“Euro strength and dollar weakness further emerge in thin trading activity as geopolitical uncertainty creeps higher,” wrote Ashraf Laidi.

Investors were also fleeing to the historic safe haven of the Swiss franc and sterling was pounded, moving to a record low vs. the euro.

Looking ahead, “The dollar is really going to struggle,” said Scott Ainsbury, a portfolio manager with hedge fund FX Concepts Inc. “There are just so many dollars in the system with this liquidity, and flushing all the banks with money is going to kill the dollar.”

And Bloomberg reported that: “Home prices for the 20 largest metropolitan areas fell 17.9 percent in October from a year earlier, the biggest decline since record keeping began in 2001, according to economists in a Bloomberg survey before the S&P/Case-Shiller index is published today. The Institute for Supply Management’s December factory index dropped to 35.4, the lowest reading since 1982, a separate Bloomberg survey showed. The ISM report is due Jan. 2.”

Source: Dollar flat against euro But pound sinks to record low vs. common currency

The U.S. dollar fell against the euro and a basket of currencies on Tuesday as weak U.S. housing data and a dim economic outlook for the start of 2009 weighed on the currency.

The contrast of aggressive monetary easing in the United States versus a more cautious European Central Bank is lending support to the euro while hurting the greenback, analysts said.

Some market participants also cited the ongoing conflict in Gaza and Israel, as supporting the Swiss franc near a five-month high.

Meanwhile, sterling continued its downtrend, hitting a 6-1/2 year low against the U.S. dollar and hovering near record lows in sight of parity against the euro on prospects of UK interest rates being cut further amid a deep economic downturn.

In morning trading in New York, the euro was up 1.2 percent on the day at $1.4148, according to Reuters data.

“The Fed continues to be extremely proactive while the ECB has been much more cautious,” said Jessica Hoversen, a fixed income and currency analyst at MF Global Ltd. in Chicago. “As a result, we have the end of the year yield differentials between the two regions that favor the euro, at least for now.”

U.S. interest rates are close to zero and policymakers have said they are ready to take more unconventional steps of providing liquidity to bolster the moribund economy.

In contrast, key interest rates in the euro zone stand at 2.5 percent, and policymakers have been unclear about how much rates will be cut further in the near future.

Hoversen added thin market conditions during the holidays and a weak outlook for key U.S. sectors, such as housing, may help push the dollar lower in the next couple of days.

Prices of U.S. single-family homes in October plunged a record 18.0 percent from a year earlier, according to the Standard & Poor’s/Case-Shiller Home Prices Indices released on Tuesday.

“The numbers are certainly very bad,” said Kathy Lien, director of FX research at GFT Forex in New York. “But there is one silver lining though. The pace of the decline seems to have slowed during the month.”

The U.S. dollar index slipped about one percent against a basket of currencies to 80.595.

EURO NEARS PARITY

Sterling fell as low as $1.4385, its weakest since early 2002, according to Reuters data, while the euro rose 1.4 percent to 97.79 pence, hovering near a record high of 98 pence hit on Monday.

“The market has been focusing a lot on the weakness in the U.K. economy,” said Hoversen at MF. “It seems the pound will be ‘forced’ to touch parity with the euro pretty soon.”

Demand for the Swiss franc rose since Monday after the Israeli attacks at Gaza had triggered so-called “safe-haven” demand for the Swiss currency and gold. The dollar was last slightly lower at 1.0586 , after trading as low as 1.0367 francs on Monday, its weakest since late July,

The dollar slipped 0.2 percent to 90.36 yen, inching lower to 87.13 yen hit earlier in the month, its weakest since mid-1995.

Data highlights on Tuesday also include a release on consumer confidence in December and a reading of factory activity by the Institute of Supply Management.

NEW YORK, Dec 30 (Reuters)

But things change. Economic headwinds blow harder. Dire situations get direr. And the pound hit a 12 year low yesterday. We were prepared for that, though…

In a moment, I’ll tell you what we did — and what you need to do to protect against further falls in sterling.

