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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Your Link to Freedom, Privacy & Prosperity in the Offshore World
Wednesday, September 10, 2003 - Vol. 5 No. 107
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In This Issue:
* COMMENT: Profits from a Spike
* OFFSHORE: E.U. Savings Tax Deal Near Collapse! Switzerland the Key. EU Membership Swiss Election Issue. Bermuda Battles Back. Hong Kong Spirit Shines. Shanghai Deal. RSA Amnesty. Offshore Bets Favor Arnold.
* WEALTH: World Direct Foreign Investment Drops 21%. Asians May Sink U.S. Treasuries. Gold Price Fixing Trial Goes Forward.
* PRIVACY & RIGHTS: U.S. Suspends Strict Visa Rules. U.S. Drowning in Immigration Data. Color Coded Flyers. Cuban Bar Candidate Fails.
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Guest Comment today is by MARK NESTMANN, editor of The Sovereign Society's monthly newsletter, The Sovereign Individual.
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COMMENT: Profits from a Spike in Short-term Interest Rates
Dear A-Letter Reader:
The bull market in bonds is over! Finished! Kaput!
So are fears of deflation. Recent congressional testimony by Federal Reserve Chairman Alan Greenspan effectively retracts his deflationary warnings that helped fuel the monster bond bull market.
And this signals a major opportunity in a unique, contrarian opinion investment strategy we brought to your attention here months ago.
Now instead of deflation, a new inflationary cycle looms, and it could be a whopper. It will be powered by a weak dollar, aggressive interest rate hikes, as the Fed tries to soak up liquidity from years of record high money supply "pump priming," and a global empire building budget deficit of cosmic proportions, with annual US budget deficits exceeding $600 billion.
As we told you last spring, "Iraq is likely to be the pin that pops the bond bubble. Once Saddam's fate is sealed, billions of dollars will flood out of bonds, causing interest rates to rise and bond prices to collapse."
That's exactly what happened. Long term bonds have lost value at the fastest rate in more than 20 years. And there is a long way to go. In 1970, the entire global bond market had a value of only US$776 billion. Today, there are US$40 TRILLION worth of bonds issued worldwide.
We believe that short term interest rates, now at a 45 year low, will follow this same trend. The Fed may keep rates artificially low a while longer to build economic momentum in anticipation of the 2004 elections. But by keeping rates low now, the Fed is guarantees the need for a bigger tightening cycle later.
Because there is a big lag time between Fed action and realized economic effects. Any rate move past September of this year will probably not be in time to affect the 2004 election. Thus we expect more realistic rates sometime after the 2004 election.
How can you capitalize on this trend? We recommend an option trade you can currently purchase for about US$1200. Should short term rates rise to 5% by March 2005, each of these options will be worth at least US$3,750. An increase to 6% makes them worth US$6,250.
And in case you think these are wishful numbers, consider this: In April 2001 we recommended buying Swiss franc calls at US$0.62 in our monthly newsletter, The Sovereign Individual. By Feb. 2003, that position was up 891%. Similarly, in TSI (Aug. 2002), we recommended buying euro calls at US$0.90. That trade gained 1,891% in just 6 months.
The way to play interest rates from now on is to bet against any further declines in interest rates. And the right bets could turn a few hundred dollars into thousands over the next few years as we shift from a disinflationary to inflationary cycle.
Mark Nestmann
Vienna, Austria
PS: If you're a member of The Sovereign Society, get the full story, along with our recommended trades, in the September issue of TSI. Click on this.
LINK: http://www.sovereignsociety.com/vmembers.php?nid=656
PSS: Non-members can try a risk-free membership and get investment ideas that may pay for your membership fee many times over.
LINK: http://www.agora-inc.com/reports/SVS/WSVSD909/
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COMMENT LINKS:
* Bonds fall sharply on Greenspan testimony. LINK:
http://money.cnn.com/2003/07/15/markets/bondcenter/bonds/index.htm
* Why the bond decline might not be close to ending. LINK:
http://www.pbs.org/wsw/opinion/bianco0801.html.
* Deficits are ruinous to the bond market. LINK:
http://www.businessweek.com/magazine/content/03_36/c3848123_mz030.htm
* Bond market collapse signals real growth.
