Archives for October 2010

October 2010 - Page 8 of 9 - Money Morning - Only the News You Can Profit From

Currency War Heats Up as Japan Lowers Interest Rates to Devalue Yen

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In a move designed to jolt its economy back to life and protect its export industries from an international currency war, the Bank of Japan (BOJ) said yesterday (Tuesday) that it would expand its balance sheet and lower its benchmark interest rate to "virtually zero."

The bank cut the overnight call rate target to a range of 0.00% to 0.1%, the lowest level since 2006. It last cut the target rate to 0.1% from 0.3% in December 2008.

Policymakers also will establish a $60 billion (5 trillion yen) fund to buy government bonds and other assets, inflating the balance sheet at a time when U.S. and U.K. central bankers are contemplating doing the same.

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You Heard It Here First: A Global Currency War is Being Fought - And There Will Be No Victors

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Brazil's finance minister, Guido Mantega, recently acknowledged to the global investment community what most trade officials already believed: An "international currency war" has broken out.

And, in this war, there won't be a real victor.

"We're in the midst of an international currency war, a general weakening of currency," Mantega told The Financial Times. "This threatens us because it takes away our competitiveness."

Mantega's comments came just weeks after Japan joined Switzerland in intervening in the foreign-exchange market. But the reality is that the currency war has been under way since 2008.

At least, that's when Money Morning Chief Investment Strategist Keith Fitz-Gerald first warned that countries – most notably the United States – would debase their currencies in a race to boost their exports and keep economic growth afloat.

"The government has adopted a weak-dollar policy," Fitz-Gerald said in an interview in March 2008. "They're sending out a message loud and clear: 'We want you to sell the dollar.'"

By holding the central bank's benchmark lending rate down in a record low range of 0.00% to 0.25% for close to two years now and buying up Treasuries in a policy known as "quantitative easing," the U.S. Federal Reserve is effectively debasing the dollar.

But the U.S. central bank isn't alone.

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De-Coupling Back in Vogue as Emerging Economies Outshine the U.S.

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While the U.S. economy is struggling to break its slump, growth remains strong in other places around the world – so strong, in fact, that analysts are breaking out a term that's spend much of the past two years on the shelf: De-coupling.

U.S. gross domestic product (GDP) will meandered along with a meager 1.7% expansion in the second quarter and is expected to grow by less than 2% for the full year.

Meanwhile, Brazil's GDP is on pace to expand by 7.5%, India's economy is projected to grow by 8.5% and China's economy is expected to grow by 9.5% this year.

Emerging market economies are moving ahead at such a brisk rate that their combined GDP will be bigger than developed countries by 2015, according to the World Bank.

Now, the biggest Wall Street firms – including Goldman Sachs Group Inc. (NYSE: GS) Credit Suisse Group AG (NYSE ADR: CS) and Bank of America (NYSE: BAC) – are betting that the global economy has de-coupled from the United States, and will shake off any slowdown in the world's largest economy.

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Seven Ways to Profit From the Worldwide Currency War

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If you're like me, and you spend a lot of time perusing financial Web sites in search of the latest global investing news, you've probably started to see a lot of stories about rapid shifts in foreign exchange rates – including some "currency pairs" that have traditionally been rather slow-moving.

Back during the spring, for instance, the news was full of stories about how Switzerland was buying up European euros in an effort to weaken the strong Swiss franc – only to have that country change course and diversify its holdings by purchasing U.S. dollars.

During the summer, we watched as Japan entered the foreign exchange (or "FX") markets for the first time in nearly a decade in order to buy U.S. dollars.

Even South Korea has been a contestant in the currency-transaction arena, with that Asian tiger working to weaken its currency, the won, in an effort to improve its exports. Just yesterday (Monday), the won rose for the sixth-straight day, its longest winning streak in eight weeks, after the nation's foreign-exchange reserves climbed to a record $290 billion.

These events aren't random. But they are related. They're part of a worldwide currency war that's being waged before our eyes – and that will prove very costly to investors who don't recognize the game that's being played. Fortunately, we do – and we're going to tell you all about it.

