world’s best investment opportunities, without concern for your home nation’s legal restrictions. Offshore foreign stock, bond, and mutual fund trading are not covered by laws such as the U.S. Securities and Exchange Act or its administrative arm, the SEC. An offshore APT can also purchase attractive life insurance and annuity products not available in the U.S. and other nations.

BOB BAUMAN, Legal Counsel

P.S. That really just scratches the surface of what an asset protection trust can do for you. To get the full story on the oldest asset protection vehicle on the planet – that dates back to the middle-ages, click here.

We’re Not #1

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The First Shall Be Last

A recent article in the Wall Street Journal reminded me of an old Sunday school lesson from years back. It applies perfectly to the stock market…”the first shall be last.”

The Journal points out that after “a reign that began in February 2002, the financial sector” is no longer #1 in the S&P 500 Index. Last week, banks, brokers and other financial shares in the blue-chip index slipped to a 16% weighting.

That puts financial shares in second place, just a shade behind the technology sector that now makes up 16.4% of the index.

That’s the first time in six years that the leadership has changed in America’s most widely followed stock index.

As the article points out, this change at the top isn’t due as much to strength in tech – as to the shellacking financial stocks took in the past 12-months.

The S&P financial sector index has plunged more than 30% – or US$814 billion in lost market value since June 1, 2007. That’s the biggest loser by far among any of the 10 major sectors.

There’s a cautionary tale here for investors who believe that big financial stocks like Citigroup will quickly rebound from sub-prime woes. The technology sector was far and away the biggest sector in the S&P 500 back in the 1990′s, but suffered a long and painful fall from grace.

Tech shares peaked at nearly 35% of the S&P 500 back in 2000 then fell victim to a violent bear market that saw tech shares lose nearly 80% of their market value in less than three years. Tech stocks made up less than 13% of the S&P 500 by October 2002.

Judging from the dramatic reversals of fortune suffered by tech shares in the recent past, financials may have a lot more room to decline in the years ahead.

And since they are well represented in popular indexes such as the S&P 500 and the Dow Jones Industrials, financial sector shares could be a major drag on overall stock market performance for quite some time. Stay tuned.

MIKE BURNICK, Senior Editor and Global Markets Analyst

The Fed’s Not in a Rush to Raise Rates –
No Matter What the Experts Say

At least the traders in the futures market “know” what the Fed will do next. They’re betting on a rate hike – you can tell because the futures markets are starting to discount an interest rate hike by the Federal Reserve in October.

Bond yields have risen sharply off their four-year lows in mid-March. Core inflation is strengthening. Also, the broadest gauge of money supply, the expansion of credit, is running at a dizzy 16% annualized rate. This data suggests the Fed is way behind the inflation curve and will start raising lending rates this fall.

But could the market be wrong?

I believe this rate hike prediction is WAY too premature. In fact, I’d say the Fed’s not even done easing credit conditions at this point. I’m still forecasting the Fed will hack the Fed Funds rate by at least another 1% before this easing cycle is over. The Fed Funds rate now sits at 2%.

To heal the banking system, the Fed must remain accommodative. Meanwhile, housing is still in a complete freefall and it’s showing no signs of bottoming. That’s yet another industry that can’t afford higher rates. Plus, with the unemployment rate gradually rising since last winter, the Fed will unlikely start cutting off precious liquidity when consumers and companies need cash flow.

Banks are still bleeding losses. It’s becoming increasingly clear that the credit crunch is far from over. Wachovia and Washington Mutual won this week’s booby prize for dropping another bomb on the financial services sector.

Mark my words: the Federal Reserve will sacrifice the dollar in its desperate attempt to revive growth and bank lending. Provided the bond market doesn’t fall apart along with stocks, this strategy should continue for the remainder of 2008.

I don’t expect the dollar to post big losses from these levels, but it won’t post a major bear market rally under these circumstances, either. Eventually, and assuming oil prices come down, the euro will start to deflate along with other European currencies, which I view extremely overvalued against the dollar.

The way to play this sluggish economy is to remain invested in select commodities, including gold, high grade corporate bonds, blue-chip global multinationals (excluding most banks) and Asian currencies, including the yen.

ERIC ROSEMAN, Investment Director

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The Infamous “Expat Tax” Moves a
Step Closer to Reality…

Today’s comment is by Bob Bauman, Legal Counsel and Senior Writer for The Sovereign Society.

Dear A-Letter Reader,

As my colleague Mark Nestmann and I have been predicting for some time, it appears 2008 could be the year when the Democrat controlled United States Congress imposes an “exit tax.”

This official “exit tax” would apply to both U.S. citizens and long-time resident aliens who decide they want to leave America permanently.

Policymakers slipped this horrendous restriction into a popular military pension/pay bill, (without hearings or public notice, I might add), so insiders say President Bush may actually sign it into law.

This outrage is happening despite the protections in the U.S. Constitution. The Constitution guarantees the right to voluntarily end your U.S. citizenship. It also grants you the right to live and travel abroad freely and acquire and enjoy second citizenship from other nations.

Furthermore, the U.S. Supreme Court has confirmed every one of these basic rights. (Even the U.N. Charter affirms these rights and in 2004 the European Court of Justice overruled a similar French exit tax because it violated the EU treaty on human rights.)

Indeed this confiscatory exit tax harkens back to Adolf Hitler’s notorious departure taxes that stripped Jews of their property before they were allowed to escape from Nazi Germany. It also brings to mind similar oppressive laws to those fleeing Stalin’s Communist Soviet Union and apartheid-era South Africa.

Civil Liberties Be Damned

If the so-called Democrat Party “liberals,” who supposedly advocate civil rights and liberties, can impose such an oppressive exit tax, what will happen when Democrats take control of both the presidency and Congress? (And are the Republicans much better?)

Could United States citizens and legal residents suddenly find their right to travel, their freedom to live in other countries restricted, or even forbidden? Could such a government also impose currency exit controls and other extreme measures?

