Today's comment is by Jack Crooks, editor of World Currency Options and The Money Trader. 

Lately, I've been trying to find information/data to prove the dollar won't retest its old lows. But it seems the facts just keep getting in the way.

Take Friday's triple-whammy. We saw a run from all U.S. assets including bonds, stocks, and the dollar. Oh yes, it was definitely looking scary for most of the trading session.

You could feel the panic riding on the back of Paulson's Fannie and Freddie announcement, Indymac's spectacular failure, and more rumors that Lehman could be carried out the backdoor.

Is It Any Wonder Lehman Brothers Has Traders Talking?

Two Unlikely Heroes

But yesterday morning we woke to a new world of opportunity. The pre-market S&P was up 17, crude was off a whole US$1.50, the birds are singing, and the dollar is bouncing higher.

And once again we owe our good fortune to our shining heroes on the Hill, also known as Hank and Ben. Fannie and Freddie are safe thanks to our heroes.

I guess the moral is that despite the constant criticism of authorities, never underestimate our heroes' ability to stage a good market bounce. But how many times do the players in the market watch the financial system tiptoeing to the abyss, only to pullback at just the last moment before falling to its death by the authorities?

What's Left to Spend in the "Credibility Bank?"

As brilliant as both Treasury Secretary Paulson and Fed Chairman Ben Bernanke are, how much credibility do these men have with the list of things they've had to say in the past?

I'd say their credibility bank is running on empty, considering what we've heard from these two...

• The economy is fundamentally sound.
• Sub-prime is just a minor problem in a small corner of the U.S. real estate market.
• The economy is fundamentally sound.
• Bear Stearns is only a liquidity problem, their assets are still solid.
• The economy is fundamentally sound.
• Fannie and Freddie's asset base is solid.
• The economy is still fundamentally sound.
• IndyMac will reopen soon. Its assets are still intact — it's a liquidity crunch.
• The economy is once again fundamentally sound
• Short-sellers are the reason for Lehman's trouble. Its asset base is solid.
• The economy is still, still, fundamentally sound.
• "Fill in the blank....."

There was US$596 trillion in nominal derivative value outstanding at the end of 2007. That value represents 10.8 TIMES the value of global GDP (see chart below). Even if only a small portion of these derivatives are radioactive (and could disrupt the financial system), it seems we could have many more blanks to fill in above.

That's especially the case when our remaining key repository of collateral value — the stock market — is in trouble.

See Derivatives Swell

[For perspective, look back at 1990 and you will notice the nominal value of global derivatives represented a paltry 26% of global GDP.]

Two points here:

1. Despite Mr. Paulson and Bernanke being serious men with good intentions, they are seriously outgunned by the level of debt in the system.

2. The credibility bank is now very low. It's the "fool me once" scenario. Bernanke and Paulson, you told me everything would be okay after Bear Stearns was backstopped — and now this happens. What other hidden bombs are still out there?

The Only Trick Ben and Hank Have Left Up Their Sleeves

Being vastly outgunned, the authorities only have faith and credibility on their side. Basically, those are their only tools to fight off the crisis of confidence. That's the real danger. If such a crisis attacked the markets, it would lead to a self-feeding spiral of assets sales. Investors would get stuck in a feedback loop repeating something like:

1. I am overleveraged
2. I must sell collateral (stocks) so that I can reduce leverage
3. Stocks are going lower, my collateral is following, I must sell more stocks
4. ...(repeat)...

This is the ugly business teetering into the abyss scenario. It would have a nasty impact on the real economy already reeling from loss of a key wealth driver (known as "housing") and loss of available credit.

We all know this must be avoided at all costs. The question is: Does that matter...especially when the stock market and the dollar are freefalling?

A Pair of Depressing U.S. Assets — Your Dollars and Your Stocks

For all our sakes, let's hope our heroes have more left in the credibility bank.

JACK CROOKS, Editor of World Currency Options and The Money Trader

EDITOR'S NOTE: Perhaps no one wants to ask the tough question — but what if our heroes DON'T save the day? What then? Will the markets be left to correct on their own, in one big bloody mess? Could you wake up one morning without a soft cushion left for your retirement plan, stocks, and mortgage to land on? Scary thought, but one worth considering. In fact, Jack is already building a contingency plan for his World Currency Options subscribers...just in case. You might want to take a look....

