We all know it is going to happen, so why bother discussing it. Right?

There is no doubt the world’s currency of choice has more pressure stacked against it than ever before. But even with $12 trillion in debt and nearly a trillion of annual interest payments due within the next decade, the greenback is still stronger than it was just sixteen months ago.

While so many of us are betting against the dollar and calling for its demise, plenty more investors are using it as a security net, buying American treasuries to protect themselves in case the bottom really falls out.

With the sun someday going to fade, I could sit in my basement and wait for the big day to come, or I could live my life without worry.

It’s the same thing with the dollar. We could bet against the greenback and profit as it drops, or we could forget about the minimal return potential and keep our eyes looking forward, where the real money is at.

No more Chicken Little

Here’s the scoop. The dollar is likely to fade, at most, six percent below today’s value against the Euro. That’s major erosion for such a massively distributed currency, but six percent over a few years doesn’t stack up to a hill of beans in the grand scheme of things.

I can list a couple of dozen stocks that are up by twice that figure today alone.

No doubt, you should pay attention to the dollar, as a six-percent decay in the value of the world’s most important currency will change all sorts of valuations. But don’t invest in the cause, invest in the effect.

The devaluing of the dollar is no surprise. Even a fifth grader can see what’s ahead over the next decade. That’s why there is so little investment potential directly in the currency. Yet, our stubbornness and human greed will not let our eyes focus on anything but taking advantage of the move.

Let that stuff up to the emotional investors.

While they are focusing on gold and the dollar, investments that will provide double-digit returns at best over the next few years, rational investors need to focus on the many other powerful market forces are at work.

The domestic equities market is a wonderful place to be right now, especially if the dollar is collapsing as fast as we believe it to be.

First, anybody exporting goods will see strong top-line growth as the dollar drops. A six percent fall from our currency equals an automatic six percent surge in revenue growth, without the need for any company to do a thing.

Next, if you are a follower of the green-energy craze, you had better be hoping for a weak dollar. The only thing that will ever wean this country from its dangerous addiction to oil is if crude becomes too expensive relative to our alternatives.

With a dollar that is still in demand across the world, dollar-denominated currencies like crude remain fairly inexpensive. But as Uncle Sam’s reserves dwindle in value, crude prices will move inversely. That is good news for all you folks that took Obama’s advice and invested in the “green” sector.

Finally, the markets run on a risk/reward relationship. The higher the risk, the higher the reward. The lower the risk, the lower the reward. Simple stuff.

If we all know the dollar should weaken, where’s the reward potential? But don’t even begin to think there is no risk in the play.

With Washington in charge, especially the current group of legislators, anything is bound to happen. And now that Obama has is political eye set on “saving the dollar,” the road that lies ahead could be very foggy.

My advice? Watch the dollar. Take note of its moves. But invest in anything but the currency. There is better return potential, with much less risk, elsewhere.

Most people, and rightfully so, are stock market shy, especially in bank stocks. The beating has been unmerciful and over done. So let’s make some money on bank bonds.

Bonds are of a higher order than stocks. When there was a threat of a problem in the banks, the stocks dropped as much a 90% in months. Not the bonds. They dropped a fraction compared to the stocks and then rebounded to near PAR or higher and still paid interest to their holders.

By law, all bond issuers, banks, manufacturers, all of them, have to pay interest and their principle at maturity. Stocks have no legal backing requiring them to do anything even similar.

Bank bonds are so cheap right now, that it’s child’s play to pick big current yields, 8% and 9% and capital gains in excess of 20% and 30%, in less than 36 months!

Here’s one example.

Citigroup. I know, you don’t have to say it, C has had a tough time, but it isn’t going anywhere between now and Oct 2010. If we were talking about 10 or 15 years, I might agree with the critics, but not 18 months. Worst-case scenario is it is broken up and sold, or sold whole. In either case the bondholders still get paid.

Here’s how one bond return breaks down. It’s a 7.25% coupon, for sale at 76.5, or $765 per bond. It is rated A- and it is a firm rating, no downgrade is expected in the future. That’s a current yield of 9.47%.

Here’s how the return calculation looks: it has a yield to maturity of 27.34, but its total return, money in/money out, is four interest payments equaling $145, plus capital gains of $235.  When you divide by your cost of $765, you get a total return of 49.67% in approximately 18 months, giving you an annual average return of 33.11%.