After the 2006 election I predicted that “Democrats will have the power to write radical new laws tempered only by the hapless President George Bush’s shaky veto pen.” The exit tax is a prime example.

Europeans Already Have Trouble Entering the U.S.

If you think travel restrictions on citizens leaving America are unlikely, check what’s happening to Europeans trying to come into the United States.

“Europeans traveling to America could face travel restrictions because of concerns about terrorism, the U.S. head of homeland security said.” reports The Guardian. “Michael Chertoff told the BBC that the U.S. increasingly saw Europe as a ‘platform’ for a terrorist attack and he blamed the current visa waiver program for European citizens as a reason for America’s vulnerability.”

Under Chertoff’s plan, Europeans and others who now can enter the U.S. for 90 days without a visa would be required to notify the U.S. government 72 to 48 hours before they board their flights.

The Chertoff idea, (which the Democrat Congress has already authorized), is to exclude people who pose a possible terrorist threat to its U.S. citizens. That’s all well and good, but it would not take much to expand exclusion from the U.S. for “terrorism” to include a host of other supposedly dangerous and “preventable” alleged crimes – even financial crimes.

Then this exclusion principle could be turned around and used to forbid Americans to travel abroad for various official reasons.

Government Already Use Passports as Privileges – Not Rights

The U.S. government already uses your passport to restrict your right to travel, rather than to guarantee it. The government can restrict your passport use if you fall behind on paying your taxes, or if you fail to report worldwide income and assets.

Already the United States can deny a passport simply for being in debt to the Internal Revenue Service, due to problems with federal government agencies or because you may owe more than US$2,500 in back payments for court ordered child support.

I’m not saying travel restrictions and currency controls are inevitable. But depending on the 2008 election outcome, I think it could happen.

That means you better get your financial house in order now and if you’ve been considering a second passport, start the process now, while you still can.

BOB BAUMAN, Legal Counsel

The Deeper, Darker Sequel to Last Year’s
Credit Crunch Part I

It appears that last year’s gridlocked credit markets have now returned to “normal.” Well, as “normal” as can be expected considering the highly leveraged and rather opaque nature of the modern financial system.

Libor rates, the credit crunch barometer, have declined significantly in recent weeks. Asset backed commercial paper rates have likewise fallen substantially, and companies have been net issuers of ABCP in recent weeks.

This indicates fair weather has returned to global capital markets. Mortgage loan rates too have fallen below 6%. Mortgage loan applications are surging again. They’re up over 100% in the past two weeks alone – as homeowners scramble to refinance their way out of trouble before existing loan rates reset.

These are all hopeful signs that I’ll be watching carefully in coming weeks and months. But if the trend continues, the worst of the credit crunch market shock may be over. Or is it?

New concerns were raised last week about the ability of financial firms to make good on their “derivative” obligations. Also, there’s growing concern about firms’ solvency that insured billions in sub-prime bonds amid rampant credit rating downgrades. Could this be the next shoe to drop? Is this yet another, deeper and darker chapter in the sub-prime market shock?

The latest issue to worry about is the market for credit default swaps (CDS). A recent article by bond fund manager Bill Gross highlighted the growing risk of a blowup in this derivative market.

Credit-default swaps are a kind of insurance policy that financial firms trade (or swap) with each other. These CDs are supposed to protect against the risk that a particular bond may end up defaulting. If the bond itself doesn’t pay principle and interest as an investor expects, the CDS pays off instead. At least that’s the theory…

Tune in tomorrow to find out why this theory could fall to pieces in the coming weeks and months. Or read my blog right now for the full story.

MIKE BURNICK, Senior Editor & Global Markets Analyst

P.S. Even as Libor rates return to “normal,” this credit crunch continues to attack global markets. This February 20 – 23, I’m going to focus my presentation at our Emergency Money Summit on the specific ETFs and options you can use to hide from this now epic credit crunch. My 20 colleagues from around the globe will also be on hand to give you their savviest bear market strategies – that could save your retirement and global portfolio in the coming years. Click here for more on this historic event.

Currencies

Four Things That Must Happen to Turn the
U.S. Economy Around

So what will it take for things to improve and turn around in America? It will take many factors working at once. Let me go through several of the most important ones.

Housing Market Needs to Stop Declining. In short, housing must improve. When will this happen? Housing stocks usually recover many months before the actual housing market does. That’s because the stock market likes to price in what traders think will happen in the next six months. So when these stocks turn up, (as shown in this housing ETF graph below), then we may be only be months away from a housing turnaround that will benefit the economy. So look for the downtrend line to break as a starting condition for the economy to recover.

Oil Prices Must Continue to Fall. High oil is like a tax on the consumer. There are a lot of things you have the choice of buying or not buying…gasoline for your car is not one of them. So as the price of oil and gas go down, this will put more money back into the consumer’s pocket. That will do more good than what will come out of Washington, D.C.

Interest Rates Need to Be Slashed Further. As interest rates drop, credit becomes cheaper. So loans for consumers and corporate America cost less. Therefore the consumer and corporate America can get back into “growth” mode. As corporations can borrow to expand more cheaply, then things will look up again. That will take care of the unemployment problem in time. Earnings typically pick up first and then additional hiring follows afterwards. So there will be a delay at first…but be patient. At least you’ll see the “light at the end of the tunnel” as corporate earnings improve.

Finally, We Need a Vote of Confidence from Consumers. We’ll see this when they spend. So watch the U.S. retail sales numbers. We won’t have an economic recovery without the consumer being involved. So watch for the Retail Index (RLX) to pick up. Again, many times…these indices will precede what we see in the economy. However, that’s a good thing because it gives you a heads up. So once you see these things improve, wait a few months and then start tip toeing back into the stock market and into high yielding currencies.

In the meantime, beaten down assets and defensive assets will remain supreme.