Fannie Mae/Freddie Mac FAILURE Creates Immediate Profit Center!

We’ve all known the dollar has been “under water” for years. But now, the Fannie/Freddie bailouts are going to flush it right down the drain.

Why? Because the bailouts mean that trillions more cheap dollars will flood the U.S. economy — only fueling the fire of a weak buck further…But fortunately, with turmoil comes opportunity...

Click here to read the full story of how 487 people will turn this “paper-money-printing” debacle into a profitable hobby.

What's Even Better Than Trying to "Time" the Markets

When's the best time to buy foreign currencies? When's the best time to buy or add foreign stocks and bonds? And what about commodities: Is this a good time to load-up on things like oil and corn after a plunge recently?

I'm often asked about how to time the markets. And my answer is always the same: Make a long-term asset allocation game plan and stick to it.

In theory, it might sound like a good idea to buy the Swiss franc at the cusp of a big move or add crude oil ahead of a price surge. But for the majority of investors timing is not a good strategy. It forces you to trade frequently, which means you can lose money faster. And it sets you on the wrong path to financial freedom.

Check back tomorrow, and I'll give you the three questions you must ask yourself, to draw up your own allocation strategy.

ERIC ROSEMAN, Investment Director

The Dirty 13: The 13 Worst Scams Intelligent People Fall For

I receive several messages every month from intelligent readers who are taken in by advance fee scams. So I thought I'd take just a moment to give you my list of the most commonly encountered advance fee scams, so you can avoid them.

1. Jackpot Scam. You've just won the jackpot or the lottery that you never entered, but to get your full winnings, you must first pay various fees.

2. Inheritance Scam. You've inherited a large sum of money from a mystery relative or some other person. To claim your inheritance, you must first pay taxes and fees.

3. Murdered Politician Scam. The widow or child of a dead politician in a third-world country contacts you for assistance. The politician stashed away a few million dollars in a foreign bank account, but the widow/child can't get to it without your help. You'll get a percentage of it if you help retrieve the funds, but first you must send money to a "lawyer."

4. Company Representative Scam. A foreign company wants your help to process payments from its customers. They want to use your bank account to process checks, money orders, credit card payments, etc. But first, you must pay a fee.

5. Government Contract Scam. Someone who has supposedly won a lucrative contract with a government in Africa contacts you for assistance. If you help him bribe the appropriate officials to finalize the contract, you'll receive a portion of the proceeds.

6. Dying Widow/Wealthy Merchant Scam. A wealthy widow or wealthy merchant has terminal cancer and wants your assistance in funding their favorite charity. You'll get a portion of the inheritance, but first, you must send money to a lawyer.

7. Rich Investor Scam. A wealthy investor wants to invest millions in your business. But first, you must send money to a lawyer to draw up a contract.

8. Loan Scam. You've been awarded a loan on very favorable terms, but first, you must send money to pay various fees or taxes.

9. Oversized Check Scam. A foreign person wants to buy merchandise you advertised on e-Bay or elsewhere, but mistakenly draws up a cashier's check for a larger amount. He asks you to wire the balance to a "shipping agent" before sending the payment.

10. Recover from a Scam Scam. The FBI, IRS, or other law enforcement agency contacts you by email and asks for your assistance in recovering money from advance fee fraudsters. First, however, you must send them money. (Law enforcement agencies never do this, but this doesn't stop scammers from impersonating them.)

11. Credit Card Scam. You've won a credit card with a million-dollar credit limit. But first, you have to pay a few thousand dollars as an "activation fee."

12. Job or Immigration Scam. You've just been awarded a lucrative employment contract or visa to an EU country. But first, you need to send money to a fake immigration official or lawyer.

13. Lonely Hearts Scam. A beautiful woman you meet online wants you to marry her. She wants to come visit you in the United States (or wherever you live). But first, you must send her money for an airline ticket.

Do you notice the pattern? All these scams start with you sending them money. When you don't receive the promised funds, you'll be told "difficulties have arisen." To resolve the difficulties, you must send — you guessed it — more money. Go figure.

MARK NESTMANN, Privacy Expert & President of The Nestmann Group
www.nestmann.com

P.S. Please see my blog for more on how to scam those clever scammers...

Beat Identity Thieves, Greedy Lawyers and Government Snoops at Their Own Game

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