Friday, June 15, 2007 Vol. 9 No. 143 In Today's Letter: Comment: You Have a Dog in this China-U.S. Currency Fight Wealth: A Select Handful of Commodities to Buy as the Bull Market Marches On Privacy: Your Tax Dollars at Work: U.S. Funds Expand Wiretaps Around the World You Have a Dog in this China-U.S. Fight Today's comment is by Jack Crooks, our Currency Director and editor of Crooks on Currencies and Crooks Currency Options.   Dear A-Letter Reader,  Can dogs make jokes? That was a question I saw on Yahoo recently. There’s some debate about whether or not they can.  But there is no debating that the U.S. Treasury can. According to the U.S. Treasury, China doesn’t qualify as a “currency manipulator.” As I said yesterday, what a joke!  The problem is this: The U.S. Senate isn’t laughing. And that could spell trouble for U.S-Chinese relations as the specter of protectionism creeps closer to reality.  Anyone who follows the global markets for more than about two weeks knows the game China is playing. They are artificially suppressing the value of their currency to stimulate exports. This policy has worked very well for China. Exports are booming. Industrial production is exploding. Fixed investment into China is soaring.  The trade surplus with the U.S. keeps climbing. And their foreign exchange reserves have penetrated the ozone. I think you get the picture -- China’s policy to stimulate exports and become the world’s manufacturing platform has worked. This is why it’s unlikely they will make little, if any, concession on the currency front. “Why fix things when they aren’t broken?” say the Chinese.  I’m no fan of China. I’ve done my share of China bashing, as I don’t like Commies even it they are “reformed.” But they do have a point. And the point is: “It ain’t broke, so don’t fix it.”  China’s Symbiotic Relationship with the U.S. The U.S. has benefited in a lot of ways from its symbiotic relationship with China. For example, the U.S gets subsidized interest rates, because China holds such a massive amount of U.S. Treasury paper. So it’s generally agreed that this has kept long-term U.S. interest rates lower than they otherwise would be.  China also helps keep U.S. inflation in check by making available to U.S. consumers good quality products at everyday low prices. Finally China provides a low-cost manufacturing platform for U.S. multi-national companies, which helps boost profits.  Yet, there is a downside. And the U.S. Senate is focusing on that downside.  The downside is that middleclass Americans are bearing the brunt of China’s growth on two fronts. First, the U.S. has lost “good paying” manufacturing jobs. Secondly, the U.S. middleclass sees stagnate wage growth because of the intense price competition from Chinese imported goods.  According to the U.S. Bureau of Labor Statistics, the inflation-adjusted wages for workers in the middle of the pay distribution -- is up a total of just 0.9% over the past seven years.  Our Senators Can’t Stand All Those Nasty Letters Anymore The middleclass constituency is the group of Americans who send letters and emails to Senators. The Treasury doesn’t get cards and letters from the average American. And even if they did, it’s unlikely they’d have time to read them. After all, it’s takes a lot of time and effort to develop a good standup routine.  Senators must be getting a lot of mail lately, because they are now proposing legislation that is tougher than usual on China. This “get tough” stance has a two-part twist.  First, senators are lobbying for the right to take complaints about China’s “manipulated” currency to the World Trade Organization based on the grounds that it represents illegal dumping of goods. They also want to force those comedians at the Treasury to change U.S. exchange rate policy and force the Treasury, in conjunction with the U.S. Federal Reserve Bank, to take action when other nation’s currencies get “out of line” with the fundamentals.  We know judging fundamentals is a subjective process. But the fundamentals backing the Chinese economy are all pointing skyward. There’s a belief among experts that based on these fundamentals, China’s currency is about 40-60% undervalued relative to the dollar.  This seems to be an open and shut case, our esteemed Senators would argue. And maybe they are right. But as I said, the US-Chinese relationship has not been a one-way street. And China is a huge driver of the world’s economy.  So the stage is set for battle. And remember, if you own any financial assets, anywhere, you have a dog in this fight.  JACK CROOKS, Currency Director  EDITOR’S NOTE: As China and the U.S. fight it out diplomatically on the world stage, China still holds the trump card over the U.S. with a whopping US$1 trillion of foreign exchange reserves (with the lion’s share being U.S. dollars). By buying and holding billions of dollars worth of U.S. treasuries, China keeps U.S. long-term interest rates down. But if China ever decided to retaliate against the saber rattling these U.S. senators are doing, they could sell off this massive amount of U.S. paper. That would be bad news for the U.S. dollar. Click here to find out how you can protect yourself from any “unforeseen” negative events for the U.S. dollar. Advertisement The Next Few Months May Be Your Best Chance to Escape to a Safe Haven With the Number One Device Used Worldwide to... Immunize your investments against downturns or bear markets... Access investments, unavailable in your home country, that offer safe income and principal... Protect your wealth from personal injury, malpractice, environmental or employee lawsuits... Save your loved ones' inheritance from claims and excessive estate taxes or government confiscation... And more... To learn more about the most effective asset protection device ever designed, click below. LINK: http://www.isecureonline.com/reports/190STRUD/E190H609 Wealth/Investments   A Select Handful of Commodities to Buy as the Bull Market Marches On July marks my sixth year as editor of Commodity Trend Alert (CTA ), published by The Sovereign Society. On this six year anniversary of CTA , I have some observations to make about this ongoing commodity bull market.  