SEAN HYMAN, Currency Director

P.S. Today’s currency comment originally appeared in our daily currency E-Letter, My Two Cents. Don’t receive our currency E-Letter? Sign up right now to receive all our currency insights – absolutely FREE – five days a week.

The Market Secret You Can Learn from the
Maids and Cooks Part II

Today’s comment is by Sean Hyman, Currency Director and editor of The Money Trader.

Dear A-Letter Reader,

Yesterday, I explained how to tell when a global market bubble is about to pop. In short, it’s when the “common” investors – from the maids in Shanghai to the shoeshine boys in New York City – are pouring their life savings into one investment trend.

That’s when you know an investment trend has already gone mainstream. It’s time to sell and get out now, before the market comes crashing down around you. It happened right before the great depression. This happened again during the tech stock era. And now it’s happening in China.

In fact, as I said yesterday, hopeful investors opened 99 million new accounts at China brokerages in 2007. Now, over 300 million accounts exist. That’s like every man, woman and child having an account in the United States. When this many common investors are ready to roll the dice in the stock market, it’s a sign that the so-called easy money is already gone. And more importantly, it means a bust is coming in Chinese stocks.

But that’s just one bubble out there in these largely bearish markets right now. The other bubble is infinitely larger…and it’s winding up to rock the currency market very soon.

The Next Big Market Shock…is Coming in the Currency Market

This massive bubble is known as the carry trade. How big is the carry trade? One analyst estimated the carry trade’s size equals the record of net “short” positions in yen futures on the Chicago Mercantile Exchange. This puts the total size of the carry trade as high as US$1 TRILLION.

What is this “carry trade?” A carry trade happens when traders borrow a low-yielding currency like the Japanese yen (since it has an interest rate of 0.50%) and use those funds to buy a higher yielding asset like the New Zealand dollar (8.25%) or Australian dollar (6.75%).

Currency traders combine this carry trade strategy with extreme leverage. Using leverage of 100 to 1…or even 200 to 1, traders have earned many times the difference between the two rates for years now.

For years, the carry trade has gone almost straight up, and the common investors have started to notice. Now Japanese pensioners and businessmen are taking advantage of the Bank of Japan’s 0.5% benchmark rate to borrow yen to buy higher-yielding currencies in New Zealand, the U.K. and Australia.

In the last year, even Japanese housewives have joined into the “carry-trading frenzy.” This trade has become so popular that there are times when the trading volume of these housewives outnumbers the professional traders’ volume.

Where This Trade Goes…Crisis Follows

Over the last decade, countless investors borrowed cheaply in yen and put the funds into higher-returning assets overseas. The carry trade is a wonderful thing – until it goes wondrously wrong.

It happened in 1998, when Russia’s debt default hastened the implosion of Long-Term Capital Management LP. Investors scaled back their positions drove the yen up 20% in less than two months.

The growing popularity of so-called carry trades has forced the yen to fall in value. The yen has dropped against all of the 16 most-active currencies in the past year.

However, this carry-trade parade is about to get rained on in a major way. Check out the chart of the euro vs. the Japanese yen (EUR/JPY) below. This trade is a ticking time bomb just waiting to explode. Look to the far left of the chart, if you don’t believe that history can repeat itself.

EUR/JPY’s Seven Year Uptrend Line is about
to Crumble on Yen Strength

Here’s how you can benefit from this.

Three Strategies to Make Sure You
Profit from the Slaughter

The unwinding of the carry trade is about to reverse fortunes for millions of traders and investors around the world. Many may lose their entire investment accounts. As you saw above, some sink everything they have into it. That’s part of any market euphoria.

When this happens, money will pour out of their accounts. Where will this money flow? It will go straight into the pockets of a few fortunate investors – who recognize this carry trade for what it’s become: a market euphoria.

Make sure you aren’t one of these investors who’s being led to the market slaughter. Instead position yourself to take advantage of the fall by shorting EUR/JPY in the spot forex market. If you do this, make sure to use light leverage.

For more conservative investors, you can also just buy the Japanese yen – either with an exchange traded fund (symbol: FXY), or specialized Asian CD. Any of these approaches would get you ready to take advantage of this major carry-trade upset.

At any rate, get ready for “land of the rising sun” to become the “land of the rising yen.”

SEAN HYMAN, Currency Director

P.S. I’ll be riding this trend all year long in my Money Trader service. In fact, we’ve been taking advantage of the yen for the last three months. By going both long and short, I’ve helped my subscribers bag profits of 96%, 104%, 130%, 156%, and 213% – using the currency trading strategies usually reserved for big banks and hedge funds.

How One Man Made $24 Million with the “Weismann Secret”

Just imagine stumbling upon the world’s greatest investment secret. One that could quickly transform you from humble beginnings to a multimillionaire, many times over.

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Going Global by Investing…in GE?

Here’s yet another example of how you can “go global” without leaving the good old United States. You can invest in the blue-chip icon General Electric (GE). GE recently reported solid profits for all of 2007 – mainly due to their surging international sales – especially in emerging markets.

Total sales for GE last year jumped nearly 18% to US$48.6 billion. More than half of total revenues came from outside the U.S. for the first time in the company’s history. Amid a sharp U.S. slowdown, GE still sees robust business activity in the Middle East, Asia, Latin America and Eastern Europe.

Commenting on the company’s results, GE chief financial officer Keith Sherin said, “Not everything is gloom and doom. There is a big global economy out there, and there is an awful lot of economic action.”

This “action” is coming mainly from emerging markets where infrastructure build out continues at a fast pace.

In fact, GE’s infrastructure businesses posted 26% profit growth last year. This division makes high-end industrial equipment ranging from jet-aircraft engines to power turbines, even railroad locomotives. GE’s transportation business in particular has performed very well.

Erie Pennsylvania is a town that American industry has largely left behind, and moved out.

Erie however is home to GE’s transportation equipment division and business is booming. Here, GE builds mainly rail products. That includes the state of the art 150-ton diesel-electric locomotives that sell for a cool US$4 million apiece.

