The "Anti-Dollar" is on a Moon-Shot
Ride...Can it Continue?

Today's comment is by Sean Hyman, The Sovereign Society's new Currency Director and editor of The Money Trader.

Dear A-Letter Reader,

Lately, the euro (also known as the "anti-dollar") can't seem to do any wrong. It's shooting higher and higher - mostly because of the declining U.S. dollar.

You don't have to be a trader to know the dollar is falling. Just the other day, my grandmother was talking about the falling dollar. The next day, a woman who works in the computer industry was "concerned" that the dollar might fall more and further erode her 401(k) investments. So obviously, the average Joe investors on "Main Street" are well aware that the dollar is falling.

Even when good news has helped the dollar rally recently, the dollar lost those meager gains again within hours. So what does this tell us? It tells us the big money investors on Wall Street and in the central banks are still NOT convinced that they should move money back into dollars. Instead, they're betting on the strong euro.

The Biggest Beneficiary of the Falling Buck

The euro has been one of the biggest beneficiaries of this dollar fall. So while the economic numbers have been dire in the U.S., the Eurozone Industrial Production came in at 4.1% vs. 2.3% expected.

So what does this mean in English? It means that the Eurozone industry is strong and continues to heat up. When this happens, it means that inflation in the Eurozone could be on the rise once again. If so, the ECB could raise rates further - which would give the euro an additional boost.

Formerly, it was anticipated that the ECB would actually hold rates and possibly even start to cut them before long. Now the sentiment has shifted away from that and back into an inflation fighting bias. That being the case, it's fueled the euro/U.S. dollar trade cross rate (EUR/USD) to new highs above 1.4200.

The EUR/USD has a lot going for it. For instance, the European housing market is doing much better than the U.S. housing market. Their inflation has been growing at a greater rate than the United States. Their GDP (Gross Domestic Product) also is faring better than the United States. So obviously, the Eurozone has continued to outpace the United States lately.

The US$64,000 Question

So here's the question. Where would you want your money to be? In the U.S., with sub-prime mortgage problems, a slumping housing market, lower inflation and slower growth? Or would you rather have your money in a faster growing economy with the chances of rising interest rates and a better housing market?

I'd pick door number two.

Money likes to be in a place where it feels "safe and cozy." Right now, money "feels" more soft and cozy in the Eurozone than it does within the United States. Also, if you leave the U.S. with your money, where's the next stop where you'll drop your money? If you're like most, you'll tend to head for Europe.

Also, would you rather have your money in something with a declining interest rate (like in the U.S.) or in one that will either hold their rates steady or raise them?

Again, I'd pick door number two.

As you can see from the chart below, many traders have agreed with me as they've bid up the EUR/USD to higher heights even as of this writing. The red/blue line is the EUR/USD cross rate.

Watch as the Euro Heads for the Moon!

It's not about which country is doing good but rather which country is doing better. It's not about which economy is doing bad but rather which economy is doing worse. So with that said, we want to pair a strong economy with a weak one. This has led me time and time again back to the EUR/USD.

SEAN HYMAN, Currency Director

American Police State Part I

What would be your reaction if a uniformed member of the U.S. Army accompanied by military police arrived in your office and demanded to see your bank statements, financial records, emails and letters?

"This isn't a military dictatorship" you say, "That couldn't happen in America."

Yet it was revealed yesterday that the U.S. military has been doing exactly that, using so-called "national security letters" under powers claimed under the constitutionally questionable PATRIOT Act.

The military has issued at least 270 of these letters since 2005. They've also issued about 500 in all since 2001, according to documents obtained through the Freedom of Information Act.

The New York Times first revealed the military used these letters. Since then, members of Congress and civil liberties groups have criticized the practice on grounds that it conflicts with traditional laws against domestic law enforcement operations by the military.

"The Fourth Amendment protects against the government's effort to rummage broadly through the papers and documents of individuals without narrow and specific justifications," says Arthur Eisenberg, Legal Director of the New York Civil Liberties Union.