First of all, the commodities bull market is far from over. Unlike the previous secular bull market of the 1970s, this bull market is being fed by declining supplies and booming demand, mainly from rapidly developing economies. Thirty years ago, China, India and another several hundred million consumers were not all vying for the same raw materials. This is an extraordinary era: For the first time since the early 1970s, the world economy is virtually synchronized as growth rates continue to rally in unison.  Monetary policy and inflation are important variables contributing to this bull market. Combined with low stockpiles of most commodities heading into 2000, the lowest interest rates in a generation under former Fed chairman Greenspan in 2002-2003 resulted in excess bank liquidity and a dollar bear market as the Fed anxiously struggled to grow the economy in the post-bubble technology/internet era. That resulted in ultra-low rates, a lower dollar and among other things, a commodities bull market as investors sought to hedge a dollar decline in hard assets, including gold.  To be sure, the easy money has already been made in the energy complex and the mining sector. But over the next 12-36 months, investors will earn a small fortune riding the grains as supplies continue to shrink, the oil services, natural gas, alternative energy and the precious metals. Conversely, one of the biggest and most profitable speculations over the next 12-18 months lies in shorting the base metals, which appear to be breaking down from a technical perspective.  Over the short-term, the U.S. dollar will likely enjoy another cyclical rally, similar to what occurred in 2005 when it gained 11.8% versus the euro. Long-term rates, currently rising since the beginning of last month, are unlikely to ratchet much higher as inflation fears subside. Worldwide, inflation is sitting at a comfortable 2% and short-term interest rates are still historically low. The bull market in commodities continues. ERIC ROSEMAN, Investment Director P.S. Right now, my Commodity Trend Alert subscribers are going long and strong on all my best buys including select grain plays, oil services and alternative energy plays. You can read about all my current best buys when you order my new report: Dirt Diggers: The 5 Best Ways to Profit From $75 Silver, $2,500 Gold, Plus the Best in Platinum, Palladium and More. Click here for details.      Privacy&Rights  Your Tax Dollars at Work: U.S. Funds Expand Wiretaps Around the World Ask the proverbial “man in the street” how the billions of your tax dollars are spent in foreign aid, and he’s probably say the bulk of it is spent on humanitarian relief. For instance, the government makes sure U.S. aid in natural disasters like the 2004 earthquake and tsunami in Southeast Asia is well publicized.   What is less well-known is the U.S. government also plays a massive role in developing what I call the “global surveillance infrastructure.” Case in point: the new $3 million “Communications Intercept System” being installed by Mexico's Federal Investigative Agency.  When complete, the system will permit cell phone users to be monitored as they travel and also allow authorities to identify callers by voice. And, while Mexico’s contract to install the wiretapping system is with Verint Systems, Inc. of New York, the purchase was bought and paid for by the U.S. State Department. But what good is a brand new wiretapping system if you can’t use it without obtaining approval from a judge? Apparently, not much good at all. That’s perhaps why Mexican President Felipe Calderon is pushing to amend the Mexican Constitution to allow officials to tap phones without a judge's approval. This is hardly the first time something like this has happened. Indeed, for nearly 15 years, the FBI and other U.S. agencies have secretly provided funding for a consortium of national law enforcement and intelligence agencies called the International Law Enforcement Telecommunications Seminar (ILETS). Since 1993, ILETS seminars have brought together police from 20 countries to formulate a legal agenda for global surveillance. The ILETS requirements for the national surveillance wiretapping systems stipulate that law enforcement agencies have access not only to the content of telephone communications, but also conference calling or call transfer data, all numbers called, all calls received, plus the capability to locate cell phone subscribers in real time.  Additionally, neither the interception target nor any other unauthorized person must be aware of the surveillance. It would appear that the Mexican wiretapping system is designed to fulfill the ILETS requirements. The result is that country-by-country, the United States is secretly funding initiatives designed to eliminate communications privacy and undermine the rule of law. Given this degree of coordinated surveillance, thoughtfully funded with U.S. taxpayer dollars, how can you protect telephone privacy? The single best suggestion is to purchase prepaid cellular phone service. The per-minute cost is significantly higher than if you have a service contract, but you can obtain your cell phone and purchase prepaid calling cards for it without a credit check and without showing proof of identify.You can buy prepaid cell phones almost anywhere in the United States through services such as Virgin.  You can learn more about protecting about privacy, click here. MARK NESTMANN, Privacy Expert & President of The Nestmann Group www.nestmann.com   Advertisement A Sneak Attack on Your Liberties and Freedoms In the aftermath of the 9/11 tragedy, the PATRIOT Act became law with great haste while cloaked in secrecy. Bob Bauman calls it the "greatest single assault on personal and financial privacy in U.S. history." To learn about this far-reaching privacy invasion -- and what you can do about it -- click below. LINK: http://www.isecureonline.com/reports/190SPATY/E190H606/