In 2007, GE sold about 200 of these marvels to China. With these sales, Erie became one of the few areas in the U.S. to run a trade surplus with that country. In 2008, GE expects to sell about 900 locomotives worldwide. In addition to China, GE is getting orders from Brazil and even Kazakhstan, among other emerging nations.

In fact, the company commands about 45% share of the global market for diesel-electric locomotives. Improvements in productivity and manufacturing output at the Erie plant are big reasons why GE should stay on top too. The company is rolling new locomotives off the Erie assembly line at a rate of one every 22 days. But GE aims to cut production time in half to just 10 days.

Think of how the industrial age changed America’s landscape. Railroad tracks were laid coast-to-coast as freight shipments boomed. The emerging world is just now catching up. Vast expanses of the planet are being drawn closer together, much of it by rail. GE is in the right place at the right time to cash in on the booming business of rail transport.

The president of GE’s Erie plant says: “Because of the growth in shipments of goods around the world, rail has a more import role in the international economy.”

“What we are doing in Erie is really a play on globalization.”

MIKE BURNICK, Senior Editor & Global Markets Analyst

P.S. There are plenty of ways to go global, but still invest right here on the familiar NYSE. Every two weeks, I recommend these long-term global plays in my Global Market Investor service, so you can take advantage of the world’s profits without leaving home.

Privacy & Rights:

Keep Your Hands Off My Gold! Part I

Not many Americans remember when President Franklin D. Roosevelt declared that “hoarding” gold and silver bullion constituted a “serious emergency.”

To be exact, the date was March 9, 1933. And what to do in a serious emergency involving “hoarding” gold and silver? You confiscate the offending “hoards” naturally.

To be fair, Roosevelt only ordered the partial confiscation of gold and silver bullion. When “subjects of the United States” (which included my grandparents) turned in their bullion, they received U.S. dollars in return, at the official price of US$20.67/ounce. Once the operation was reasonably complete, the confiscatory part occurred: The government unilaterally revalued gold at US$35/ounce.

The revaluation was possible because this operation occurred in the days before currencies traded on the open market. Currencies were fixed in value, generally in terms of specific weights of silver and gold. The U.S. dollar, for instance, had an official value of US$20.67/ounce. That value was set in 1834, until Roosevelt devalued it 40% in 1933.

The question I’m often asked is, “could gold (and silver) be confiscated again?” And, if so, “what can I do about it?”

The answer to the first question is, “yes, definitely.” The legal authority Roosevelt used to confiscate your parents’ or grandparents’ gold and silver remains on the books. It’s known as the “Trading with the Enemy Act.” Indeed, in a remarkable letter written in 2005, the Treasury Department claimed that it had the power to confiscate gold, silver – and everything else.

What might lead to a second gold and silver confiscation? President Roosevelt’s issued his 1933 emergency order when the U.S. dollar was still backed by gold. At that time, both individual citizens and foreign central banks could exchange U.S. dollars for gold. Today, no holder of U.S. dollars is legally entitled to exchange dollars for gold at the U.S. Treasury. Indeed, only a small minority of U.S. citizens own precious metals in any form.

However, if a day ever comes where foreign countries demand that the U.S. Treasury pay its debts in gold – not in U.S. dollars – a second confiscation could occur. I don’t see a second confiscation as particularly likely, simply because so few Americans own any gold or silver bullion. The pickings would be so slim that it wouldn’t be worth the government’s effort.

Answering the second question is a lot harder. Tune in tomorrow for my thoughts on this matter.

MARK NESTMANN, Privacy Expert &
President of The Nestmann Group
www.nestmann.com

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A Worldwide War for Food, Falling Buck
and Dragging Bear Market

Find Out When It All Will End…and How to Profit in the Meantime

Today’s comment is by Mike Burnick, Senior Editor, Global Markets Analyst and editor of Market Shock Trader.

Dear A-Letter Reader,

Just a few days ago I was joined by Eric Roseman, Jack Crooks, Erika Nolan, and David Newman for a special conference call. We all jumped on the phone to share investment ideas that we’re discussing in Panama.

I heard the most compelling case yet why you MUST take the escalating global food crisis seriously. This could have a major impact on your wealth!

In just a moment, I’ll tell you how you can eavesdrop on this call to hear more details from our private conversation. But first, let me tell you some of the most interesting topics we discussed on the call.

We’ll cover all these points in much greater detail in just a few more weeks at the Total Wealth Symposium in Panama. However, I feel compelled to share the intriguing highlights of our conference call with you right away…

World War Food

Eric Roseman has discussed the growing global food crisis in the A-Letter recently, but it’s quickly escalating into agricultural Armageddon.

Just last week Kazakhstan, one of the world’s largest grain exporters, imposed a TOTAL ban on wheat exports. In other words, wheat can NOT leave the country. This is just the latest of many desperate attempts to hold down soaring local prices.

Wheat has skyrocketed 92% higher in the past year, but may soar even higher, as export restrictions in Russia, Ukraine and Argentina have closed one-third of the global wheat market.

Meanwhile panic is gripping Asia as rice prices have more than tripled in the past year. Rice is a staple food source for three billion people in developing nations of Asia and Africa. It’s easy to see why there is panic and rioting in the streets. The price of benchmark Thai rice broke through the US$1,000 a ton mark for the first time ever last week, up from just US$300 this time last year.

The escalating food crisis is easily the biggest problem facing Asia and other emerging markets – much more troubling than the credit crunch. After all, people in these nations can do without bank loans or new credit cards, but they can’t stop eating!

Corn, wheat and rice have already made big moves, however Eric is very bullish on other “soft” agriculture commodities that haven’t skyrocketed in price yet. With this market, it’s only a matter of time before they do. In fact, soft commodities have quickly become the best-performing sub-set of the commodity bull market.

The “softs” are stealing the show from gold and crude oil.

