All Aboard the Dollar Bear Bus!

Today's comment is by Jack Crooks, editor of World Currency Options and President of Black Swan Capital.

Dear A-Letter Reader,

Yes, the Federal Reserve slashed the Fed Funds rate and the discount rate by 50 basis points each, but now we're left with nothing but questions.

For instance, could investors actually be feeling good about investing in the U.S. right now? It would seem so if you follow equity markets. The Dow Jones is within striking distance of record highs.

But are such levels warranted if you consider the recent reports on consumer confidence? Consumer confidence just fell to its lowest level in two years (99.8 in September, down from 105.6 in August.) Has this even fazed investors or are they just blowing this off? And how will Americans feel AFTER the Fed has stuck a couple fingers in the pie?

The Data that Should Make You Squirm

It's hard to believe investors feel comfortable about the jobs situation (down by 4,000 in August). That is of course unless investors consider this LOSS of workers just an "aberration." Perhaps they expect the Fed's masterful rate cuts solved that little problem. It's hard to believe, though, that Fed action so quickly remedied the illness that everyone finds so threatening.

I believe we've begun to see the wealth effect of a slumping real estate market impinge upon consumers. Existing home sales, down 4.3%, are unsightly. Inventories stand at an 18-year high (which means the shelves are stocked and no one is buying). Home prices dropped even further. They're down 3.9% year-over-year in July, with further downside expected. New home sales for the month of August dropped 8.3% - the lowest in seven years.

In other words: It's ugly out there and it's just going to get uglier.

Now I ask: How long will it take before this really starts biting down hard on the consumer? After all, the credit markets seem much less forgiving these days.

Here's a little quip I grabbed from Bloomberg...

"For one thing, higher interest payments on home loans are siphoning consumers' wallets. Monthly payments on adjustable-rate mortgages are estimated to increase by an average of US$350 per household with such loans."

It's interesting to wonder what an "average of US$350" per month means to most American homeowners - especially those who are considered to be sub-prime borrowers.

Chicken Little Consumers Beware

The sky is falling on the U.S. consumer. Barring a surprisingly upbeat jobs report this Friday, it's hard to imagine they find any shelter.

Upcoming economic data that may give the U.S. dollar any support is hard to spot. A possible dollar bounce rests on the prospects for other major currencies. Unfortunately for the buck, the euro keeps pressing higher, the Australian dollar is ready to test recent highs, and the Canadian dollar is still flirting with parity.

The dollar-bear bus is coming around for a final pick-up...all aboard who's coming aboard.

JACK CROOKS, Editor
World Currency Options

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Where Does Your Favorite Emerging Market Rank?

Flying home to Florida from Paris last Thursday was an interesting experience, to say the least. I took a short side trip for just a few days to Munich - home of the annual Oktoberfest celebration. This year, the festivities began on September 22. I figured that as long as I was in the neighborhood, I might as well drop in. You know what they say about "all work and no play."

So I was up 5:30 A.M. to catch a 7:00 A.M. connecting flight from Munich to Paris. Then, after being delayed an hour, I sat through an extremely long flight from Charles De Gaulle airport to Miami. I finally made it home about 18 hours later. At least I had the chance to catch up on my reading. In fact, one article from the Wall Street Journal was particularly interesting and helpful to the global market research I routinely perform.

The World Bank recently produced its annual survey ranking 178 global economies in terms of the ease of doing business in each local market. The survey includes such factors as the amount of red tape involved in starting and operating a business, the ease of obtaining licenses, registering property and getting access to credit, among other factors.

Apparently, developing nations eagerly await these World Bank rankings. Each year, these nations compete with each other to move up on the list. A higher ranking of course means more foreign direct investment could flow into the country, and ultimately faster economic growth.

This year's list showed that two Middle Eastern countries: Egypt and Saudi Arabia are among the top 10 "reformers" according to the World Bank. This means their business climates were the most improved over the past year. Several eastern European countries also made the list including Croatia, Macedonia, Georgia and Bulgaria. And rounding out the top10 are Ghana, Kenya, China and Colombia. China has been a repeat performer.

According to the survey, there's not necessarily a direct link between a country's ranking and its rate of economic growth. China for instance is still ranked only 83rd. Rather, it's the consistent progress a nation makes in moving up the World Bank's list that seems to indicate strong performance for its economy.

China for example was ranked 108th just two years ago. So it has moved up and impressive 25 slots. India too has moved up from 138th two years back to 120th now. But there's still some work to do there.

You're probably wondering which country holds the distinction of being the "worst" performing country. It's Venezuela of course, home to Hugo Chavez "21st Century Socialism." Venezuela's rampant confiscation of private-sector assets help drop it to number 172 out of 178 - way to go Hugo!

MIKE BURNICK, Senior Editor & Global Markets Analyst

P.S. With the Fed's latest interest rate cut, it's clear to me that another era of printing cheap money has begun! This should provide a sensational boost to the value of certain asset classes - including emerging markets. Right now, I'm sorting through several global ETFs that track emerging stock markets, searching for just the right one to recommend in my investment research service, Global Market Investor. Don't miss out on my next recommendation. Click here for all the details..

Privacy & Rights

Here's One Way to Stay Off the Government's Suspect List

Hasan Elahi is an art professor at Rutgers University. Along with more than 700,000 people, he's on the U.S. government's terrorist watch list. The Bangladeshi-born U.S. citizen has been repeatedly searched, questioned, investigated, and even endured a lie detector test courtesy of the FBI.

Once you're on the terrorist watch list, of course, it's hard to get off - very hard. Indeed, even dying won't get you removed from it. Several of the Sept. 11, 2001 suicide bombers were still on the watch list as of late 2006.

Elahi's life began to unravel in 2002. At the time, FBI agents began investigating him on suspicion of stockpiling explosives in a Florida storage unit. Elahi was able to convince the FBI that he didn't possess explosives and wasn't planning to blow anything up. But still every time he traveled, he faced delays, questioning and suspicion. He began thinking that if the feds really thought he was a terrorist, they might eventually ship him off to the notorious detention center in Guantanamo Bay, Cuba.

Elahi's solution? Document his life, 24 hours a day, on the Internet. He takes hundreds of photos a day of himself in class, in coffee shops, at home, in art galleries, etc. Each one is instantly uploaded to his website at http://elahi.rutgers.edu.

This way, Elahi reasons, the government can't get it wrong. There's no doubt whatsoever where he is or what he's doing, any time, day or night. There's also a market phenomenon at work: No FBI agent is going to get a promotion for uncovering a terrorist plot by watching an art professor eat a Big Mac. "It's economics," he says. "I flood the market."

It's working. Elahi hasn't been detained at the airport since he began documenting his whereabouts online. But just to be sure, he always calls the FBI a few days in advance every time he plans to take a trip via commercial airline.

The lack of privacy in Elahi's personal life, he believes, is a small price to pay in exchange for being able to travel freely. And, as he says, "It sure beats Guantanamo."

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