But first, let’s take in the news from Threadneedle Street…

I predicted in June that the next interest rate move would be up, not down. But in yesterday’s Quarterly Inflation Report, King dropped a heavy hint that — despite inflation hitting 4.4% – the Bank may actually prefer to cut them instead.

I can see why. Inflation, as I wrote yesterday, looks like it will hit a peak in the next few months. World commodities prices are falling.

The UK economy, meanwhile, continues its march towards recession. Yesterday’s unemployment figures show unemployment rising at its fastest rate for 16 years. An extra 20,100 people joined the jobless ranks last month.

The Bank has slashed its growth forecasts. The general expectation, therefore, is that the MPC will hold rates steady for a bit, then look to cut them as soon as it reasonably can.

Unsurprisingly, the currency markets reacted to this new stance by selling the pound. It fell against both the dollar and the euro. The sterling trade-weighted index — which measures the pound against a basket of currencies — dropped 1.8% to 90.8 points. This is the index’s lowest level since December 1996.

I believe worse is to come for the pound. Most British investors have exclusively pound-denominated portfolios. A sensible course of action, therefore, is to hedge against further sterling falls.

That’s exactly what I told Fleet Street Letter readers to do on Saturday. The investment we recommended rose yesterday as the pound fell.

As I mentioned on Tuesday, we’re playing this through the euro. It’s not a pure currency trade — our investment gives you a steady income as well. Many commentators are saying the euro is overvalued right now. I addressed these concerns on Tuesday (you can read my piece here), and I believe this is an investment worth holding.

To find out more, you need to be a Fleet Street Letter reader. Become one today, and your welcome pack will include the most recent issue (Saturday’s). This will tell you what you need to know about our chosen sterling hedge.

Here’s what you need to do, before the pound falls any further.

Why British investors don’t buy silver

It’s Thursday, so we’re answering your investment questions. If you have an investment-related question, send it in. The email address is askfleetstreet@fspinvest.co.uk

Here’s today’s selection:

Q: A lot is said about buying silver. How on earth do you do so in the UK? Gold is relatively easy. But silver? — RC

A: I passed this on to our sector expert Garry White, editor of Smart Commodities.

Says Garry:

“There is a major difference between gold and silver. You have to pay VAT on silver bullion purchases in the UK, but you do not pay anything on gold purchases.

“This wipes out silver bullion’s value as an investment for UK residents.

“Why buy silver bars and pay 17.5% to the taxman, when you can buy gold bullion and the taxman has to buy his own lunch? That’s why it’s difficult to buy silver bullion as an investment here. There is simply no demand.

“The best way to invest in silver is therefore via an exchange traded commodity (ETC) provider. It takes away the VAT problem. An example would be www.etfsecurities.com. There are others on the market too, so you should shop around.”

Here’s Theo’s answer:

“I’ve spent quite some time chart-gazing as I used to work on a trading service.

“There are hundreds of systems and strategies that can, at times, provide quite contradictory signals. It can all be a bit overwhelming.

“But the first thing you need to think about when trading short-term is nothing to do with Elliott Wave Theorem, Fibonacci or any other convoluted strategy.

“Any good trade begins with the basics, price and volume.

“Price: The levels at which the investment is trading. Is it over-valued or undervalued? Fundamental investors measure value through metrics like the P/E (price-to-earnings) ratio. The technical investor’s value tool is the moving average. It’s basically the average of the previous closing prices rounded up over any length of days.

“If a stock is rising above its long-run moving average, beware of a potential pull back (otherwise known as mean-reversion).

“Volume: Volume is the amount of shares changing hands. If there are very few trades being made in a stock or index, or it is illiquid, the price could be set for a fall.

“If a stock is rising with low levels of shares trading hands (volume), again, look out for mean-reversion.

“The price and the volume should be confirming the trade you intend to take. If a share is flying high but no one is buying it, it could fall hard.

“Take a look at the FTSE 100 in early May for an example. The index traded as high as 6,300. But one market maker said at the time: “I thought it was Christmas day, volumes are just so low.” The index was also trading significantly above the long-term (200 day) moving average.

“What soon followed, as we all remember, was an almighty pull-back. The beginnings of the official bear market.