Don’t feel like being that adventurous? Here’s a softer play.

Bank of America has been described by some of the best minds in the business as being poised to make huge returns in the next few years. Everything is in place, including their buy of Merrill Lynch.

Its stock almost doubled just on the news of Citigroup’s performance in the first two months of 2009.

Here’s a bond to look at BAC, 7.4% coupon maturing 1/15/11, selling for 88.5, or $885 and rated A-.

Here’s a maturity of less than two years, an A- rating, that has a yield to maturity of 15% and a total return of 29.71% ((2 x 74) + 115 / 885 = 29.71%) Current yield, (coupon divided by price) 8.36%.

If you’re willing to go out a little further than two years the gains are even bigger.

In this market, you need all the tools you can get to make it out alive. Look at the Bond Trader; we’ve been doing trades like this since last September, without a single loss.

Source: Hit the Banks for 33% Plus Annually

But the Fed and Treasury have engineered a strategy to pay off the debt with weaker and weaker dollars. And guess what? So far, so good. Since November 2002, the dollar has fallen against the euro more than 50 percent since its high in October 2000. Of course, this is not the first time we’ve gone through a managed devaluation of the currency. In the 34-year period since Nixon slammed the gold window shut and subsequently ended the Bretton Woods exchange rate mechanism, we’ve had only five major currency trends:

1. Weak dollar 1972–1978 (7 years)
2. Strong dollar 1979–1985 (7 years)
3. Weak dollar 1986–1995 (10 years)
4. Strong dollar 1996–2001 (6 years)
5. Weak dollar 2002– (? years)

The most notable period spanned the 10 years from 1986 through 1995. Then as now, the United States was fighting a historic current account deficit through managed debasement of its currency. But because the present bear market only began in February 2002, the current cycle looks like it still has a number of years to run.

In the best-case scenario, if the current bear market follows the trajectory set by the 1986 — 1995 slump, we could see a weakening dollar for up to 10 years. This presents an opportunity for selling the dollar in one of four ways: direct and indirect speculations, using short- and long-term options for each. These plays will help you safely position your money outside the dollar bear market. And you stand to make a fair amount of money, too.

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Using the “Off Switch” to Shut Down Alzheimer’s and Huntington’s Diseases, Too

It turns out the “off switch” discovery could have lots of uses beyond radically improving a patient’s chances of beating cancer.

For instance, take Alzheimer’s. Right now, there’s no cure.

But imagine the implications — for both victims and medical investors — if this same breakthrough could be used to reverse Alzheimer’s symptoms in just weeks.

Check it out here…

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But there is great danger ahead. Since the trade deficit passed the $759 billion mark — 6.3 percent of GDP — foreigners now must shell out about $1.5 billion a day just to keep the dollar afloat. And even during the managed dollar decline of 2003, the trade imbalance continued to grow. In 2005, Stephen Roach, Morgan Stanley’s chief global strategist, predicted that the current account deficit at the time was on course to reach $710 billion — 6.5 percent of GDP. He was short by only a few billion.

Herein lies the drama. The Bank of Japan spent the equivalent of $187 billion in 2003 — and $67 billion in January 2004 alone — in a bid to prevent its strengthening currency from choking off the country’s export-led recovery. In dollar terms, the Bank of Japan is now spending more than $1.5 billion every day trying to keep the yen from strengthening against the greenback.

Over a four-week period in the fall of 2003, combined foreign central bank purchases of U.S. securities topped $40 billion, more than $2 billion every trading day. Yet these central bank billions managed merely to limit the greenback’s decline to just 2.3 percent over the same period. Can you imagine what would have happened if the banks hadn’t pumped that money into the Fed’s reserves? One former currency trader has asked, “If $40 billion cannot bring about even a minor rally, just how weak and despised is the once — almighty dollar?”

We have relied on the kindness of strangers for too long. “We’re like the untrustworthy brother-in-law who keeps borrowing money, promising to pay it back, but can never seem to get out of debt,” Jim Rogers writes. “Eventually, people cut that guy off.”

There is no way the United States can possibly pay off its creditors should they decide to cash in their IOUs. Right now, the United States holds only about $70 billion in reserves against its obligations — much less than 2005’s $87 billion. That would last about three minutes should creditors begin to sell the dollar, rather than trying to support it.