The best part is you don’t have to trade futures or options contracts to cash in on this boom in agricultural commodities.

In fact, Eric will be recommending some ultra-specific ways to tap into this bull market without trading on margin or making risky leveraged bets. He will be providing all the details, and naming names in Panama.

Warming Up to the Comdols…
and Has the Dollar Finally Bottomed?

Currency expert Jack Crooks confirmed Eric’s bullish stance on ag-commodities. Jack just returned from a trip to Chicago, where he says, the grain traders at the Chicago Mercantile Exchange (CME) are working overtime to keep up with skyrocketing futures prices and surging demand for commodities.

Closely related to this, Jack is also seeing some interesting trading opportunities set up in the so-called “comdols.” These are the currencies of commodity-rich exporters like Australia, New Zealand and Canada. At the upcoming Total Wealth Symposium, Jack will be talking about specific strategies to play the comdols for maximum upside, with strictly limited risk.

Jack also believes there could be some major surprises in store for currency traders this year. Everyone knows the dollar has been beaten down to all-time lows against the euro. The Japanese yen has also rallied mightily against the beleaguered buck this year. Jack makes a convincing argument however, for why the buck may see a reversal of fortune ahead. For instance, did you know that the dollar has actually risen in value during four of the past five U.S. recessions?

While the U.S. is most likely already in recession, Jack believes that Europe probably isn’t very far behind. There’s been plenty of recent evidence of slowing growth in the U.K. and the Eurozone, yet the European Central Bank (ECB) has yet to cut rates.

Unlike the Federal Reserve, the ECB is more concerned about signs of inflation and has opted to keep interest rates tight. So far, that’s supported the euro, but if those cracks in Europe’s growth spread to recessionary proportions, they’ll be forced to start cutting over there too. That would knock out a big pillar of support for the euro.

Jack plans to discuss all of these scenarios, complete with his awesome array of charts and graphs, in Panama. I’m looking forward to it!

When Will This Bear Market Ever End?

Investors in global stock markets have been bruised by this unrelenting bear market since last October. Eric has his own list of signs to tell you the credit crunch is over, and I can tell you, we’re not there yet. Just last week big financial firms including J.P. Morgan, Merrill Lynch, and Citigroup collectively reported about US$30 billion in additional losses and asset write-offs thanks to the ongoing credit crunch.

But a funny thing happened on Wall Street last week amid all this negative news flow… shares actually rallied about 4% higher – the biggest gain in months. Financial shares also surged on this bad news. While the credit crunch itself is far from over, the market has already anticipated and discounted a lot of this bad news. So we may be in store for a powerful (and far overdue) rally in stocks that should give you lots of short-term profit opportunities.

In fact, the S&P 500 declined for five months in a row from November through the end of March. Such a consecutive losing streak is rare in market history without some sort of rally in between. It’s only happened seven times in the past 40 years, but after the previous six occasions, the S&P 500 averaged a gain of 18% in the next 12 months. So we could see a similar move now. As the rally unfolds however, the key is to be very selective with the stocks, sectors and markets around the world that you invest in.

Unfortunately, the limited space here doesn’t allow me to delve into all the specifics, but the good news is that our staff “tapped our phones” during our recent conference call and you can listen in to a special unedited recording for more details.

Even better, I urge you to consider joining all of us in four weeks at the Total Wealth Symposium. In Panama, 33 of the world’s foremost experts on growing and protecting your wealth will gather for four days of fast-paced, intriguing strategies for protecting and growing your wealth amid the ongoing credit crisis.

I’m certainly looking forward to Eric and Jack’s presentations. And I can’t wait to catch up with Thomas Fischer of Denmark’s Jyske Bank, Swiss money manager Rob Vrijhof, and Asian investment ace Jack Flader. Jack is flying in from Global Services’ home offices in Hong Kong just for this event.

Bottom line: You’ll be getting premium, world-class financial advice and intelligence up close and personal, but only at the Total Wealth Symposium, our biggest and most popular conference. It should easily be the most important and profitable four days you spend this year. I hope to see you there!

MIKE BURNICK, Senior Editor & Global Markets Analyst

EDITOR’S NOTE: Today is your LAST chance to sign up for the Total Wealth Symposium and receive a special US$150 discount. Also, you can listen in completely FREE to our Panama brainstorm call. You’ll get a taste of all the investment recommendations we’re bringing to the table this May 14 – 17 in Panama City, Panama. Click here to listen in absolutely FREE right now.

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Avoiding Taxes Is Its Own Reward

The late, influential and decidedly liberal economist, John Maynard Keynes, (1883 – 1946), once observed: “The avoidance of taxes is the only intellectual pursuit that carries any reward.”

What a kidder that Keynes was. Surely he knew there are many other worthwhile intellectual pursuits, (including reading, writing, philosophizing, dreaming about money or sex). Each with their own intellectual rewards.

But it was certainly the worthy goal of legal tax avoidance that inspired Shire Pharmaceutical, a leading British drug firm, to relocate to Dublin.

Ireland is well known for having one of the lowest corporate tax rates (12.5%) among the 27 EU nations. (Only Cyprus is lower with a corporate tax of 10%). That Irish low tax compares with a hefty 28% tax in the U.K.

But, according to reports, what bugs Shire and a host of other companies is Britain’s policy on foreign dividend income. Many countries, including Switzerland and the Netherlands, have holding company tax regimes that enable firms to import dividends tax-free from foreign subsidiaries. They only tax profits earned within the country.

Shire’s spokespeople say the company is not moving to avoid tax, but rather because they’re concerned that Britain will tighten up rules further with anti-avoidance measures. Such rules would harm multinationals, such as Shire, that earn profits from many overseas subsidiaries.

Other companies have already voted with their feet. Shire is the first FTSE 100 company to shift its domicile, but tax advisers say that a number of others are considering it. The big drug firm is following Experian to Ireland, and Yahoo! and Kraft Foods recently moved their European headquarters from Britain to lower tax Switzerland.

