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Cash in as the "Alibaba Shockwave" Creates the World's First Trillion-Dollar Company

How many times have you been reading about a long-ago historical event – or been watching a documentary about it on the History Channel – and thought to yourself: “Wow, it would’ve been really cool to have actually been there to see this happen.”

I couldn’t agree more: As a big history buff myself, I find myself making that statement on a regular basis.

  • Featured Story

    The Debt-Ceiling-Debacle: The Surprising Way a Default or Downgrade Could Crush the Global Economy

    If there's a "worst-case scenario" for this whole debt-ceiling debacle, this is it.

    After studying everything that could happen due to a downgrade of the United States' top-tier AAA credit rating, and the potential default on its debt, we found a scenario that would result in forced asset sales that are so widespread that global stock-and-bond markets would plunge - and economies around the world would crash.

    Tangible evidence that this frightening scenario could really play out surfaced on Monday, when the Chicago Mercantile Exchange (CME) announced it was increasing the "haircut" that it applies to U.S. government debt posted as collateral by traders transacting on the exchange.

    The retail investors who didn't just ignore this announcement altogether probably dismissed it as a boring bit of administrative housekeeping by the CME. In truth, however, this kind of re-evaluation of U.S. Treasury securities, widely used as loan collateral, could trigger global margin calls and widespread asset sales. If that occurs, it's only a matter of time before the ripple effects of escalating margin calls could weigh down asset prices around the world.

    Let's take a look at how and why this could happen.

    The "Haircut" Nobody Wants

    Because U.S. Treasury bills, notes, and bonds are considered "risk-free" they are every lender's preferred collateral class.

    All of America's too-big-to-fail banks, major securities broker-dealers and giant hedge funds - and most of the world's biggest financial institutions - hold hundreds of billions of dollars of U.S. Treasuries that they use as collateral to borrow in the overnight and term "repo" market.

    Traders use their U.S. Treasury securities to borrow more money to buy still more Treasuries, as well as other more-speculative securities. The intention is to leverage the capital they have by borrowing against balance-sheet assets to take on bigger positions.

    But what happens if there's no debt-ceiling deal by Tuesday - the theoretical day after which the country won't be able to pay its bills?

    The actual answer to that question may not matter as much as the uncertainty that's been created. In fact, even with a deal - meaning there's no default - it's likely the United States is facing a reduction in its top-tier AAA credit rating.

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  • Safe-Haven Currencies: If You Want to Flee the U.S. Dollar, Here Are Four Places to Hide As a young British banker in the inflation-ridden 1970s, I got used to carrying large amounts of German deutsche marks, Swiss francs and Japanese yen in my wallet - to have some security against the lousy performance of the British pound sterling.

    While paying for a pizza in London with this foreign cash was difficult, having those "safe-haven" currencies in hand helped me sleep at night.

    We've reached that point again. In light of the escalating debt-ceiling debacle that's unfolded in Washington, the potential for a U.S. credit-rating downgrade no matter the outcome, and the likelihood that a long stretch of dollar-killing stagflation is headed our way, it's time to take refuge in today's safe-haven currencies.

    And I'm going to show you the safest of those safe havens.

    The Battle-Damaged Greenback

    I know that many of you are extremely worried about what will happen if Standard & Poor's downgrades U.S. Treasury debt from its top-tier AAA credit rating.

    But I'm telling you that there's a much bigger cause for concern. While I concede that having our federal debt lose its top-tier credit rating wouldn't be good, the bigger cause for concern is what happens to us if the U.S. dollar stops being regarded as AAA - meaning it's no longer good for settlement of all international transactions.

    If that happens, you have to ask yourself two questions:

    • What would be the impact on the U.S. and world economies?
    • And, even more importantly, what would investors like us need to do?
    The answer to the first question is clear: The fallout will be worse than you imagine. And that means that, even now, you need to be searching for refuge in the very best of the world's safe-haven currencies.

    With the Aug. 2 deadline for raising the debt ceiling approaching fast, the U.S. dollar took another beating and fell against safe-haven currencies yesterday (Monday), after Washington failed to reach agreement on the nation's $14.3 trillion debt ceiling. The Swiss franc actually reached an all-time high against the dollar, which has slipped 25% against that currency in just the last 12 months.

    What a lot of folks don't realize is that the fate of the U.S. dollar is closely tied to that of U.S. Treasury bonds. If U.S. inflation takes off to serious levels - as I'm almost certain it will - both Treasuries (except Treasury Inflation Protected Securities, or TIPS, which are inflation-protected) and the dollar will tank simultaneously.

    After all, the United States has been running balance-of-payments deficits of $500 billion or more for almost a decade now - much longer than the country has been running $500 billion budget deficits.

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