LINK:http://www.nationalreview.com/kudlow/kudlow.asp
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* OFFSHORE *
GOOD NEWS: EU SAVINGS TAX PLAN NEAR COLLAPSE
BRUSSELS: EU Finance Ministers fail to agree; SWITZERLAND
is key to final accord; decision postponed until December.
LINK:http://www.euobserver.com/index.phtml?aid=8609
* Swiss hopeful of concluding EU deal this year.
LINK:http://www.euobserver.com/index.phtml?sid=9&aid=12603
* Italy backs Swiss on EU accords. LINK:
http://www.swissinfo.org/sen/Swissinfo.html?siteSect=111&sid=4215929
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SWISS CONSERVATIVES: E.U. IS MAJOR ELECTION ISSUE
Swiss Peoples Party says keeping Switzerland out of the EU is
the most important issue in October general election. LINK:
http://www.swissinfo.org/sen/swissinfo.html?siteSect=105&sid=4215022
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BERMUDA BATTLES BACK
Island after Fabian; torrential rain, huge traffic jams, leaking roof
couldn't stop Bermuda from regaining links with outside world. LINK:
http://www.theroyalgazette.com/apps/pbcs.dll/section?Category=NEWS
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HONG KONG BUSINESS SPIRIT SHINES
Hong Kong entrepreneurial spirit shines on. LINK:
http://www.nationmultimedia.com/page.news.php3?clid=11&theme=A&usrsess=1&id
=20497
* Shanghai and Hong Kong to link service, financial industries. LINK:
http://www.thestandard.com.hk/thestandard/news_detail_frame.cfm?articleid=4
1731&intcatid=2
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SOUTH AFRICAN OFFSHORE AMNESTY
South African investors warming to offshore tax amnesty.
LINK:http://www.tax-news.com/asp/story/story.asp?storyname=13252
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OFFSHORE BETTORS STILL FAVOR GOVERNOR ARNOLD
ST. JOHN'S, Antigua: You can bet on the California governor race here.
LINK:http://biz.yahoo.com/prnews/030908/mxm001_1.html
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* WEALTH *
WORLD DIRECT FOREIGN INVESTMENT FALLS
Investment in foreign markets fell 21% to $651 billion in 2002. LINKS:
http://news.bbc.co.uk/2/hi/business/3082106.stm
http://www.kansascity.com/mld/kansascity/news/breaking_news/6692819.htm
* Foreign investment slowdown afflicts South Africa.
LINK:http://allafrica.com/stories/200309050091.html
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ASIANS MAY PULL OUT OF U.S. DEBT BUYING
Asian debt withdrawal threat to US deficit. LINK:
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&
c=StoryFT&cid=1059479617509
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GOLD PRICE FIXING CONSPIRACY TRIAL GOES FORWARD
Blanchard & Co.'s anti-trust lawsuit against Barrick Gold and J.P.
Morgan Chase alleging conspiracy to control the gold price can
proceed to trial in federal court, judge rules.,
LINK:http://www.gata.org/Blanchard_v_JPM_Order_9_3_03.pdf
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* PRIVACY & RIGHTS *
UNITED STATES SUSPENDS STRICTER VISA RULES
WASHINGTON: Oct. 1 deadline postponed for one year; chaos at the
borders had been expected for foreign US visitors with faulty passports.
LINKS:http://news.bbc.co.uk/2/hi/americas/3095292.stm
http://www.nytimes.com/2003/09/09/politics/09PASS.html
* Immigration data overwhelms US government capabilities. LINK:
http://www.sanmateocountytimes.com/Stories/0,1413,87~11268~1620194,00.html
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U.S. GOVERNMENT PLANS TO RATE ALL FLYERS
New system will scrutinize each passenger, assign Color Code. LINK:
http://www.washingtonpost.com/wp-dyn/articles/A45434-2003Sep8.html
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CUBAN TRIP SINKS NEW JERSEY BAR CANDIDATE
Cuba travel, cigars sink Bar applicant; a penchant for lying.
LINK:http://www.law.com/jsp/article.jsp?id=1061488014302
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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER. *
Bob Bauman, Editor. * SUBSCRIBE FREE or send to a friend at
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