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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Your Link to Freedom, Privacy & Prosperity in the Offshore World
Wednesday, October 19, 2005 - Vol. 7 No. 211
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In This Issue:
* COMMENT: The Dollar Squeeze.
* OFFSHORE: Swiss Firm on Bank Secrecy. Transparency Rates Havens High.
Record Panama Canal Year. Gibraltar Uproar Over Spanish Concessions.
* WEALTH: Bush Tax Wimps' Dud. Inflation Is Back. The U.S. Income Tax.
* PRIVACY & RIGHTS: You Are Being Watched - Count the Ways!
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COMMENT: The Dollar Squeeze.
Dear A-Letter Reader:
The US dollar is being squeezed from both sides, which makes me think
a massive move is coming. The question is up or down.
On the bearish side: Inflation, and lots of it.
First there was the Consumer Price Index (CPI), which was terrible. It
jumped 1.2% in the most recent measure. Boris Schlossberg, one of the
editors of The Money Trader, dropped me a note to say that this was the
biggest jump in consumer inflation this century. Wow!
Still, Boris pointed out that once you take out food and energy, core
inflation rose just 0.1%. This shows, he says, “that stagflation is
starting to grip the U.S. economy.”
Yesterday, there was the Producer Price Index - it surged 1.9%, the
biggest increase in 15 years.
You would think this inflationary news would pound the US dollar into
the pavement. After all, by definition "inflation" means the dollar is
able to buy less, so it should be worth less against other currencies.
And when you figure in that the trade deficit came in at a whopping $59
billion - the third worst on record - you might think that would cut
away at support for the greenback. If you think that, you'd be wrong.
Yesterday, the US dollar actually rallied higher on the "bad" PPI news.
What the heck's going on?
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On the bullish side, it's the expectations game. Foreign investors and
banks expect the Federal Reserve to keep hiking interest rates a
quarter point at a time until inflation is under control. Why would
they think that? Because that's what the Fed keeps saying.
In a speech on October 11, Fed Governor Don Kohn said that growing
consumer demand in China and India could add to global inflation. He
also pointed out that the increased integration of the global economy
has attracted more capital to the US, thus allowing for lower interest
rates and a stronger dollar. But this posed a risk, Kohn said.
"If financial market participants thought that the Federal Reserve were
not dedicated to maintaining long run price stability, they would be
less willing to hold dollar denominated assets and the resulting decline
in the exchange value of the dollar would tend to add to inflationary
pressures," he explained.
That seems to put the Fed in a damned-if-you-do, damned-if-you-don't
position. If they don't keep raising rates to fight inflation, Kohn
seems to be saying, international funds will flow out of the US, which
would then make inflation worse - which would trigger more rate hikes!
What's the best way to play this in the currency markets? For an answer
to that, I turned to Kathy Lien, who edits The Money Trader with Boris.
This dynamic duo has racked up a record of 18 wins out of 22 closed
trades, so they know what they're talking about.
Kathy told me: "King Dollar reigns over the currency market these days
with few challengers in its way. Greenback bulls are charging full steam
ahead and sweep in to take advantage of any dips in the uptrend."
Kathy doesn't expect inflation to hurt the dollar...for now. "The
sudden pick-up in inflation has practically guaranteed another two rate
hikes to 4.25%," she explains. "And now some of the talking heads on
CNBC are already wondering if we'll be seeing 5% rates by next spring.
As rates go higher, the dollar may follow."
Longer term, the picture for the dollar is decidedly less rosy, Kathy
says. "We and other skeptics are keeping a close eye on US rates and
inflation because no one can convince us that the fastest inflation rate
in 25 years can really be a good thing for the US consumer or the US
economy. The higher rates go, the more pressure will come to bear on
the US housing market.
"With most Americans leveraged up the wahzoo on their homes and credit
cards, higher interest rates will begin to pose an increasingly bigger
risk for the US economy and the US dollar in the medium term."
It sounds like plenty of zigzags ahead. But does this short-term
dollar bullishness make me any less eager to buy gold? Heck no! Gold
is rising despite a stronger dollar because of underlying problems in
the U.S. and global economies. I mentioned three of them on Monday -
the damage wrought by hurricanes, the problems at mega-mortgage lender
Fannie Mae, and the ongoing car wreck that is Refco with its
implications for trouble in the derivatives market.
And, as Kathy said, eventually those inflationary pressures will come
back to haunt the US economy. That's when the dollar could tank, and
gold should kick into overdrive. And if the kind of problems I
mentioned earlier - Fannie Mae, Refco, etc. - actually do trigger a
financial crisis, the price of gold is going to the moon.
And meanwhile, the wild ride in currencies is likely to become even more
of a roller coaster, with plenty of profit potential on dips and peaks
around every corner.
Yours for trading profits,
SEAN BRODRICK, Investment Director
The Sovereign Society Ltd.
