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-- Posted Friday, 24 November 2006 | Digg This Article
Paris, France Friday, November 24, 2005 --------------------- *** Watch the dollar...it’s falling again... *** Markets always do what they are supposed to do - just when you aren’t expecting it... *** Diversifying a stock portfolio into commodities can significantly reduce your risk...and more! --- Advertisement --- 3 Days Left! A Pizza Delivery Man Turned $400 Into Over $200 Million Using This Profit Blueprint This formula for profit is so simple, anyone can use it! Learn the instincts you need to profit like never before. 379%, 396%, even 519% gains in as little as 12 days could be yours. Click here to get the details - but hurry! After midnight on Monday, November 27, the price increases by $500: http://www1.youreletters.com/t/444717/4459110/810655/303/
--------------------- The dollar is backed only by full faith in America’s faithless central bankers, who have not only wiped out half the dollar’s value in the last 20 years...but the credit of the world’s biggest debtor as well. What is the greenback worth? No one really knows. But whatever it was worth yesterday, there is general agreement that it is worth less today. We say that because we’ve noticed it slipping - yesterday, it was trading at just less than $1.29 per euro - at a five-month low. Currencies go up and down, it is true. And this isn’t the first time the dollar was at $1.29 per euro. But if our memory is right...the last time it was at this level, the Fed funds rate was 425 basis points lower. Now, despite much higher short term rates, the dollar is falling again. As the Fed raised rates, the dollar rose too. But where will it go now? The U.S. Central Bank is already giving lenders considerably more for their money than either the Bank of Japan or the European Central Bank. The ECB’s key lending rate is still only 4.25%, and Japan’s equivalent rate is only 0.25 %. If these higher returns fail to bring in enough wampum, what is the Fed to do? The United States must borrow. It depends on the kindness of foreign lenders to keep going. And when the foreign lenders fail, the dollar falls. As a theoretical matter, the Fed could raise rates some more to attract lenders and support the dollar. But as a practical matter, two of the major industries in the country are already desperate for lower rates, not higher ones. Housing and auto-making are both in trouble. The housing industry, alone, represents a huge threat. It could drag the whole economy down with it; frankly, we’re surprised it hasn’t done so already. It would take an unusually bold, or unusually reckless Fed to raise rates now. So keep your eye on the dollar. For many, many months it has defied the most fundamental principles of international commerce - going up, even as the current account deficit rose to $800 billion a year. But markets always do what they’re supposed to do; just never when you expect it. When people expected the dollar to fall - it rose. Now, no one is watching it. They’re all convinced that the dollar is indestructible...as eternal and unblemished as granite countertops. And yet, a fall in the dollar is just what you’d expect. It is the normal way to balance out America’s trade and current accounts. It is the normal way to undermine Americans’ wealth with hardly anyone noticing. And what better way to stop people from living beyond their means - cut their means down even further! Few Americans pay any attention to the value of their currency on world markets. They earn their money in dollars...and spend in dollars. Only we poor exiles have to suffer the consequences of the buckling buck on a daily basis. We go to buy a bottle of wine and we find it costs more than it did, in dollar terms, last week. We go out to dinner and we’re shocked at how much we spent. We pay for our new granite countertops and wonder how prices could have shot up so much. Back in the Homeland, the fall in the dollar is cushioned by a number of things. Most expenses are homegrown; they don’t go up just because the dollar has gone down on global markets. And even imports do not fully react to the lower currency, because so many of them come from China, which holds its own money close to the American brand. What’s more, Wal-Mart and other discounters are finding new and better ways to cut costs...somewhat softening the blow. In terms of gold...and euros...the dollar is already worth less than half what it was a few years ago. Keep your eye on it; a few years from now, it will probably be worth only half what it is today. More news? -------------- Happy Black Friday! -------------- And more views: *** Kevin Kerr, reporting from Connecticut: "I get asked all the time: ‘Exactly how risky are futures?’ "The truth may surprise you. "For example, Gary Gorton of the University of Pennsylvania and K. Geert Rouwenhorst of Yale researched commodity futures contracts between 1959 to March 2004. "Their first major finding commodities are negatively correlated with stocks. That is, they often move one way when stocks are moving another, and vice versa. So diversifying a stock portfolio into commodities can significantly reduce your risk. "Of course, that's something I, and many others, have been saying all along. But there were some surprises in the professors' findings. Previous studies have shows that commodities are able to match equities' returns. But the index model they constructed showed commodities were about 19% less risky than the S&P 500. "That's right - buying futures contracts was less risky than buying stocks. Thus, on a risk-adjusted basis, they outperform stocks by a significant margin. "They also discovered something very interesting about the different markets' volatility. It turns out that a disproportionate amount of stocks' volatility came from months in which they lost significantly. Meanwhile, an outsized portion of commodities' volatility came from months in which they scored big gains." [Ed. Note: More to come from Kevin in tomorrow’s Weekend Edition. In the meantime, you can check out his latest special report: How to Play Commodity Options Like a Champion - and find out how you can get into his commodities trading service, Resource Trader Alert, before the price goes up $500... Only 3 Days Left Before RTA’s Price-Hike http://www1.youreletters.com/t/444717/4459110/797351/303/*** The further from the facts and consequences you get, the worse the results, we have remarked. "Did you know that during the Athenian Democracy...a period that did not last very long..." said Michel, "they had a way of punishing people who tried to meddle in others’ affairs. If you proposed a new law, and the measure was rejected, you would be killed." "That must have cut down on unnecessary legislation," we offered. --- Advertisement --- 100% Accuracy... With Average Gains of 100%! Your Chance to turn $5,000 Into $1 Million With the Hot Streak of the Decade If you were one of this hotshot analyst’s loyal readers in 2005, you would have had a chance to make money on every single one of his recommendations. And not just small gains, either — the average gain was 100%. Catch this streak while it’s still hot — and learn how quickly you could turn $5,000 into $1 million. http://www1.youreletters.com/t/444717/4459110/810656/317/ --------------------- The Daily Reckoning PRESENTS: There’s no way of knowing what will happen in the future - in fact, our investment approach is founded on ignorance. But what if you could see what will happen, a la Back to the Future? Would it make a difference? Bill Bonner explores... MISLEADING KNOWLEDGE, Part I by Bill Bonner Readers will recall from what we said last week at New Orleans Investment Conference that rules are what we turn to when we don’t know what to do. And most often we don’t know what to do. Hence, our investment approach - like our philosophy of life - is founded on a bedrock of ignorance. Sure. Constant. Unyielding. Ignorance is something you can count on. A man is wise, and here you may quote us, only to the extent that he is aware of his own ignorance. The wiser he is, the more he sees himself as an ignorant fool. The real fool, on the other hand, thinks himself wise; he thinks he knows things he cannot possibly know. It is not given to man to know his fate, said the ancients. We can never know what the future will bring - neither in our investments nor in our private lives. Since we cannot know the future, we cannot hope to improve it...except in the most marginal, modest ways. ‘We will be better off,’ we say to ourselves, peeking ahead just a few seconds, ‘if we don’t step off the curb quite yet; let us let the bus pass first.’ But will we be better off next year if we buy Google today? Will the world be a safer, better place in ten years if we bomb Tehran today? The gift of clairvoyance is not something you can give at Christmas. But what an awful gift it would be. Yes, we could read tomorrow’s newspapers today. And yes, we could see what direction the gold price was going, for example, and adjust our investments accordingly. We could read about natural disasters...strikes...revolutions...and make sure we were somewhere else! But what a boring life it would be. There would be no pleasant surprises. And no chance to improve or achieve. You might win a Nobel Prize, but so what? It was foreordained. All of your striving, sweating and stretching would make no difference; the whole thing was in the bag even before you began. And imagine the tediousness of it. Day after day, going through the motions of life without the serendipity...the sheer chanciness... of it. Every action...every word...every event...already written out for you in bold relief. And you, just muttering your lines like a brain-damaged celebrity, not even bothering to think about what they mean; for what does it matter? The whole show would