Sure, the U.S. dollar has been rising – but that will end. So, here’s your all-star list of the best currencies to invest in for 2013. Read more...
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That's because Japan's aggressive move to cheapen the yen in order to stimulate its own economy is working.
Of course, Money Morning's Chief Investment Strategist Keith Fitz-Gerald predicted this would happen months ago, and he was dead on.
But even if you missed the first moves in this currency war, it's not too late to profit.
To hear Keith explain how investors can still take advantage of the "race to the bottom" and profit from the global currency war,
It’s the Yuan’s world, and the West is just living in it.
It’s no coincidence that Yuan-settled trade jumped 41.3% - to nearly three trillion Yuan - in 2012, after it increased by more than 300% in 2011.
In fact, since June 2005, the Chinese Yuan has risen 24.66% against the U.S. dollar, backed in part by 1.3 billion consumers and real assets. To borrow a tech term, China's currency is the world’s new “killer app.”
Here’s how you can make it part of your investing future…
In the Currency War, the "end game" is a race to the bottom. Because really, under a fiat money system, there's nowhere else to go.
Unfortunately, I believe the U.S. is on the same path.
This was just confirmed by Kyle Bass, founder and principal of Hayman Capital Management, a Dallas hedge fund, who has profited handsomely from prescient calls on events from the subprime mortgage meltdown to Greek sovereign debt restructuring. In a recent discussion with a senior Obama official, Bass disclosed that he asked how the U.S. would be able to grow exports if they don't allow nominal wage deflation. The official's answer: "We're just going to kill the dollar."
There is one way to protect your net worth from all these central bank shenanigans. In my view, the answer is to own and accumulate gold.
So I suggest you ignore what central banks say, and instead do what they do...
The great currency risk right now is not the "race to the bottom" you hear about, but a full-blown 1930s-style currency war.
This is not front-page news yet, but I have a sneaking suspicion it will be shortly...
It's going to blindside Washington and most of Europe, where central bankers, politicians, and economists fail to recognize that events from nearly 100 years ago are now primed to repeat themselves. Worse, it will devastate an entire class of investors who have put their faith in the current economic dogma of endless bailouts and money printing.
I'll explain what happened in 1931 in a moment. But first, ironically, this currency war won't start because of international problems. Instead, it will be touched off in earnest because of domestic concerns - only not American ones.
Here are three reasons I think Japan will fire the first shots.
By itself, this story probably wouldn't be a big deal. But this development is the start of an important new trend in the global currency markets. And the following three factors tell me that we should be taking a close look at why China has decided to dump Japanese debt. For instance:
- Given that the same thing happened in August, September marked the second straight month Beijing has sold more Japanese securities than it purchased.
- This marks the reversal of a seventh-month stretch of China being a net purchaser of Japanese debt.
- The two months of sales nearly wiped out the net surplus of 2.32 trillion yen ($27.86 billion) that China had amassed as a result of seven months of buying Japanese debt.
- Finally, the 2.02 trillion yen ($24.26 billion) worth of Japanese debt that China sold in August was China's single-largest monthly sale of Japan government bonds since 1995, when these statistics first started being recorded.
Let me explain....
China, Brazil, Germany and South Africa all have spoken out against the U.S. Federal Reserve's announcement last week that it will buy $600 billion in U.S. Treasuries through June. Finance policymakers from around the globe say the move will depress the dollar and drive capital flows to emerging markets, creating asset bubbles.
Brazil's central bank president Henrique Meirelles said the extra liquidity in the U.S. economy would cause "risks for everyone," and German Finance Minister Wolfgang Schaeuble called the Fed's move "clueless."
At a meeting last weekend in Gyeongju, South Korea, finance ministers from both developed and emerging economies agreed to try to maintain trade balances at "sustainable levels," which they left to be negotiated at a future date. They were unable to reach consensus on precise targets, as the United States proposed. G-20 members will meet again in Seoul on Nov. 11 and 12.
The G-20 was able to hammer out a deal to get China and the United States - as well as the other G-20 nations - to agree to "refrain from competitive devaluation of currencies," and to let markets set foreign-exchange values. China is widely seen as keeping its currency undervalued to boost its exports, while the United States has been accused of pursuing a weak dollar policy, also to increase its overseas shipments.