It’s hard to imagine, isn’t it? The world’s reserve currency spiraling downward, out of control. But then, that’s what the British must have thought in 1992 when they attempted to manage a devaluation of the pound. Despite the Bank of England’s best efforts, sterling got away from them; the currency collapsed and Britain was kicked out of the Exchange Rate Mechanism (ERM) established to pave the way for the euro. On that day, known as Black Wednesday in Britain, currency speculator George Soros is rumored to have made as much as $2 billion. Don’t be surprised if more fortunes emerge in the future as the dollar slips dangerously close to free fall.

By flooding the system with liquidity, the Fed cannot control the value of the U.S. dollar against foreign currencies; nor can they control its purchasing power — at least not indefinitely. The Fed’s current policies can “give the majority of investors the illusion of wealth as asset markets appreciate,” wrote Marc Faber in November 2003, “while the loss of the currency’s purchasing power is hardly noticed. This is particularly true of a society that has a very large domestic market, where 90 percent of the people don’t have a passport and therefore know little about what is going on outside their own continent. And where the import prices of manufactured goods are in continuous decline because of the entry of China, as a huge new supplier of products with an extremely low cost structure, into the global market economy.” If that’s the case, you should look at any declines in the dollar as an opportunity to make some money.

The dollar is the single biggest element of risk in the world of finance today. Rearrange the current system of world finance ever so slightly, let confidence in the greenback falter, and the mighty dollar could go up in flames. There are many ways to hedge against this risk. Better still, there are many ways to profit from the likelihood the dollar will fall. Some methods are direct, some indirect. Some are leveraged, some unleveraged. There is a methodology for every taste, but before explaining the specifics, we ask: What ails the dollar?

The dollar is a victim of its own success. It is America’s most successful export ever — more successful than chewing gum, Levi’s, Coca-Cola, or even Elvis Presley, Britney Spears, and Madonna put together. Trillions of dollars flow through the global financial markets every week, and they are readily accepted at large and small — and clandestine — business establishments from Kiev to Karachi.

Today, there are simply too many dollars in circulation for the currency’s own good. Why? Americans have been living beyond their means for more than two decades. The U.S. dollar’s problems stem from a single cause. “If there’s a bubble,” wrote David Rosenberg, chief economist at Merrill Lynch,” it’s in this four-letter word: debt. The U.S. economy is just awash in it.”

You’ve seen it firsthand: John Q. Public now holds more credit cards and outstanding loans — with a higher and higher total debt load — than ever before. Outstanding consumer credit, including mortgage and other debt, reached $9.3 trillion in April 2003 — a significant increase from its $7 trillion total in January 2000 — but by the third quarter of 2007, debt had nearly doubled since 2000, to $13.7 trillion. With consumer spending alone responsible for approximately 70 percent of U.S. GDP, that’s quite a hefty personal debt load.

The corporate debt picture is no better. American companies have never depended so much on sales of their corporate bonds. Between 2002-2007, investment-grade corporate bond sales increased nearly 60 percent, growing from $598 billion to $951 billion. But junk bond sales for that same period broke the bank, surging from $57 billion to $133 billion.

The third leg of the debt problem, following consumer and business debt, is Uncle Sam. Government debt as of November 7, 2007, officially passed $9,000,000,000,000. That’s about $30,000 for every man, woman, and child in the country. This total includes debt owned by many types of investors, from individuals to corporations to Federal Reserve banks and especially to foreign interests. (By 2004, foreign central banks had stockpiled more than $1.3 trillion worth of dollar-denominated Treasury bonds and agency bonds at the Federal Reserve. By 2007, foreign debt had nearly doubled, to $2.033 trillion.)

What the $7.8 trillion figure does not account for are items like the gap between the government’s Social Security and Medicare commitments and the money put aside to pay for them. If these items are factored in, the government debt burden for every American rises to well over $175,000. In 2005, the Methuselah of investment mavens, Sir John Templeton, then 93, said you should get out of U.S. stocks, the U.S. dollar, and excess residential real estate. Templeton believed the dollar would fall 40 percent against other major currencies, and that this would lead the nation’s major creditors — notably Japan and China — to dump their U.S. bonds, which would cause interest rates to run up, thus beginning a long period of stagflation. He was right.

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The Slow-Motion “Black Monday” Ahead

Here’s a picture for you: If the market today falls as fast and as far as it did in 1987, you’ll see more than 3,000 points erased from the Dow alone. In a single day.

