THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Your Link to Freedom, Privacy & Prosperity in the Offshore World
Wednesday, December 8, 2004 - Vol. 6 No. 236
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In This Issue:
* COMMENT: Dollar's Downfall Inevitable.
* OFFSHORE: Delaware Stronger Corporate Haven. Isle of Man Seeks United Defense Against EU.
* WEALTH: PATRIOT Act Hurts Dollar. Swiss Bank. Dirty Cash Failures.
* PRIVACY & RIGHTS: EU Repeats US Mistakes. U.K. ID Fears. Bad Wills.
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Our guest Comment is by Thomas FISCHER, director of Client Relations for Jyske Bank Private Banking, Copenhagen, Denmark, and a member of The Sovereign Society's Council of Experts.
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COMMENT: Dollar's Downfall Inevitable.
Dear A-Letter Reader:
The downturn of the US dollar cannot be averted!
Excessively high US consumption, which has boosted US debt to record heights and is soaking up no less than 80% of total global savings, is taxing foreign investors' willingness to keep financing this deficit. The US savings ratio is historically low, 0.2%, as announced last week.
The economic future of the US no longer depends on Americans themselves, but on world investors' willingness and ability to pay. The mountain of US government bonds is in reality the American family silver that is being scattered to the winds, mainly to Asia, to the Japanese and the Chinese.
The Japanese haven't been able to instill the urge to spend into the populace, and the Chinese are trying to cool down their economy, with a political pressure for/requirement of creating 15-20 million new jobs annually. This requires an annual growth rate of 7%, and Americans play a major role as super consumers of Chinese goods. So long as the parties of this 'pact' do not pull out or demand payment for continuing (in the form of higher yields or hefty currency depreciations), everything is serene on the surface. But under the surface things are seething. The longer the pact exists, the worse the outcome when it eventually collapses. If it is maintained, the US current account deficit will grow inexorably, while the rest of the world is cruising in a lower gear than the US i.e., the demand for foreign financing will rise proportionally. Eventually, the pact must end, and the Americans will probably be forced to pay, either in the form of much higher yields, a much lower dollar rate, or an explosive cocktail of the two.
Against the tide we have had a very bearish view on the US dollar, but we now decide to swim against that tide. Call it the sixth sense of a foreign exchange trader, experience, or that we're getting weak in the knees. We readily admit that we're up against terrific forces. The downtrend of the dollar has rarely been as strong as it is today. We have sold our positions at 132.95 in realizing that greed is OK, but profit is better. We expect the correction movement to continue down towards 129.25/130.00. But if EUR/USD goes beyond 135, we foresee a major dollar collapse. That could easily pull the EUR/USD rate above 140 before the market realizes what's happening. But it's important to remember that the dollar's downturn simply cannot be averted in 2005.
A correction has long been needed, and now is the time. When this correction is completed, we expect the dollar's slide to gain momentum, resulting in even newer record highs of the EUR/USD rate. A correction will not change our 150 target for the EUR/USD rate in 2005.
What about the pound sterling? Even the happy development of the EUR/ GBP rate will end. After its fourth abortive attempt at breaching 70.30, the cross rate has set off on a major downward correction. It's possible that the UK can 'stand it' if sterling appreciates against the US dollar, since the US accounts for only 15%-16% of UK foreign trade. But a stronger sterling is not what the UK needs when the debt laden consumer begins to feel the effect of the combination of heavy debt and high interest rates.
Like the US, the UK is running deficits both on the domestic budget and the current account; the current account deficit currently corresponds to 3.3% of GDP. If sterling is allowed to appreciate against the dollar, this will increase the necessity to let sterling depreciate against the euro! Hitherto, the euro was the preferred alternative to the depreciating dollar, but lately sterling (yielding a high rate of interest) has developed as another alternative. And the market is beginning to position itself for just this eventuality.
Thomas Fischer
Copenhagen, Denmark
E-mail: fischer@jyskebank.dk
Jyske Bank Private Banking, Copenhagen. LINK: http://www.jbpb.com.
Editor's Note: If you are interested in currency trading, check out The Money Trader, a Sovereign Society currency trading service for individual investors. To learn more, go to:
LINK: http://www.agora-inc.com/reports/MTR/WMTREC01/
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COMMENT LINKS:
* Don't Let the Dollar Take the Fall. LINK:
http://www.nytimes.com/2004/12/07/opinion/07garten.html
* Gold Exposes the Dollar, says US Rep. Ron Paul.