A slight dip in growth is what China wanted. Its gross domestic product (GDP) has grown on average more than 10% annually since 2006. The country's central bank lifted rates this week by 0.25 percentage points for the first time since 2007 to further cool the risk of overheating.
While working to maintain a healthy level of growth, China now has to contend with other countries devaluing their currencies to compete against a cheap yuan that is fueling an export-driven recovery. However, the whole world can't depend on exports – somewhere along the line there must be growth in demand.
German Economy Minister Rainer Bruederle warned yesterday (Wednesday) that a trade war could erupt if China didn't float its currency for a more fair value. As the China-U.S. currency tensions have heated up, other countries are saying China's unfair trade advantage is threatening export-driven recoveries around the globe.
"We have to take care that the currency war doesn't become a trade war," Bruederle told German business paper Handelsblatt. "China bears a lot of responsibility for ensuring that it doesn't come to an escalation."
With their knees almost ready to buckle under such burdens already, how will American consumers respond when clothes, computer accessories and other key consumer staples at their neighborhood Wal-Mart Stores Inc. (NYSE: WMT) undergo an overnight price hike of 30% to 60%?
As the United States aims to increase exports by debasing the dollar, a global currency war is underway that could swallow consumers and investors if they don't prepare for the likelihood of a weaker dollar.
The United States, China, Switzerland, Brazil, South Korea, Australia, Japan have all entered the war, trying to bring down their currencies to boost exports and fuel growth. Countries are vying to win the "race to the bottom," as it's been called by Money Morning Contributing Writer Peter Schiff.
The greenback has served as the world's benchmark reserve currency since the mid-20th century, but soaring deficits and the U.S. Federal Reserve's loose monetary policy have drained the dollar's value. Meanwhile, emerging markets - many of which are vibrant manufacturing hubs, net creditors, and have rich caches of commodities - are more fiscally sound than the United States, which has a $1.3 trillion budget deficit.
"If you look at the fundamentals of a lot of these emerging markets, they are considerably better than developed markets," Kenneth Akintewe, a Singapore-based investment manager at Aberdeen Asset Management PLC told Bloomberg in an Oct. 11 interview. "Who wants to be holding U.S. dollars at this stage?"
China, which leads the world with more than $2 trillion in currency reserves held mostly in U.S. Treasuries, is chief among the countries seeking respite from the dollar's decline. Beijing has long bemoaned the depreciation of the dollar, stating outright that it should be replaced as the world's main reserve currency.
But here's the only thing you need to know: As the central banks of the world slug it out in the global currency markets, individual investors who understand the currency-war strategy can reap some extraordinary gains.
Let's take a look.
For three investments that will let you profit from the "race to the bottom," please read on...
A binge of mergers and acquisitions (M&A) is being fueled by the global currency war, which has increased the value of emerging market currencies.
The value of worldwide M&A totaled $1.75 trillion during the first nine months of 2010, a 21% increase from comparable 2009 levels and the strongest nine month period for M&A since 2008, according to Thomson Reuters.
But mergers and acquisitions involving companies located in the emerging markets skyrocketed by 62.9% during the same period over 2009, totaling $480.7 billion. During the first three quarters of 2010, emerging markets accounted for 27.4% of worldwide M&A volume compared to 21% during the comparable period in 2009.
And companies are showing more willingness to venture across borders to find the resources they're after.
M&A activity in deals across international borders has surged during the first nine months of 2010, totaling $723 billion accounting for 41.2% of overall M&A volume, compared to 26.1% last year at this time.
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The yen's rise came after the Bank of Japan tried yet again this week to devalue its currency. On Tuesday the Bank of Japan lowered the benchmark interest rate to "virtually zero," and announced a $60 billion (5 trillion yen) plan to buy government bonds - similar to the 'quantitative easing' policy employed by the U.S. Federal Reserve.
"With today's decision, the Bank of Japan paved the path for the next step," Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo told Bloomberg News on Tuesday. "What will be critical will be how foreign-exchange rates move as a result," along with the impact of any additional easing by the Federal Reserve, she said.