“When buying short-term investments, we ideally want a stock that has a consistent level of volume and is trading above its major moving averages. However, if that stock is over-extended — trading very far above those averages — beware for a pull-back.”

Thanks Theo. I know that some readers are very interested in technical analysis (or ‘charting’). So I had a word with our products man Darren Hughes.”You got anything for someone interested in technical analysis?” I asked.

“Yeah,” he said. “But only for the right people.”

“What do you mean?”

“Well,” he said. “This is only for people who are comfortable trading the stock market. It’s not for newcomers. Also, as you know, virtually every product and service we offer has our standard money back guarantee. Try it, see if you like it, and if you don’t you can have a refund.”

“But this one doesn’t?”

“This one doesn’t. People are buying it because they like the system and they see that it makes money. But… once you’re in, you’re in. You have to be the right kind of person.”

The system Darren showed me is something called the ‘Pure Matrix’. And while you don’t need to be a world’s expert on stocks (the Pure Matrix teaches you what you need to know), you do need some experience.

Find if you’re the right kind of person for this — as well as how much this system could make you…

Until tomorrow

Ben Traynor

Source: Pound hits 12 year low. Here’s what we recommend

While driving would have offered more freedom and the chance to crank up the CD player, I didn’t fancy paying the equivalent of $9.75 a gallon for gasoline, in addition to rental charges. So although the train was hardly cheap – £90 ($176) for the return trip from Southampton to Liverpool – it was much easier on the wallet. Particularly a wallet already getting hammered because of the awful dollar-pound exchange rate.

Yes, Britain is still in the same shape as the last time I went: Bloody expensive! But although it’s enduring several similar economic problems as the US, that hasn’t stopped a significant Anglo-American corporate merger…

Fine With 5… For Now

Having cut interest rates three times since December – from 5.75% to 5% – the Bank of England’s Monetary Policy Committee decided to hold fire this time around.

But with more bad economic data this week, many don’t expect the status quo to last long. In fact, the bankers could chop again as soon as next month. Consider this:

• The Chartered Institute for Purchasing and Supply said the British service sector grew at the slowest rate in five years in April.
• The Office for National Statistics reported that Britain’s manufacturing sector output dropped 0.5% in March – the worst performance in six months.
• The number of mortgage lending approvals has halved over the past year, leaving many homebuyers unable to get financing at an affordable price. In addition, the number of first-quarter home repossession orders shot up by 17% over Q1 2007.
• First quarter GDP growth crawled in at 0.4%, compared with the 0.6% rate over the final three months of 2007. It was the weakest quarter-over-quarter growth rate since the first quarter of 2005.

Like the Federal Reserve, the Bank of England is trying to balance poor economic data against high inflation. The current UK inflation rate is 2.5% – 0.5% higher than the government’s 2% target.

And with the British Retail Consortium reporting that food costs are up 4.7% over this time last year, British households are now spending almost one-third of their income on food and bills. One possible reason why the bank left rates unchanged is because it fears a poor inflation number next week and another cut would make it look irresponsible.

Britain Following In America’s Footsteps… And The Bankers Are Divided

Many economists agree that the UK economy is mirroring the US – and with its performance just a few quarters behind the US, the current situation could get worse.

That’s a view shared by Bank of England’s most dovish monetary policy board member, David Blanchflower, who favors low interest rates over a potential inflationary spike. He says the risk of not being more aggressive with rate cuts could send the UK economy down the same rocky path as America, triggering a sharp economic downturn.

But at least the Bank of England has one advantage. Having seen how the Fed has handled the crisis, it has a better idea of what steps to take to avoid a similar blow-up.

However, the April meeting showed the bankers are split. While six of the nine members favored the interest rate cut, two voted for no change and one (Blanchflower) wanted a larger chop to 4.75%.

While they debate, though, Britain’s stock market has actually performed well over the past few months. In fact, since the Bear Stearns mess caused global turmoil on March 17, the FTSE-100 index has risen around 800 points – as you can see on this chart.