To find out about those profit plays, please read on…

To find out about those profit plays, please read on...

China Continues Game-Changing Energy Moves with Sinopec's $7 Billion Brazil Buy

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Chinese state oil company China Petroleum & Chemical Corp. (Sinopec) (NYSE ADR: SNP) said Friday that it would invest $7.1 billion in the Brazilian unit of Spain's Repsol YPF S.A. (NYSE ADR: REP) to form one of the largest private energy companies in Latin America.

The investment is the second-largest overseas purchase by a Chinese company and drives the market capitalization of Repsol's Brazilian arm up to $17.8 billion. Analysts estimated the company's value at $10.7 billion earlier this year. Sinopec's investment gives it a 40% stake in Repsol's Brazil business, and access to the highly valued Brazilian offshore sub-salt oil fields.

The move highlights South America's importance to China as the Asian powerhouse goes on a spending spree to meet its fast-growing energy demand.

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Buy, Sell or Hold: As Gold Sets New Records, Ride Along With Yamana Gold Inc. (NYSE: AUY)

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As of Friday, gold was trading above $1,300 per ounce for the fourth consecutive day, which means the break out in the price of gold in U.S. dollars is still going strong. Gold prices are setting nominal new highs regularly, but are still actually below their record high if adjusted for inflation.

I love this kind of a sweet spot in a bull market move. You know that it's blue skies in nominal terms, but you also know that you are not yet being too greedy. That is, the upswing is still within the limits of the market's last bullish move.

This would be like buying a stock that is trading significantly below its all-time high price, but with better fundamentals.

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The Fed's Actions Are Boosting the Bull Cycle for U.S. Stocks

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News from the U.S. Federal Reserve is keeping the bull cycle for U.S. stocks alive and well. Despite investors taking a breather this week, the outlook is good for coming months.

The Standard & Poor's 500 Index fell 0.2% since Monday, while the Nasdaq 100, shown below, fell every day of the past week for a total slippage of 1.5%. The week felt a lot better than that for my subscribers because all but one of our exchange-traded funds (ETF) bets is on overseas stocks, and most rose 1.75% to 4.7%.

So we are exiting the best September since 1939, but it closed very softly for U.S. investors as the most critical earnings season in the past year looms on the horizon.

But to see why there's good news coming, read on...

Foreclosures Continue to Stymie Housing Recovery

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Banks seized more homes in August than in any month since the housing bubble burst in 2007, even as the number of homes entering the foreclosure process dropped for the seventh month in a row, according to data compiled by RealtyTrac Inc.

In all, banks repossessed 95,364 properties last month, up 3% from July and an increase of 25% from August 2009, RealtyTrac said. August was the ninth month in a row that the rate of homes seized by banks increased on an annual basis. The previous high was in May.

Additionally, almost one-quarter of all U.S. home closing transactions involved properties that were in some stage of mortgage distress and sold at a 26% discount on average in the second quarter.

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Five Ways to Profit as Coffee Prices Soar

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Coffee prices have zoomed over 54% in the last year, including 44% since June alone. Retired hedge-fund manager sees the potential for coffee prices to soar another 30%. Find out how to profit in this free report.

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Controversial House China Tariff Bill Will Take America Down the Wrong Road

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The U.S. House of Representatives this week overwhelmingly passed a bill that would enable the Obama administration to impose punitive tariffs on almost all Chinese imports into the United States – a controversial move that's intended to punish China for refusing to revalue its currency.

The House China tariff bill faces opposition in the Senate and from the Obama administration and isn't expected to become law. Let's hope that reluctance continues to hold: This bill is little more than a political con job and is quite possibly the stupidest thing that Washington could do right now.

Not only will this touch off a war the United States literally cannot afford to fight, but it's going to hamstring millions of already cash tight Americans by raising the cost of living dramatically while further eviscerating our already fragile gross domestic product (GDP).

Let me show you why…

To understand the hidden costs of the China tariff bill, please read on...