E-mail: seanbrod@bellsouth.net
PS: The Money Trader has racked up 18 wins out of 22 trades - really
outstanding! Especially now that Kathy and Boris have cranked up
returns with "synthetic currency options." This strategy recently
turned a 13.7% gain on a US dollar/Swiss franc trade into a 34% gain,
a 7% gain on an Australian dollar/Japanese yen trade into a 17.5% win,
and a 14.2% gain on a British pound/US dollar trade into a 35% pay
off. Way to go! If you want to find out how you can take come out
a winner in the most liquid market in the world with ultra low trading
costs and positions that can actually pay you interest every single day
you hold them, follow this:
LINK: http://www.agora-inc.com/reports/MTR/WMTRFA05/
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COMMENT LINKS:
* Euro slips against US dollar. LINK:
http://www.forbes.com/business/feeds/ap/2005/10/18/ap2283816.html
* Dollar at two-year high vs. yen: MSN Money. LINK:
http://moneycentral.msn.com/inc/news/providerredir.asp?feed=AP&Date=20051018&ID=4160094
* Irish economist says US dollar 'could plunge 30%' LINK:
http://www.irishexaminer.com/pport/web/business/Full_Story/did-sgS3ThenhDVossgDQQ5wn3uAIg.asp
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* FROM THE EDITOR'S DESK, BOB BAUMAN SAYS:
OFFSHORE:
* SWISS STAND FIRM FOR BANKING SECRECY
ZURICH: The OECD's Financial Action Task Force (FATF) likes Swiss
efforts to combat money laundering but again criticized legal financial
privacy. The banking industry and Swiss conservative parties slammed
FATF plans to tighten the laws as too bureaucratic. Amen!
* FATF doesn't like Swiss banking secrecy. So what? LINK:
http://www.swissinfo.org/sen/swissinfo.html?siteSect=106&sid=6163325&cKey=1129317
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* TRANSPARENCY INTERNATIONAL 2005 INDEX
BERLIN: The TI 2005 Government Corruption Index gives high ratings for
clean government to several Sovereign Society recommended haven nations,
including Switzerland (7), Singapore (9), Austria (10), and Hong Kong
(15). Panama comes it at 65, about mid-way among the 115 nations rated.
LINKS: http://ww1.transparency.org/cpi/2005/cpi2005_infocus.html
http://ww1.transparency.org/cpi/2005/cpi2005_infocus.html#worldmap
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* PANAMA CANAL HAS RECORD TRAFFIC YEAR
PANAMA CITY: Fiscal 2005 set a record traffic for transits with 14,011
vessels, about 279,1 million tons, a 4.6% rise over 2004. Panama will
have a national vote in 2006 on widening and modernizing the Canal.
* Panama Canal: a record year but a cloudy future.
LINK: http://www.mercopress.com/Detalle.asp?NUM=6610
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* GIBRALTAR UPROAR OVER SPANISH CONCESSIONS
When the Gibraltar PM suggested for the first time possible concessions
to Spanish demands, all political hell broke loose on The Rock.
* Gibraltar possible yielding to Spain causes brawl.
http://www.panorama.gi/localnews/headlines.php?action=view_article&article=266&offset=0
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WEALTH:
* PRESIDENT'S TAX PANEL A DUD
Americans hoping for real tax simplification and reform are unhappy. The
President's Tax Reform Advisory Panel proposes just to tinker with the
hellacious US tax code rather than replace it with a simple and fair
system such as the flat tax. Advocates of sweeping reform, including us,
are not pleased at these timid, reactionary tax wimps. Get with it!
* Bush's tax panel rejects major overhaul.
LINK: http://msnbc.msn.com/id/9732572/
* Hon. Ron Paul asks: "Who opposes simpler, lower taxes?"
LINK: http://www.lewrockwell.com/paul/paul280.html
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* IT'S BAAAAACK! INFLATION!
Want to understand how big spenders in government rob you with their
inflationary deficits? Read this article below and weep. The dollar
worth 100 cents in 1970 is now worth only 13 cents -- and falling.
* The Inflation Report by Michael Hodges
LINK: http://mwhodges.home.att.net/inflation.htm
* Forbes Stock Focus: How To Play Inflation. LINK:
http://www.forbes.com/2005/10/11/inflation-Fed-stocks-cz_pl_1012sf.html?partner=investing_newsletter
* Money to burn? Hey, big spenders. LINK:
http://www.washtimes.com/op-ed/20051017-092323-5219r.htm
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* TOO BAD, BUT U.S INCOME TAX IS ALIVE & WELL
You may not like it (we don't) but don't fall for those who tell you
the US income tax is not legal, or offer phony schemes they claim
to exempt you from taxes. You'll wind up in court and maybe in jail.
* The US Constitution will not save you from death or taxes.
LINK: http://www.lewrockwell.com/huebert/huebert11.html
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PRIVACY & RIGHTS:
* YOUR PRIVACY IS INVADED DAY & NIGHT:
Did you know that:
* 1) Xerox printers have secret codes to trace what you do. LINK:
http://seattlepi.nwsource.com/business/1700AP_Printer_Tracking_Codes.html
* 2) SF city-wide wireless Internet access invites hackers. LINK:
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/10/17/BUGT5F8K4U1.DTL&type=tech
* 3) Google may be abusing its web site users data collection.
LINK: http://news.yahoo.com/s/ap/20051018/ap_on_hi_te/google_privacy
* 4) GPS devices allow constant police surveillance. LINK:
http://www.nynewsday.com/news/nationworld/nation/la-me-gps17oct17,0,3509453,print.story
* 5) RFIDs move into new areas, raising privacy issues. LINK:
http://seattletimes.nwsource.com/html/businesstechnology/2002565442_rfid17.html
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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER.
* Bob Bauman, Editor * Daniel Aponte, Jr. Editorial Asst.
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