You Gotta Have Hope

Monday, July 16, 2007
Vol. 9 No. 168

In Today's Letter:
Comment: You Gotta Have Hope
Wealth: Chart of the Week: Global Markets Continue to Trounce the U.S.
Currencies: A Checklist of Factors Affecting the U.S. Economy and Dollar!!

You Gotta Have Hope

Today's comment is by Bob Bauman, Legal Counsel and author of many books and reports on second citizenship and the offshore world.

Dear A-Letter Reader,

As you read this I am enjoying the luxury of a week at the beach with my children and their spouses and in-laws, and my grandchildren, now numbering eight, at last count. They will have come from as far away as South Africa, Vermont, Michigan, Florida and Virginia.

This impending family reunion has made me ponder what sort of America - and what sort of world - my generation and yours will be leaving them. Even though I live in hope, to be brutally honest, the picture is bleak.

During a photo opportunity at a 1988 grocers' convention in Orlando, Florida, then President George H.W. Bush (the first) reportedly was "amazed" at encountering supermarket barcode scanners, supposedly for the first time.

His Democrat opponents seized upon this minor incident. They claimed it was evidence that the President was out of touch with the lives of average Americans. It wasn't too long afterwards that the once popular President, for a time riding high in the polls after the Gulf War victory, lost reelection by a plurality to a fellow named Bill Clinton, mainly because of the maverick third party candidate Ross Perot.

A Theoretical War in a Galaxy Far Away

This long ago incident came to mind because I just got through listening to an hour long NPR radio broadcast including military and strategy "experts" about the war in Iraq and what should be done about the current military "surge" strategy and the Iraqi government, such as it is.

I marveled at what I heard as one proponent of the war and two opponents chatted away as though the war was some theoretical exercise being carried out on some far away alien planet.

I have often wondered if all the politicians and pundits in Washington, from the White House to Capitol Hill, really are totally out of touch with what the American people think and want. It seems to me, Americans want a definite end to our participation in this senseless religious civil war in a faraway nation that seems incapable of managing its own affairs.

Aristotle wrote: "We make war that we may live in peace." Well, sometimes that may be true, yes. As in the case of World War II and the aggression of Nazi Germany and imperial Japan.

Whatever your personal view of the war in Iraq, none of us can trivialize the great dangers and death war entails in this modern age. Dangers for the many brave American, British and other allied men and women who have been on the front lines for over four years. Dangers and death for the civilian population of Iraq. And the real possibility of unforeseen dangers for our own future and that of our children.

However much we may disagree with government policies, we are unified when it comes to wishing well for and supporting the soldiers, sailors, airmen and women who have been commanded into military action. But at some point this war has to stop.

The First Casualty of Any War

The Sovereign Society was founded to preserve and enhance personal freedom and liberty. It has been said that "truth is the first casualty of war."

In this war Americans' liberty and freedom also have suffered terribly. We may never regain our constitutional system that has been stripped of due process, habeus corpus, the right to counsel, the right to face one's accusers and the right to be charged or released.

Is it any wonder that Americans and those in other nations think that media, government and politicians lie? Is it any wonder many don't vote?

And do these politicians and the media really think we're as dumb as their patronizing treatment of us suggests?

We Won't Be Considered "Suckers" Forever

I can't predict when, but I must hope that there will come a day of reckoning for these political PT Barnums who think we're all suckers. But I must confess that the current crop of potential presidents impresses me as so many political pygmies maneuvering for personal power.

I leave you with a quotation from the saintly, late Pope John XXIII who told us: "Consult not your fears but your hopes and dreams. Think not about your frustrations, but about your unfulfilled potential. Concern yourself not with what you tried and failed in, but with what is still possible for you to do."

That goes for both nations and individuals and I'm trying this week to do precisely that with my loved ones. To his Holiness I say, Amen!

That's the way it looks from here,
BOB BAUMAN, Legal Counsel

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Wealth/Investments

Chart of the Week: Global Markets Continue to Trounce the U.S.

We are just past the halfway mark for 2007 global financial market returns, so it's worth taking a look at how well the U.S. has performed so far this year compared with international markets.