The Labour government doesn’t seem to realize that imposing higher taxes on businesses and the rich is a self-defeating exercise. By raising taxes, they only succeed in sending mobile taxpayers to greener low-tax pastures.

Recent changes to the U.K. tax regime – including a £60,000 (US$30,000) annual tax for non domiciled foreign workers in the U.K. – and present discussions about the rules governing overseas corporate earnings, give British companies with big international operations major concern.

Is the Labour government going to make the U.K. tax environment even less attractive? Shire isn’t waiting to find out. It’s shifting domicile to Dublin, where the corporate tax regime is already more friendly. And a lot more stable.

PM Gordon Brown in 2006 said that the key to economic success in a globalizing world is not just stability in monetary and fiscal policy but also “stability through a stable and competitive tax regime.” Yet the U.K. tax regime has been anything but stable and increasingly less competitive.

For many business leaders, the recent changes to capital gains tax and the tax assault on non-dom workers was the last straw. They have lost confidence in Labour’s commitment to stability and competitiveness. Companies and people indeed are voting with their feet.

Goodbye U.K. This is just another good example of why tax competition among nations is a positive benefit for all.

BOB BAUMAN, Legal Counsel

P.S. Legally avoiding taxes isn’t just for big businesses. In fact, the right domicile and the right offshore vehicle can help you slash your personal tax bills. This May 14-17, tax strategists from all over the world are joining us in Panama, to explain how you can personally take advantage of lower taxes abroad. Today is your LAST day to secure your special early bird discount. Click here to make sure you don’t miss out.

More Pain: Top-Rated Borrowers
Increasingly Denied Credit

In the A-Letter last Thursday, I discussed five of my key indicators that I use to track the development or contraction of the credit cycle.

Despite an impressive rally in stocks since March 10th, credit markets have not improved enough for you to say “the credit crunch is over.” In fact, several credit indicators have deteriorated over the last six weeks. There’s even been a marked slowdown in lending. That just joined my list of bearish developments.

Lending to some of America’s top rated investment-grade companies has slowed as banks increasingly refrain from lending to even quality credits. As banks’ capital ratios continue to bleed this year amid a deluge of credit write downs, traditional forms of lending have contracted. That’s affecting companies’ ability to finance or rollover existing loans. What is alarming is that credit is now harder to secure for prime borrowers.

Issuing U.S. investment-grade loans declined 26% in the first quarter compared to 12 months earlier, according to Reuters Loan Pricing Corporation and The Wall Street Journal. Investment-grade borrowers are companies with BBB credit ratings or better. So if they can’t even get loans, then that is definitely bad news for the economy, businesses and overall corporate liquidity.

In 2006 and 2007, companies borrowed more than US$1 trillion. In the first three months of this year, that number tallied just US$68.6 billion in loan growth. That’s a significant plunge compared to 2006 and 2007 levels measured on an annualized basis.

As I also noted last week, the current default rate among junk bond borrowers or companies rated below BBB, is still historically low at 2%. Previous recessions have resulted in an average 5% default rate, suggesting more pain lies ahead for those troubled companies that missed easy access to credit before July 2007, when sub-prime halted the “easy-money” train.

This story gets worse…

Moody’s reported last Thursday that an increasing number of American companies are now in their weakest financial position since 2001. Companies are struggling to pay bills and other operating expenses. Moody’s reports that 47 companies are in the midst of liquidity troubles, more than double the rate compared to June 2007.

The above data, combined with my Credit Check-List last week, shows that most credit indicators are actually deteriorating, not improving. This strongly suggests that the stock market is mustering a bear market rally, and eventually will head to new lows as the economy continues to contract this year.

The Federal government’s spending bill, which will hit American consumers this summer, will only temporarily boost the economy.

The big picture for this economy is dominated by credit contracting, and that story still has a long way to play out before it is safe to aggressively buy stocks again. Remember, the smart money is in credit, not stocks. That is where I am looking for clues this bear market is bottoming.

ERIC ROSEMAN, Investment Director

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Too Far, Too Fast: The Trouble with $100 Oil

Today’s commentary is by Eric Roseman, The Sovereign Society’s Investment Director and editor of Commodity Trend Alert.

Dear A-Letter Reader,

It’s hard to believe the world’s largest economy is stuck in a recession while energy prices remain near all-time highs.

Something’s got to give – and I’m betting it’s going to be energy. In fact, I’d say that by the end of the year, crude oil and the rest of the energy complex will suffer a long overdue correction. That’s because I see global demand slowing amid a decline in consumption and growing inventories.

Today at 10:30 AM, the U.S. Energy Department released the weekly crude oil inventories. According to the most recent numbers, oil inventories rose again this week, although somewhat less than expected.

While you can’t place too much emphasis on a single data point, the inventory trend has been no friend to energy bulls in recent months. That’s because gasoline inventories reached the highest in level in 15-years recently, until a small drawdown last week. This is hard evidence of falling energy demand in the United States.

And I’ve got some smart money who agrees with me…

One of the legends in the oil industry is also making big bets against oil this year. That’s after this legend rode the oil bull for the last six years all the way to the bank.

What Goes Up Must Eventually Come Down

Soaring Oil as U.S. Growth Slows?

For the first time in the post-WWII period, the price of spot crude is actually rising at the same time the world’s largest economy is contracting.

From an all-time high of US$111.80 per barrel on March 17, 2008, West Texas intermediate crude oil has declined to US$100 this week. Still, prices are up over 60% over the last 12 months. Meanwhile, other distillate fuels have also surged since March 2007. Gasoline, natural gas, heating oil, diesel, jet fuel – you name it, the entire complex has literally gone through the roof!

But energy is still a dangerous speculation at these lofty levels because of the growing recession in the United States. There will be a contraction in overall demand combined with a slowdown in most major and even emerging market economies. Plus, soaring oil prices have also reduced net demand as prices finally hit the upper end of what the market can absorb.