Could it happen?

Banks hold the same blue chip shares you’ll find parked in your retirement fund. When the “level three” losses get declared, those same banks might have to start dumping those shares to raise cash. And that could send these blue chips…along with most of the rest of the stock market…into full-scale collapse.

I urge you to take the seven steps outlined for you in your free Strategic Financial Survival Library. Click here to reserve yours…

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Don’t let his age fool you — Templeton was still sharp in 1999 when the financial industry hacks in Florida were urging their customers to buy more tech stocks. Templeton warned that the bubble would soon burst. He was right; they were wrong. Of course, he was only 87 back then. He is almost certainly right again. Other great investors, too, are getting out of the dollar. For the first time in his life, Warren Buffett is investing in foreign currencies.

George Soros, who made a fortune selling sterling in the 1992 ERM crisis, warns that the U.S. system could “blow up” at any time. Richard Russell, the influential editor of the Dow Theory letters, speaking at the New Orleans Investment Conference, warned: “If ever there was a crisis that could shake the global economy — this is it.” Jim Rogers is teaching his daughter to speak Chinese. When old-timers nod their heads in agreement — especially when they happen to be the most successful investors in the world — their advice may be worth listening to.

American consumers, companies, the U.S. government, and the country as a whole owe more dollars to more people than ever before. But perhaps the greatest threat to the U.S. economy is its foreign creditors. There is — or should be — a limit to the number of dollars foreigners are willing to buy and hold and thus a limit to their willingness to service our credit habit. Why? Because the United States, while still the world’s number — one economic power, is showing itself to be an unreliable steward of its own currency.

Regards,
Addison Wiggin

Source: How to Sell the Dollar

At the time, our debt stood at $7 trillion, with interest payments in fiscal 2003 totaling $318 billion. But now the U.S. national debt stands above $ 9 trillion, with interest payments in fiscal 2007 adding $ 1.4 billion a day.

But the Fed and Treasury have engineered a strategy to pay off the debt with weaker and weaker dollars. And guess what? So far, so good. Since November 2002, the dollar has fallen against the euro more than 50 percent since its high in October 2000. Of course, this is not the first time we’ve gone through a managed devaluation of the currency. In the 34 – year period since Nixon slammed the gold window shut and subsequently ended the Bretton Woods exchange rate mechanism, we’ve had only five major currency trends:

1. Weak dollar 1972 – 1978 (7 years)
2. Strong dollar 1979 – 1985 (7 years)
3. Weak dollar 1986 – 1995 (10 years)
4. Strong dollar 1996 – 2001 (6 years)
5. Weak dollar 2002 – (? years)

The most notable period spanned the 10 years from 1986 through 1995. Then as now, the United States was fighting a historic current account deficit through managed debasement of its currency. But because the present bear market only began in February of 2002, the current cycle looks like it still has a number of years to run.

In the best-case scenario, if the current bear market follows the trajectory set by the 1986 – 1995 slump, we could see a weakening dollar for up to 10 years. This presents an opportunity for selling the dollar in one of four ways: direct and indirect speculations, using short- and long-term options for each. These plays will help you safely position your money outside the dollar bear market. And you stand to make a fair amount of money, too.

But there is great danger ahead. Since the trade deficit passed the $ 759 billion mark – 6.3 percent of GDP – foreigners now must shell out about $ 1.5 billion a day just to keep the dollar afloat. And even during the managed dollar decline of 2003, the trade imbalance continued to grow. In 2005, Stephen Roach, Morgan Stanley’s chief global strategist, predicted that the current account deficit at the time was on course to reach $ 710 billion – 6.5 percent of GDP. He was short by only a few billion.

Herein lies the drama. The Bank of Japan spent the equivalent of $187 billion in 2003 – and $67 billion in January 2004 alone – in a bid to prevent its strengthening currency from choking off the country’s export-led recovery. In dollar terms, the Bank of Japan is now spending more than $ 1.5 billion every day trying to keep the yen from strengthening against the greenback.

Over a four-week period in the fall of 2003, combined foreign central bank purchases of U.S. securities topped $ 40 billion, more than $ 2 billion every trading day. Yet these central bank billions managed merely to limit the greenback’s decline to just 2.3 percent over the same period. Can you imagine what would have happened if the banks hadn’t pumped that money into the Fed’s reserves? One former currency trader has asked, “If $40 billion cannot bring about even a minor rally, just how weak and despised is the once – almighty dollar?”