Through the first six months of 2007, the S&P 500 index gained 6%, while international stock markets are up 9.1% through the first-half of this year (as measured by the MSCI EAFE index of major non-U.S. markets). And the MSCI Emerging Markets index is turning in yet another spectacular performance - up 16.1% through the end of June 2007!

This merely continues a long-standing trend that has seen international stocks beat the S&P 500 for the past five years straight - and going on six in 2007 - as can be seen in the chart below.

There is a very good reason for this international out performance however. According to forecasts from the International Monetary Fund, global economic growth, while expected to slow somewhat from last year's torrid pace, should still exceed 5% in 2007. What's more, corporate earnings growth in global markets as a whole are on pace to continue at an above-trend rate of about 8% this year. Meanwhile, emerging markets are forecast to enjoy robust earnings growth of 14.5%.

The U.S. economy, notwithstanding recent signs of a pick-up, is still only expected to grow 2.3% for all of 2007 - about half the global rate. And profits for the S&P 500 Index of domestic blue-chips may grow only 5% to 7% this year - among the slowest in the world. Bottom line: For better stock market gains go global - selectively!

MIKE BURNICK, Senior Editor & Global Markets Analyst

EDITOR'S NOTE: Since a picture is worth a thousand words, you may have noticed with today's graph, the A-Letter just became more visual! We now have the ability to send you full color pictures, charts and graphs to help illustrate our daily commentaries. But don't worry - we're not skimping on content one bit. Instead, we're continuing to enhance our content, to give you another medium to see rather than just read about our ideas in the A-Letter. Enjoy!

Currenices

A Checklist of Factors Affecting the U.S. Economy and Dollar!

When it comes to the spot foreign exchange market, there are a lot of choices. The goal is picking a winning target. Easier said than done, right?

When I'm investing in currencies either in the short- or long-term, I focus primarily on the major exchange rates, i.e. currencies paired with the U.S. dollar. That's because, despite the greenback falling like a rock, the U.S. economy remains the largest in the world and global trade is still centered on the buck.

So we'll limit our scope to only U.S. dollar exchange rates for the purpose of this conversation.

Since U.S. dollar exchange rates are the heavy hitters, it's hugely important to know the state of America's economy. So let's review:

U.S. economic growth is running sub par.
For many months now, the collapsing housing market has been the biggest concern. Its impact on the economy is hotly debated and thus far seems unresolved. Further weakness is still possible.
Inflation is testing the high side of the Federal Reserve Bank's comfort zone. This is a tricky one because despite this concern, Fed Chairman Bernanke says inflation in the U.S. is "well anchored."
The Fed is holding their Fed Funds Rate idle at 5.25%.

This list of attributes is basically why expectations are again building among currency traders for a rate cut; and sooner rather than later. Keep in mind, higher interest rates attract investment and create demand for the buck.

The Fed is standing still for now while some other central banks across the globe push their lending rates higher. That puts the U.S. dollar at something of a competitive disadvantage in global currency markets.

Now we're practically halfway to choosing an exchange rate to target. If we're assuming a weak U.S. dollar, we want to match it up with a currency that is poised to strengthen; and vice versa.

Recall that the yield on a U.S. dollar is stuck at 5.25%. A currency with a greater yield (higher interest rate) should therefore perform well. That's why the Australian dollar (yield = 6.25%), British pound (yield = 5.75%), and the New Zealand dollar (yield = 8%) have performed well against the buck.

Almost as important as a country's current interest rates are expectations for future interest rates. It's a big plus for a currency if rates are thought to be headed higher still; but it's a big negative if the opposite is true.

This is where a country's economic prospects come into play.

A strengthening economy tends to free up a central bank's monetary policy. That means bank members can feel comfortable in their efforts to maintain stable prices.

If the economy is weakening, however, rising interest rates can effectively choke off growth. And slower growth is rarely a scenario that points to rising interest rates, and can often undermine a country's currency. Hence the falling dollar...

JACK CROOKS, Currency Director

P.S. The above currency commentary is an excerpt from the last edition of Jack Crooks' FREE currency E-Letter, My Two Cents . Twice a week, Jack gives you his insights on the health of the U.S. dollar, practical tips on Forex trading, thoughts on worldwide currency markets, and well, life in general. Click here to access this wealth of knowledge right now absolutely FREE.

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