"Yet the excessive secrecy surrounding the military's use of national security letters opens the door to abuse. Without oversight and accountability, there is nothing to stop the Defense Department from engaging in broad fishing expeditions. The expanded role of the military in domestic intelligence gathering is troubling," Goodman said. "These documents reveal that the military is gaining access to records here in the U.S. in secret and without any meaningful oversight. There are real concerns about the use of this intrusive surveillance power."

The military is just the latest government agency to be exposed as using these letters instead of a traditional search warrant.

The PATRIOT Act extended the power of government over personal and financial records of every kind. It also throws aside previous guarantees under the Fourth Amendment against unreasonable searches and seizures. The Act makes it far easier for the FBI, and apparently the military, to obtain a person's financial, medical, student or other records.

Under the PATRIOT Act, the FBI can obtain financial, medical, business, bookstore and library records, supposedly in pursuit of terrorist activities. But courts have ruled that the Act is not limited to terrorism and can be used to investigate any crime. The Act discards the traditional requirement of preexisting federal law, permitting access to records only after issuing a court order or search warrant based on finding probable cause.

Section 215 of the Act allows the FBI to order any person or entity to turn over "any tangible things," so long as the FBI "specif[ies]" that the order is "for an authorized investigation...to protect against international terrorism or clandestine intelligence activities."

But instead of a normal probable cause search warrant, law enforcement authorities, and now the military, have no need to show a judge or magistrate that evidence of wrongdoing likely will be found. And the custodians who hold records being sought by the government are prohibited, under threat of criminal prosecution, from informing anyone that their records were seized.

This vastly expands FBI (and now military) powers to spy on all ordinary Americans...

BOB BAUMAN, Legal Counsel

P.S. Tune in tomorrow to read the rest of the chilling facts behind the new "police state America." Or read my blog right now to read Part II.

Privacy & Rights

U.S. and China Lead the World in Printing Money

Ever since governments created fiat money, the expansion of credit has consistently debased the purchasing power of paper currency.

Only governments can create paper. To do so, governments must grow bank credit. Most governments statistically record broad money-supply growth, except the United States government, which stopped publishing the M3 report in 2006 (which revealed these statistics). The Federal Reserve, however, continues to publish narrow monetary aggregates, M1 and M2.

Only a few central banks have historically done a good job expanding credit while simultaneously suppressing inflation and protecting their money's purchasing power. The German Bundesbank and the Swiss National Bank have managed it. So have the Austrians and the Dutch.

Below is a chart from the incredible mind of Richard Russell's Dow Theory Letters. Russell has been a mentor to me since I first started investing in 1990. I continue to religiously follow his technical analysis of the market.

The above chart depicts a synthetic creation of M3 since mid-2006 (dark blue line) called the SGS or Shadow Government Statistics. You can see the mind-blowing expansion of credit since 2005. It's climbed in an excess of 15% over the last 12 months - highly inflationary and bearish for the dollar.

Basically, the Fed is printing as fast as they can. They will continue to print even more money over the next 12 months as interest rates ease further to fight off the deflationary tug from housing and sub-prime credit.

China's expansion of credit makes the Fed's M-3 charge look like a minor leaguer.

China is home to the fastest-growing economy in the world over the last decade. China's foreign direct investments have skyrocketed while the country logs enormous trade surpluses with the rest of the world. In September, the European Union became the largest destination for Chinese exports, surpassing the United States. China currently holds the largest war chest of foreign-exchange reserves in the world at US$1.4 trillion dollars.

China needs to grow her economy at a high rate. That's because its huge population requires constant employment growth, especially because migration into China's cities is on fire.

But to keep the populace employed and its export-machine greased, the People's Bank of China is growing its broader monetary aggregate, or M2, at a wicked 18.1% annualized clip. That's incredible, considering it's down from 22% just 12 months ago as the government slowly tries to curb credit growth to squash excessive lending.

For now, bank credit continues to expand in the double-digits across most OECD countries, including several in the European Union. That development should continue to find its way into financial assets as governments print credit. Markets must absorb excess supply of that credit and eventually this will result in higher inflation.

This relationship, more than any other variable, supports the bullish case for gold in the late 2000s.

ERIC ROSEMAN, Investment Director

P.S. As governments rev up their printing presses, gold is set to soar to all new highs. Click here to hear my top gold plays now - before gold hits US$850 an ounce.