Monday, June 30, 2008 - Vol. 10, No. 156 Today's comment is by Jack Crooks, Currency Expert and editor of World Currency Options and The Money Trader.  Think your gas and grocery bills are bad? They're just a drop in the bucket compared to some other places around the world. For example, year-over-year consumer prices in Vietnam just surged by a whopping 26.8%. The month-over-month numbers jumped a cool 2.1%. To put that in perspective, 2.1% inflation is what the Federal Reserve considers a comfortable pace for inflation for the entire year. The biggest problem facing the Vietnamese government is figuring out how to keep rising food and energy prices from derailing their roaring economy. Sound familiar? If so, then you know Vietnam isn't the only country facing this problem - not by a long shot. In fact, according to my research, there are over 50 different countries around the world battling double-digit rates of inflation. Like Vietnam, most of these countries are emerging markets. And all of them are at risk of transforming from an appealing growth story to an economic disappointment. In sharp contrast to the Federal Reserve here in the U.S., central banks in key emerging markets around the world are proactively working to counter inflation. You may be surprised to learn how their currencies have responded. Let me explain... Learning from the Fed's Ignorance After witnessing how the Fed shredded the dollar's value and slammed stocks by ignoring inflation, emerging market central banks are stepping up to the plate: We know that China is already making strides with its currency. Interest rate increases highlight their efforts. India's central bank raised its benchmark rate by 50 basis points, to 8.5% with immediate effect. That's its highest rate since March 2002 and the second increase this month. It also signaled that it would act again if needed. The State Bank of Vietnam sharply raised its benchmark interest rate to 12% from 8.75%. That's an aggressive effort to curb surging inflation and tighten lending. Commercial banks are now allowed to offer depositors rates of up to 18%.   Interest Rates: The Quicker Currency Picker Upper Will this bias toward tightening monetary policy spark a new emerging market Forex rally? Adjusting monetary policy to fight off inflation should normally support a country's currency. The logic here is that interest rates are going up and the investment appeal rises with it. Mexico's peso strengthened to a five-year high after the central bank unexpectedly raised its benchmark interest rate a quarter percentage point to 7.75%. The same thing happened in Brazil. Bonds also rose because investors gained confidence that the proactive monetary policy would curb inflation and help preserve the value of debt's fixed payments. Bottom Line: Monetary policy has been too accommodative and must respond to the growing inflationary environment. The rising prices will require that most emerging market central banks take action. By working to strengthen the currency's value they can hope to ease the strain of crude and food costs. The line in the sand is quite fine. That's going to make it easy to scrutinize the efforts, or lack thereof, central banks take to counter inflation. JACK CROOKS, Editor of World Currency Options and The Money Trader EDITOR'S NOTE: Last week, over 5,000 viewers tuned in to see Jack Crook's special FREE Dollar Defense webinar. Viewers eagerly wrote down trading symbols as Jack revealed his specific, long-term currency plays for the months to come. If you missed it, today is the LAST DAY to view this information-packed webinar. After MIDNIGHT TONIGHT, this webinar will disappear forever from our website. Take a moment and watch it right now - absolutely FREE - so you don't miss out. Click here.

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Offshore:

Panama and the Not-So-Mighty Dollar Part II As I said on Friday, Panama has come a long way in the last 100 years. The Panamanians helped the Americans construct the Panama Canal - considered one of the technological wonders of the world. Panama became a world-class tax haven, and now only taxes foreigners on domestic income. In the last 100 years, the Panamanians have also adopted many American customs into their culture - including the U.S. dollar. Until now, the U.S. dollar has been a blessing for Panama. The dollar kept Panama's inflation low and the economy stable. Now with the dollar's decline, Panama is feeling the negative side of this relationship in every sector. According to the Panama Comptrollers office, food prices have increased 17.2% over last year. Food increased over 20% in some areas. Consumer prices in Panama rose 0.8% in May. Meanwhile, 12-month inflation at the end of the month was 8.8%. One Panama observer claims that "the lower income people of Panama are getting hit from every angle. Utilities, food, transportation, gas, housing, rent, healthcare, medicine, propane, loans just to name some of the costs of living they struggle with. Their combined family income is gone by the time they buy basic food, housing, water and electricity, and care for children." It appears that eight years of Bush deficit spending, piling up trillions in national debt, have hurt more than just Americans. These irresponsible fiscal and financial policies now have found their way to Panama and other U.S. dollar denominated economies of the world. What a difference a few months makes. BOB BAUMAN, Legal Counsel P.S. It's not all bad news. Last year, Citigroup experts announced they expect the country to attain an "investment grade" rating in the second half of 2009. If that happens, it will be a first for Panama. That could mean a new wave of investment capital pouring into Panama. To get the full story on Panama, check my book, Panama Money Secrets - now selling for 25% off the cover price. Click here for details.

Wealth:

History Suggests More Pain Lies Ahead for Investors Is it time to start buying stocks again? According to Ned Davis Research, the average bear market since 1960 has lasted about 14 months. It's also resulted in an average 31% decline for U.S. stocks before a bottom finally formed. During the mildest bear market in 1990, the Dow still declined 21%. The worst bear market resulted in a 45% plunge from 1973 to 1974. Unlike the last bear market from 2000 - 2002, the sub-prime credit crisis triggered this bear market. Or in other words, the real estate market busted - compounded by soaring energy and food prices. The last bear, a first-class tech-wreck, ended in October 2002. During that bear market, the S&P 500 Index crashed a cumulative 41% and the Dow a dizzying 38%. The good news is that bull markets or big rallies follow bear markets. Those bull markets usually result in significant double-digit gains for investors. But the key is to avoid losing money in the meantime. You don't want to get smashed during a bear market so another investor can recover quickly and begin raking in the profits once the primary trend changes. From its peak last October, the Dow and the S&P 500 Index have now declined a cumulative 19% heading into today's trading. If history is correct, this suggests that stocks still have another 12% or so of losses ahead before forming a bottom. That means more pain lies ahead for investors in stocks. But there is light at the end of this dark tunnel. I'm finding a plethora of bargains worldwide right now. That includes big dividend-paying stocks that trade at a multi-year low. Many other large-caps trade at similar levels. This bear market will end - eventually. The first step to the next bull market is sharply lower oil prices. Until energy prices retreat, stocks will continue to suffer losses. ERIC ROSEMAN, Investment Director

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