LINK: http://www.lewrockwell.com/paul/paul221.html
* The disappearing dollar. The Economist. LINK:
http://www.economist.com/opinion/displayStory.cfm?story_id=3446249
* The Brazil Example: Funny, Scary, Paper Money.
LINK: http://www.strike-the-root.com/4/herman/herman35.html
* US Debit Cards Give Plastic Edge Over US Cash. LINK:
http://www.washingtonpost.com/wp-dyn/articles/A41858-2004Dec6.html
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* FROM THE EDITOR'S DESK:
* OFFSHORE:
* DELAWARE STRENGTHENS CORPORATE TAX SHELTERS
The American State that leads as a corporate tax and business haven has strengthened its laws to attract even more corporations, foreign and domestic.
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* FINANCIAL MOBILIZATION OF ISLE OF MAN NEEDED
DOUGLAS: Island bankers call for a co-ordinated response to the looming EU tax directive that takes effect next July. They fear clients living in the EU will flee to other banks in non-EU jurisdictions.
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* WEALTH:
* PATRIOT ACT CAUSES RUN FROM DOLLAR
LONDON: Hans Redeker, global head of foreign exchange strategy at the French bank, BNP Paribas, says the Patriot Act, intended to stop US financial institutions being used by terrorists, is scaring away private investors from the US. 'If you trade with what the US regards as a 'dodgy' bank, you are at risk of your assets in the US being frozen,' he says.
'After the re-election of Bush, the Middle East started to sell dollars like crazy due to the fears of US assets being frozen."
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* ANOTHER BIG SWISS BANK RE-ORGANIZATION
ZURICH: Credit Suisse integrates its investment banking unit, CSFB, into its private banking business, and will float insurance arm Winterthur on the stock market.
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AMERICA'S FLAWED ANTI-MONEY LAUNDERING SYSTEM
WASHINGTON: An estimated $300 billion annually in allegedly dirty money, millions of reports filed at a cost of billions of dollars, and no one really knows what's going on. A classic boondoggle that costs Americans money and liberty.
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* PRIVACY & RIGHTS:
* EU LEARNS NOTHING; MIMICS U.S. ANTI-TERROR MISTAKES
BRUSSELS: Tuesday I railed against useless, costly US rules that make every businessperson a spy for the anti-money laundering police. Perhaps I should have kept quiet. The EU yesterday adopted similar rules, and soon all European business will also be government spies.
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* IS THE ENGLISH GOVERNMENT SPREADING FALSE FEARS
LONDON: The Washington Times editorializes against the UK Labour government's plan to impose mandatory ID cards on every person. They ask the question that must be answered; is it truly necessary for the UK to become a police state and sacrifice its traditional liberties for an illusory security?
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* WHERE THERE'S A WILL, THERE MAY BE TROUBLE
When hiring a caregiver for an elderly relative, guard against unexpected acts of 'generosity' that can mean duress and robbery.
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* OFFSHORE LINKS:
* Delaware shoring up tax shelter rules.
LINK: http://www.sltrib.com/business/ci_2482226
* Isle of Man banks urge greater leverage, unity. LINK:
http://www.iomonline.co.im/ViewArticle2.aspx?SectionID=872&ArticleID=900608
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* WEALTH LINKS:
* OPEC, PATRIOT Act sharply reduces dollar. LINK:
http://news.ft.com/cms/s/8ea06aa2-47c9-11d9-a0fd-00000e2511c8.html
* Credit Suisse to absorb investment bank. LINK:
http://www.swissinfo.org/sen/swissinfo.html?siteSect=161&sid=5387555
* Money Laundering in America. LINK:
http://www.mensnewsdaily.com/archive/k/kouri/2004/kouri120704.htm
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* PRIVACY & RIGHTS LINKS:
* EU Backs Terror Finance Rules on Banks, Attorneys, Retailers. LINK:
http://www.bloomberg.com/apps/news?pid=10000085&sid=a6PLx1v5E7r4&refer=europe
* A National ID in Britain? LINK:
http://www.washtimes.com/op-ed/20041206-085213-8841r.htm
* Guard against unexpected acts of 'generosity.' LINK:
http://www.washingtonpost.com/wp-dyn/articles/A41171-2004Dec6.html
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LINK: http://www.agora-inc.com/reports/SVS/WSVSECFF/
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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER.
* Bob Bauman, Editor * Daniel Aponte, Jr. Editorial Asst.
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