We have relied on the kindness of strangers for too long. “We’re like the untrustworthy brother – in – law who keeps borrowing money, promising to pay it back, but can never seem to get out of debt,” Jim Rogers writes. “Eventually, people cut that guy off.”

There is no way the United States can possibly pay off its creditors should they decide to cash in their IOUs. Right now, the United States holds only about $ 70 billion in reserves against its obligations – much less than 2005’s $ 87 billion. That would last about three minutes should creditors begin to sell the dollar, rather than trying to support it.

It’s hard to imagine, isn’t it? The world’s reserve currency spiraling downward, out of control. But then, that’s what the British must have thought in 1992 when they attempted to manage a devaluation of the pound. Despite the Bank of England’s best efforts, sterling got away from them; the currency collapsed and Britain was kicked out of the Exchange Rate Mechanism (ERM) established to pave the way for the euro. On that day, known as Black Wednesday in Britain, currency speculator George Soros is rumored to have made as much as $ 2 billion. Don’t be surprised if more fortunes emerge in the future as the dollar slips dangerously close to free fall.

By flooding the system with liquidity, the Fed cannot control the value of the U.S. dollar against foreign currencies; nor can they control its purchasing power – at least not indefinitely. The Fed’s current policies can “give the majority of investors the illusion of wealth as asset markets appreciate, ” wrote Marc Faber in November 2003, “while the loss of the currency’s purchasing power is hardly noticed. This is particularly true of a society that has a very large domestic market, where 90 percent of the people don’t have a passport and therefore know little about what is going on outside their own continent. And where the import prices of manufactured goods are in continuous decline because of the entry of China, as a huge new supplier of products with an extremely low cost structure, into the global market economy.” If that’s the case, you should look at any declines in the dollar as an opportunity to make some money.

The dollar is the single biggest element of risk in the world of finance today. Rearrange the current system of world finance ever so slightly, let confidence in the greenback falter, and the mighty dollar could go up in flames. There are many ways to hedge against this risk. Better still, there are many ways to profit from the likelihood the dollar will fall. Some methods are direct, some indirect. Some are leveraged, some unleveraged. There is a methodology for every taste, but before explaining the specifics, we ask: What ails the dollar?

The dollar is a victim of its own success. It is America’s most successful export ever – more successful than chewing gum, Levi’s, Coca – Cola, or even Elvis Presley, Britney Spears, and Madonna put together. Trillions of dollars flow through the global financial markets every week, and they are readily accepted at large and small – and clandestine – business establishments from Kiev to Karachi.

Today, there are simply too many dollars in circulation for the currency’s own good. Why? Americans have been living beyond their means for more than two decades. The U.S. dollar’s problems stem from a single cause. “If there’s a bubble,” wrote David Rosenberg, chief economist at Merrill Lynch, ” it’s in this four – letter word: debt. The U.S. economy is just awash in it. “

You’ve seen it firsthand: John Q. Public now holds more credit cards and outstanding loans – with a higher and higher total debt load – than ever before. Outstanding consumer credit, including mortgage and other debt, reached $ 9.3 trillion in April 2003 – a significant increase from its $ 7 trillion total in January 2000 – but by the third quarter of 2007, debt had nearly doubled since 2000, to $ 13.7 trillion. With consumer spending alone responsible for approximately 70 percent of U.S. GDP, that’s quite a hefty personal debt load.

The corporate debt picture is no better. American companies have never depended so much on sales of their corporate bonds. Between 2002-2007, investment – grade corporate bond sales increased nearly 60 percent, growing from $598 billion to $951 billion. But junk bond sales for that same period broke the bank, surging from $57 billion to $133 billion.

The third leg of the debt problem, following consumer and business debt, is Uncle Sam. Government debt as of November 7, 2007, officially passed $ 9,000,000,000,000. That’s about $ 30,000 for every man, woman, and child in the country. This total includes debt owned by many types of investors, from individuals to corporations to Federal Reserve banks and especially to foreign interests. (By 2004, foreign central banks had stockpiled more than $ 1.3 trillion worth of dollar – denominated Treasury bonds and agency bonds at the Federal Reserve. By 2007, foreign debt had nearly doubled, to $ 2.033 trillion.)