U.S. Demand Declining since 2006

True, the world needs oil. However, even a hot commodity like oil is forcing companies, individuals and governments alike to look beyond Black Gold. Instead, they’re boosting alternative fuels like coal, wind, solar, nuclear fuel and ethanol to supplement high prices.

Alternative fuels remain very cheap relative to oil and gas. Consumption is also growing, especially for cheap coal and increasingly, nuclear energy where uranium prices have plunged more than 25% year-over-year.

According to the EIA or the Energy Information Agency, U.S. total demand for crude oil in 2007 actually changed from the 2006 levels at 20.6 million barrels per day. And consumption is slowing in 2008 as the economy suffers from the tribulations of a housing bear market, a credit crunch and broad-based consumer slowdown.

China Can’t Support High Oil Prices Alone

It’s true that total global energy demand continues to exceed supplies by approximately 1 million barrels per day. The world is demanding 86 million barrels for every 85 million barrels of net supply.

It’s hard to imagine that China, which continues to rapidly boost consumption, can offset declining U.S. petroleum demand without triggering a major correction in oil prices this year. The United States economy might not be the powerful force it was 20 years ago, but it still remains a formidable consumer of almost every raw material, including oil.

Investors and especially speculators wrongly assume that oil demand is elastic, or that high prices will command a buyer. That’s simply not the case and proof is the growing transition from energy-based fuel consumption to alternative fuels this decade amid Peak Oil.

A high price for any commodity will ultimately encourage research and eventually, consumption into a cheaper alternative. This largely explains why we’ve seen a boom in nuclear energy, coal, wind and solar energy this decade. Consumers simply won’t pay a high price indefinitely.

Texas Oil Maverick Turns Bearish

Inventories are rising for most refined products this spring. These high inventories are setting the stage for a major price decline. Speculators are finally pulling the trigger on one of the most lucrative commodity trades since 2002.

Recognizing the shift in consumption and rising inventories, Texas oil maverick, T. Boone Pickens, has turned bearish on oil in 2008. His hedge funds, which have earned a fortune for investors are now shorting oil.

Pickens’ funds were down 14% the first two months of this year, but are making a major comeback with their oil holdings. His funds just scored direct hits when crude slid from US$111 a barrel last week. Pickens believes large speculators are heavily long crude oil and in the absence of demand-side fundamentals are priming themselves for a major spill.

Mr. Pickens, by the way, is not alone betting against oil in 2008.

Long-Term Bull, Short-Term Bear

My Commodity Trend Alert (CTA) service has been recommending a reverse-index exchange traded oil fund since last fall.

I expect oil and gas stocks to break down. This trend is actually already underway because many energy stocks have disconnected from the oil price recently. That’s a bearish sign. Even with oil trading around US$100 a barrel, we’re sporting a small profit on this trade since late 2007!

Longer term, oil prices are likely to head much higher. Global economic growth will accelerate long-term, and China and other emerging powers will devour more energy and refined products derived from oil.

Also, the world is not replacing its annual production compared to 35 years ago. That means we are consuming more oil than we can replace every year.

But no bull market is uninterrupted. Commodities suffer violent corrections, particularly following blistering gains.

Oil prices will decline this year, probably to the US$75 or US$65 per barrel range. The actual price depends on the severity of the U.S. economic recession and whether foreign economies catch a similar cold, or at the very least, downshift from a strong growth trend since 2003.

ERIC ROSEMAN, Investment Director

P.S. As I mentioned, long-term there will be stunning opportunities in energy – particularly in crude. But in the short-term, I’m preparing my subscribers for a nice pullback. Try out my Commodity Trend Alert service today to find out how to play both sides of this energy story – the long and the short.

Last time stocks from Wal-Mart to Ford got slaughtered…
a few savvy investors became 10 to 20 times richer!

These same tricks can work for you as we sink deeper into this recession.

Where’s Offshore Anyway?

One common question I often hear from folks new to offshore finance is: “What exactly do you mean by ‘offshore’?”

My answer is both simple and complex.

Simply put, “offshore” is any nation or jurisdiction other than the one where you currently reside. If you’re a U.S. resident, any country beyond U.S. borders is “offshore.”

If you live in the U.K., the U.S. is “offshore.”

But “offshore” is more often used to describe financial, banking or investment activity in another nation where taxes are low or non-existent for foreigners. Charles Caine, editor of Offshore Investment points out that “offshore simply means a different jurisdiction which permits somebody from outside that jurisdiction to obtain some special financial benefit.”

Indeed for anyone except Americans, the U.S. can be an offshore tax haven of great value. Billions of dollars of tax-free, interest bearing bank deposits are held in American banks by nonresident foreigners and foreign corporations. By law, money held by foreigners has effectively been exempt from U.S. income tax since 1921.

This major tax break keeps billions worth of capital investments flowing into the United States. Once this money reaches U.S. shores, the capital is put to good use in the form of real estate ownership, government bonds and business securities. Foreign cash keeps America afloat. Without it, we would sink further than we already have.

Certain nations have chosen to create a unique legal and tax climate that rates them as “offshore finance” centers. They cater to foreign businesses and investors, and offer some intriguing advantages. According to the World Bank, more than half the world’s wealth – over US$6 trillion – resides in such asset havens.

Offshore havens really do protect your financial privacy. They also keep regulation to a minimum and guarantee a stable, predictable legal climate where your creditors will have a difficult time enforcing foreign judgments. Thus they also can be called “asset havens.”

For those who seek lower taxes and financial privacy offshore, recall the words of William Lloyd Garrison. He said it in a somewhat different context, (in the cause of the abolition of slavery) but he said: “My country is the world; my countrymen are mankind.”

These days, going offshore means escaping from the new slavery: Government controls and bureaucrats run amok. If you haven’t already, you should try it.

