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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Your Link to Freedom, Privacy & Prosperity in the Offshore World
Monday, October 26, 2004 - Vol. 6 No. 204
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In This Issue:
* COMMENT: The Dollar: Definitely in Trouble
* OFFSHORE: Corrupt Nations. Man Tax Experts.
* WEALTH: IRS Abusive Shelter Rules. Tax Burden Up in 2003.
* PRIVACY & RIGHTS: ID Theft Warning. Passport Exemption.
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Our guest comment is by Mark Nestmann, editor of The Sovereign Individual, The Sovereign Society's Members Only newsletter.
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COMMENT: The Dollar: Definitely in Trouble
Dear A-Letter Reader:
2004 was supposed to be a disastrous year for the U.S. dollar. Looking back at news clips from late 2003 and early 2004, headlines such as "Dollar Slide Accelerates; Risks of Rout Increase," proliferate.
The funny thing is, after losing about one-quarter of its value against the currencies of its largest trading partners in 2003, the dollar basically held steady for the first 9 1/2 months of 2004. But all that began to change last week, when the dollar slid against the euro, the yen and the Swiss franc.
That's a big move in foreign currency terms. And it's likely to continue,according to Barbara Rockefeller, an international economist with over 25 years experience in the currency markets.
Barbara, who now is co-editor of The Money Trader, the first currency and bond options trading service for individual investors, points out that the US is running a monthly "current account deficit" of US$50-55 billion,which nets out to more than US$600 billion/year. In other words, the US is buying about US$600 billion more each year from foreign sources than it sells to them-with most of the buying financed by debt.
Then there's the US$500 billion annual federal budget deficit, which doesn't include a dime to pay off what the US Treasury says are more than US$44 trillion in future unfunded obligations to Medicare, Social Security, federal pensions, etc. That's about US$150,000 for every man, woman and child in America.
These dollar negatives, says Barbara, were for the first seven months of 2004 compensated by net foreign capital inflows US$10-15 billion more than the current account deficit, with an average monthly inflow of US$73.2 billion.
But the inflow in August was only US$59 billion. That's a disappointing number. And if Japan had not bought US$27.4 billion of US paper, the net inflow would have been that much less.
These statistics, Barbara believes, have led foreign exchange traders to conclude that fixed income returns on dollars are not high enough to keep the capital inflow spigot wide open. And that's what led to last week's big dollar sell off.
Barbara thinks the downward spiral going to continue for the next few weeks, especially if Bush wins the upcoming election. Traders believe that a Bush re-election means endless fiscal and trade deficits, not to mention acrimony on many fronts, including retaliatory fights on trade with Europe.
On the other hand, if Kerry wins, she feels the dollar might rise a little on the theory that he is likely to keep his promise to rein in both deficits,using a variety of plans. It doesn't matter that the plans may be half-baked and could be counterproductive-the usual unintended consequences and misallocation of resources that arises from government interference in markets.
The bottom line, according to Barbara, is that no one knows where the US is headed, whether in the economy or in foreign affairs. That makes traders nervous. She believes that this is an environment that favors commodity currencies such as the Australian and Canadian dollars and (especially) the Swiss franc. So those are the currencies she's targeting via option investments to Money Trader readers.
Mark Nestmann
Vienna, Austria
Editor's Note: Barbara Rockefeller is an economist with over 25 years experience in the foreign exchange markets. She is the author of numerous books on trading, including the most recently published Technical Analysis for Dummies. She is also the co-editor of The Money Trader, a currency and bond options trading service for individual investors. In just the past few weeks, Money Trader subscribers have racked up profits of 60% in an option investment involving the Japanese yen and 76% in one involving the Canadian dollar. To learn how you can begin to enjoy these kinds of profits trading options, go to:
LINK: http://www.youreletters.com/t/69938/2340130/652425/0/
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COMMENT LINKS:
* Bankrupting of America. LINK:
http://www.frontlinethoughts.com/printarticle.asp?id=mwo060603
* Japan ready to intervene if yen keeps rising. LINK:
http://news.ft.com/cms/s/ba895212-23d6-11d9-aee5-00000e2511c8.html
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* OFFSHORE *
CORRUPT NATIONS
60 of the world's countries are plagued by rampant corruption. LINK:
http://www.economist.com/markets/displayStory.cfm?story_id=3309196
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ISLE OF MAN TAX EXPERTS
DOUGLAS: Looking towards future tax polices in a tax haven.
LINK: http://www.tax-news.com/asp/story/story.asp?storyname=17702
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* WEALTH *
I.R.S. ABUSIVE TAX SHELTER RULES
Less flexibility in abusive tax case settlements.
LINK: http://www.tax-news.com/asp/story/story.asp?storyname=17689
* Bush signs $140 billion corporate tax bill.
LINK: http://www.nytimes.com/2004/10/23/business/23tax.html
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TAX BURDEN UP IN 2003
Overall OECD Tax Burden May Have Risen In 2003.
LINK: http://www.tax-news.com/asp/story/story.asp?storyname=17688
* OECD advocates lower taxes! A miracle?
LINK: http://www.techcentralstation.com/051904A.html
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* PRIVACY & RIGHTS *
WARNING: I.D. THEFT GROWING
The inside story of a fast growing crime thta could hit you. LINK:
http://www.nytimes.com/2004/10/24/business/yourmoney/24theft.html
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U.S. TRAVELERS GET EXEMPTION
Travelers to Get U.S. Passport Exemption. LINK:
http://www.guardian.co.uk/uslatest/story/0,1282,-4569591,00.html
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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER.
* Bob Bauman, Editor * Daniel Aponte, Jr. Editorial Asst.
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