go on anyway with our without you...you are just playing a bit part in it. You could look ahead, too, and foresee your last gasp. You hope for, at least, a small crowd of weeping friends and woebegone relatives...gathered round your bed...as you bid them farewell. Perhaps you will even get to do a grand death bed oration: "The evil that men do lives after them," you will remember from Julius Caesar, "The good is oft interred with their bones." You will look at your children...grandchildren...your wife...your mistress...your creditors...your drinking buddies...and say: ‘Please remember the good that I was...the good that I did...and the affection I have had for all of you. And remember...I’ll be waiting for you all, with open arms...on the other side.’ At this suggestion, the grandchildren will get quizzical looks on their faces. They won’t know where the ‘other side’ is...but they have no intention of getting there any time soon...and the thought of grandpa’s hairy arms waiting for them will not make them want to hurry. But what’s this...you turn to the future...you look ahead...and see yourself crushed by the same cross-town bus you avoided today! Or done-in by a jealous husband in Santa Monica. Darn, no deathbed scene! ‘I never get good scenes,’ you complain to yourself. And at that moment, you will be tempted to do a little rewriting. ‘Ah,’ you say to yourself... ‘I think I’ll stay out of Santa Monica.’ But could you? Even if we could know what the future will bring, we probably still could not reach ahead and improve it before it happened. There are simply too many possibilities. Change one today, and tomorrow’s lines don’t make any sense. Soon, the whole performance changes in ways even the fortune teller cannot foretell. Even if you could look into the future as it will be...you couldn’t possibly look into all the futures that could be. In other words, as soon as you departed from the script, the ending would change in a way you couldn’t predict. You would have lost the power of clairvoyance...and will pop right back into the same impromptu low comedy you’re in now...ad libbing from one day to next, ignorant of how thing will turn out, but hoping they sort themselves out better than you have any right to expect. You will have your appointment in Samara, no matter how far you think you are from fate. If you look at the many mistakes and bamboozles of history, what you find is that the leading characters were misled not by ignorance, but by knowledge. What they thought was so... turned out to be not so. Hannibal knew the Gallic and Lombard tribes would rally against Rome. Hitler knew his master-race could beat all the rest of Europe. Investors in ’29, ’66 and 2000 knew that stocks always went up in the long run. No one has ever been let down by ignorance, on the other hand. Because ignorance forces upon a man a kind of modesty that rarely fails him. He has to retreat to the few things he really does know best...and follow rules that keep him from getting into too much trouble. "I always tell the truth," Congressman Andy Jacobs once told us. "That way I don’t have to remember what I said." Likewise, a man who follows rules neither has to remember what he did...nor wonder about the consequences. "Did you kill John Brown?" the prosecutor asks him. "I don’t think so," says our modest hero, "It’s not something I would do." "Why not?" the lawyer follows up. "Because I would never know how it might turn out." If you knew that you would be better off by telling lies or killing people...you would go ahead and do so. If you could look into the future...and if you had the power to improve it before it happened...why wouldn’t you? Imagine that it was 1920...and you, for some unexplained reason, had the entire history of the 20th century in your brain. You are traveling in Bohemia and happen to be sitting in a railway car when a young man, recently discharged from the German army, enters the car. His name, you discover, is Adolph Hitler...and you have a loaded gun in your pocket. Pull the trigger. Why not? Whatever happens, it is not likely to be worse than what did happen. Alas, we have no histories of the future - ignorance is all we can count on...and rules are all we have to go on. We do not kill...we do not steal...and we do not lie. We follow rules because we are ignorant. Nor do we buy investments that are overpriced. They might go up, of course. But we can’t know that. So, we stick to the rules. To be continued tomorrow... Bill Bonner The Daily Reckoning Editor’s Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons). In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is - an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt - now available in paperback - just click on the link below: The Most Feared Book in Washington! http://www.dailyreckoning.com/empireofdebt.html
-- Posted Friday, 24 November 2006 | Digg This Article
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