And eager to tap into that strength, one of America’s big boys just came knocking…

The “Best Buy” For America’s Biggest Electronics Retailer

With a 20% market share, Best Buy (NYSE: BBY) is already winning the battle against the likes of Circuit City (NYSE: CC). But the world’s largest consumer electronics retailer just strengthened further by beefing up its international presence.

The firm announced on Thursday that it will spend $2.1 billion to acquire half of British mobile telecommunications company Carphone Warehouse (CPW.L). Having already worked with Carphone Warehouse for two years and bought a 2.9% stake in the firm last year, this deal will now see Best Buy add to Carphone’s existing 2,400 stores and take its large, superstore-style US shops to the UK and Europe under the Best Buy brand name in 2009.

For Best Buy, it’s a lucrative opportunity to tap into Europe’s annual $175 billion consumer electronics market. And rather than trying to crack the European retail market by itself – a move that has proved tricky for other US retailers – it’s teaming up with an already dominant, well-established company (Carphone was founded in 1989) that has the experience, expertise, and strong brand. In addition, Best Buy will take its successful Geek Squad in-home technical support team to Britain.

Moreover, with the high profit margins in the mobile phone market, the partnership will add $5 billion to Best Buy’s fiscal 2009 revenues and 5-9 cents in earnings per share.

That’s on top of the 11.4% sales jump to $40 billion in Best Buy’s last fiscal year, which produced earnings of $1.4 billion, up 2.2%. The firm also offers a $0.52 annual dividend per share (1.2% yield) to shareholders.

So what about the other side of the merger? And how are investors reacting to the deal?

Investors Are Non-Plussed Now… But This Deal Should Pay Off Later

Judging by the share price action of both Best Buy and Carphone Warehouse, you’d think it’s a bad deal. Investors have bailed on the shares over the past couple of days.

Obviously, there are risks – not least of which being the fact that consumer spending is currently slowing as inflation rises and demand for high-end electronics has cooled

But ultimately, I believe it’s actually a good move for both sides. In Carphone’s case, the firm gains access to Best Buy’s hugely successful, proven model, which should give it a healthy boost in the ultra-competitive UK telecommunications and electronics market.

According to Business Week, a shocking 80% of the companies in the S&P 500 index watched their market-caps shrink from October through the end the April.

At last count, banks and other financial institutions have written down nearly $320 billion from their books, in a desperate attempt to keep their heads above water. The International Monetary Fund estimates that institutions will write a cool TRILLION off their books before this sub-prime mess finally ends.

And the carnage continues. In just the past week: mortgage lender Fannie Mae posted a US$2 billion loss for the first quarter. Insurance giant American International Group posted a US$7.8 billion loss thanks to a big write down of its derivative holdings (that’s on top of a US$5 billion fourth-quarter loss). Yesterday, Citigroup announced plans to “wind down” about US$400 billion in assets to try to dig itself out of debt. Even Warren Buffett’s beloved Berkshire Hathaway lost a BILLION bucks on derivative investments last quarter.

But few know that while institutions and individuals alike bled funds through these last nine months, a small group of investors quietly reaped the rewards of these unforgiving markets. I can site one particular disparity that bred a much-needed trend change — a change that many were late to recognize.

And while this trend change paid off nicely already — if you were positioned for it — the potential for a second round of gains is quietly approaching. I’ll tell you how to jump on that trend in just a second. But first, let me set the stage…

You Needed a Strong Stomach to
Ride Stocks Last Year

Last year, global stocks experienced quite a rollercoaster ride. Last spring, things were flowing smoothly and markets were shooting higher. Emerging markets were some of the biggest winners, but equities as a whole were sucking up investment capital all over the world.

Then the global credit crunch hit the markets in July 2007. This market shock upset the risk-taking attitude among global traders and shook the life out of stocks.

Since then, the S&P has fallen sharply from its October 2007 highs. Even Chinese stocks, among the largest pre-credit-crunch gainers, are still well off their highs.

The last six months have not been kind to the risk-taking investor class. There have been very few positive developments to support a market rebound. Even still, many stock market participants are holding onto hope in the face of a laundry list of problems.

Too Soon to Raise the White Flag?