BOB BAUMAN, Legal Counsel

P.S. This May, our offshore contacts from around the world will meet us in Panama City, Panama to host our annual Total Wealth Symposium. In just four days, you’ll find out exactly how to take your wealth offshore, for stronger investments (including special currency sandwiches, AAA bonds, special metal plays and more), greater privacy and supreme asset protection. Click here to find out more.

Market Volatility Leaves Me Searching for
More Profitable Pairs

Stocks enjoy triple-digit gains one day – then suffer equally big losses the next.

Commodities were soaring on a rocket-ride to the moon two weeks ago – then suffer the sharpest correction in over 50 years last week!

So what gives with financial markets these days anyway? In a word: VOLATILITY! And you may as well get used to it.

The Fed’s massive easy-money-fest may actually succeed – at least for awhile – in sparking a rally in some stocks. The most beaten-down sectors are particularly good candidates. But I very much doubt the worst of this mess is over just yet.

In fact, the sheer magnitude of the Fed’s recent Hail-Mary money giveaway shows you just what desperate, dire straits we’re in. It’s time for desperate (and drastic) measures from our illustrious central bankers. Anything to keep Wall Street’s head above water!

It’s likely to be a volatile environment for ALL financial assets until the worst of this mess is over. Until then, I’m exploring new trades to take advantage of this volatility.

A few months ago, I told readers how to capitalize on cheap natural gas prices relative to expensive crude oil. That’s a perfect example of a “pairs” or hedge-trade. In this case I recommended going long natural gas (using the U.S. Natural Gas ETF) and short crude oil (U.S. Oil Index ETF). (Like Eric, I’ve also been waiting and watching for oil prices to come down from the heavens.)

What you’re looking for here is to exploit the price difference between two different but related assets: oil and natural gas.

Most investors are constantly making directional bets (either bullish or bearish) on markets. But here you are betting on the fact that natural gas is undervalued relative to crude oil. So as the price difference (or spread) narrows you’ll make money.

As my colleague Eric Roseman points out, crude oil racked up impressive gains last year, and may be poised for a further correction. But the beauty of this trade is, it doesn’t really matter what’s happening in the overall market. Natural gas and crude can either rise OR fall. But as long as that price spread narrows in favor of natural gas – you’ll profit.

That’s exactly what happened over the past few months as natural gas prices jumped about 20% since the beginning of 2008. Meanwhile, crude oil lagged and is now just about flat with NO gain since January 1st. This was a profitable narrowing of the price spread in favor of natural gas!

In fact, just last week subscribers to my signature research letter, Global Market Investor grabbed gains of 18% in natural gas since November. Now I see a similar trading opportunity ahead…I’ll give you all the details here in the A-Letter soon, so stay tuned.

MIKE BURNICK, Senior Editor & Global Markets Analyst

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Tuesday, May 21, 2013 Premium Services Commodity Trend Alert Currency Cross Trader Emerging Market Strategist Freedom Alliance Offshore Confidential Retirement Strategist The Sovereign Individual Pure Income	Expect the Unexpected (And I’ll Show you where to Profit) Last week, Kat von Rohr told you that the PowerShares U.S. Dollar Bullish fund (NYSE: UUP) – the most popular “pro-dollar” fund in the U.S. – was running out of shares in December. The reason? Big-name professional traders in the market all believe the dollar will be spiking higher soon, so they are using this dollar bull fund as a hedge. Everyone from Jim Rogers to Marc Faber and Bill Gross – all long-term dollar bears – are now piling in, believing in the possibility of a dollar rally. Read the rest of this page » "I Wouldn't Touch that Currency With a <br>Ten Foot Pole" By Ashish Advani Editor of Global Currency Options I’ve been in the currency markets for the past two decades now. So by this point, I can get a good idea of the number and volume of participants on the buying and selling sides by observing price action on the currency for a few days/weeks. But despite my experience, my intuition and all my knowledge…the British Pound has me perplexed! It seems that there are equal numbers of Bears as there are Bulls and thus the British pound has been stuck in at the top end of a 1.59 to 1.65 range for the past three months now (except for a three day spike into the 1.70 level). This is very unusual for currencies. I fear something big may be brewing here….. Let’s visit the Bears camp first. These are the traders who are believers in fundamental analysis and macro economic views. Let’s go to the tape and see what the economic data is telling us about Britain: As you can see from all of the above, there is a steady deterioration of the economic fundamentals within Britain. Staying within the Bears camp are a subset of people who are watching the Bank of England’s (BoE) policies… The official interest rate established by BoE is 1.5% which is at its lowest since 1694. Yes folks,1694 is not a typo. And even that might be a technicality, since that’s as far as back as the numbers were recorded. And the indications are that the Interest Rates will remain there for a very long time to come. Just as a quick review, the higher the interest rates for a country, the stronger the currency. So there is no help from the interest rates in keeping the sterling strong. Then there is the currency-crippling phenomenon called “Quantitative Easing” (QE). QE is a death knell on the strength of any currency, as it is an official effort by the Central Bank of any country to devalue its currency. And the latest announcement by the BoE is that they want to significantly increase the QE they have announced and implemented in the past few months. So that can’t help the currency either. Okay, okay. Enough negativity. Here is what the Bulls camp has to say: They’re claiming that the economic news is “less bad” than it was before. They claim the recovery has started, and that Britain has seen the worst of this recession. They are also claiming that with all the economic and BoE data known to the market, the prices on the GBP are reflective of all the risks and this is a fair price of the GBP. And all I can say is; HOGWASH!!!!!! The price of the GBP has been on a steady rise since March 11 and never really looked back. Where is the reversal in prices if the bad news is being factored in? So as you can see, all my senses are tingling and I sense that the British Pound should be collapsing. And yet, it seems to be making new highs each week. I know what’s going to happen in the long run. But in the short run, I wouldn’t touch the British pound with a 10-foot pole! The Crumbling U.S. Economy Will NOT <br> Sink the Buck This Year
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