But are the warning flags being reined-in prematurely? After all, the risks are not necessarily subsiding:

• Financial firms all over the U.S. and Europe are still struggling to cope with the credit crunch, taking write-offs in the tens of billions of dollars
• Sub-prime mortgage losses and write-downs are expected to grow far larger. Market cuts and bruises are likely to morph into gaping wounds for major lending institutions
• Banks are unable or unwilling to expand lending practices — net losses and ratings downgrades are taking their toll on the banks overall capital

As I said the IMF says institutions will write-down a US$1 trillion from their books before we’re done. Current losses-to-date stand at US$300 billion. So apparently we’re only a third of the way through this mess, I think we can only credit the resiliency of the stock market bulls to the Federal Reserve.

They’ve lowered their Fed funds and discount rates substantially and given investors reason to believe stocks are set to turn back higher, sooner rather than later. It’s a classic case of the “mama-bird-will-save-us” mentality. Investors have expected a hand-fed meal and the Fed is doing what they can to deliver it.

This is One Mess the Fed Can’t Clean Up

Sub-prime mortgage problems in the U.S. morphed into a global credit crisis. And banks got themselves into trouble by investing in what has turned out to be complicated bundles of bad debt tied to sub-prime mortgages. And even though central banks have aimed their focus towards this ultimate concern, they’re dealing with seriously large masses of confusing debt-backed derivatives. And central bank efforts may not be enough to clean up this mess in a timely fashion.

It all started when financial rocket scientists in white lab coats created the most complex investments they could dream up. These irresponsibly contrived investments became known as derivatives.

Turns out, this breed of derivatives act a lot differently in the real world than their creators expected. And now banks are stuck cleaning up losses on investments they don’t understand. The result: Banks have become reluctant to lend money because the need to stockpile extra funds as a sort of “complicated investment insurance” is growing.

Already, hundreds of billions of dollars of bad debt has surfaced on institutions’ balance sheets everywhere. And while the Fed and others have made various efforts, it’s still bad debt and it’s still going to take time to account for the balance of this ill-advised decision making.

It’ll take a while for banks to get back to doing what banks do best — lending money comfortably.

Introducing the Ugly Sister of the FX Markets

Much of last year I focused on a large imbalance that had developed in the foreign exchange market. The British pound had risen substantially to levels well beyond reasonable valuation. And while the pound became exceptionally overvalued versus the U.S. dollar, it was the widening gap between the British pound and the Japanese yen that caught my eye.

As the pound became increasingly overvalued and the yen increasingly undervalued, it became more and more likely that the gap would soon collapse. The agonizing credit crunch became the catalyst that would begin to close this gap.

The chart below compares the British pound to the Japanese yen. Clearly, the British pound has appreciated substantially against the yen over the past seven years. The simple fact that traders and investors shunned low-yielding assets (like the yen) in favor of high-yielding assets (like the pound) explains this major separation.

I wrote this week that I had a hunch the Bank of England might keep rates on hold. It wasn’t a nailed-on prediction, merely a sneaking suspicion. Nonetheless, I said it, and I was wrong. The Monetary Policy Committee (MPC) today voted to cut the base rate by a quarter-point, to 5%.

There are a lot of questions arising from this decision. Is it enough? Will it do any good anyway? Are private lenders simply ignoring the central bank and tightening credit anyway? We’ll be looking at these questions in the days and weeks ahead.

Today, though, it’s the pound that’s concerning me most. We’ve grown accustomed to hearing stories of how much Britons can now buy in America, but this is a consequence of the weak dollar, not of a strong pound.

Sterling hit an all-time low against the euro yesterday, at €1.25. And there’s no reason to think the fall will stop there. While the MPC cut rates, the European Central Bank (ECB) left theirs on hold. There is widespread anticipation that the MPC will have to lower rates again this year. The ECB, however, is expected to take a more hawkish line. This suggests the pound will fall further against the euro.

Sterling’s decline is a serious matter — and not just for those planning holidays on the continent. One of the big challenges facing Britain’s economy is that, despite weakening domestic demand as we flirt with recession, there’s still a lot of inflation to contend with.

The big inflationary worries concern what’s called “cost-push” inflation. The prices of food, energy and raw materials are on the rise, pushing up our cost of living. These prices are set globally, so British policy-makers can’t do much to change them. How much we in Britain pay for such vital commodities depends on how strong our currency is.

The further the pound falls, the more skint we’re all going to feel.

Private equity’s on the come back trail… has the credit crisis bottomed?

Time to play the Rocky theme tune — private equity is back! Apollo, a distressed debt specialist, and Permira, a British buyout group, are snapping up the debt of UK bingo merchants Gala Coral.

Meanwhile, CVC and Blackstone, those stalwarts of leveraged deals, are teaming up to grab 29.9% of Mitchells and Butlers, the troubled British pub group.

After months of acquisitions being scuppered by frozen credit lines, the market is beginning to thaw. But Bill Bonner, who’s currently holed up in Argentina, sounds a note of caution for anyone tempted to think it’ll be plain sailing from now on.

Take stock markets. Bill points out that the S&P 500, for example, is still selling for more than 18 times earnings.

“There’s still plenty of room on the downside,” he warns. “The bubble in finance is over. It’ll probably take many years before value appears and prices begin to rise — just look at what happened in the Nasdaq. Or Japan! Many people thought Japanese stocks were a once-in-a-lifetime bargain after the Nikkei Dow crashed in 1990. Well, they’re an even bigger bargain today!”

Oil hits record high

Former gymnast Garry White is doing cartwheels today (at least, he is in his head). These days Garry, our commodities man, is far more likely to be found at a Bloomberg terminal than on the asymmetric bars. But the fact remains, today, Garry is a happy man.

“Oil’s hit $112.21,” he announced cheerily this morning. Stockpiles of both refined oil (gasoline) and crude oil have fallen… and it’s another shot in the arm for Garry’s oil plays.

Garry has more on this in today’s piece, together with the rest of the commodities news… including why one major authority thinks the gold price is about to soar.

Iran props up the dollar

An interesting story from emerging markets specialist Manraaj Singh today.

“Iran’s clerical regime is helping prop up the dollar,” he told me this morning. I gave him a puzzled look.

“I’m serious,” he said. “The Gulf states are desperate to break their peg from the dollar. It’s causing record inflation — but so far only Kuwait has dared to do it. That’s because the other states need America to protect them from Iran, and they don’t want to annoy them by breaking the peg.”

So, unable to ditch the failing greenback, what are the Gulf states doing to protect their wealth? Manraaj tells me they’re diversifying like crazy, and it’s creating great investment opportunities.

Find out which two investments Manraaj thinks will be the big winners as the Middle East spreads its petrodollars worldwide… and why he thinks the region is less than two years away from launching its own single currency.

Goldman finally buckles

More reason to fear the credit crunch will rumble on came from Goldman Sachs yesterday. I’ll let my esteemed colleague Theo Casey talk you through it:

“Yesterday Goldman was the first US bank to show its hand. The results were worse than expected.

“The world’s most profitable investment firm reported that its hard-to-value securities, so called Level 3 assets, jumped 40% to $96.4bn.

“There are three asset types to know when divvying up investment bank balance sheets:

• Level 1 assets are valued by available market prices in active markets. These include stocks, futures and options.
• Level 2 assets are priced using “observable inputs,” which means recent similar transactions. Loans, mortgages and over-the-counter stocks fall into this category.
• Then there’s Level 3. These assets are measured using “unobservable inputs,” and it’s as bad as it sounds. It means that even though the firms can’t actually see the value of their assets, they’re allowed to put them down as earnings based on their own “subjective assumptions.” In other words, they guess.

“When you hear the BBC News refer to “subprime-related” losses, what they mean is Level 3 assets that couldn’t be shifted. The world’s most profitable investment bank, we found out yesterday, has rather a lot of them.

“So it just got 40% harder to value Goldman Sachs. That’s because it involves guessing what the bank will fetch for its Level 3 assets, which has proven to be a market that no one wants to be in.

“With uncertainty in the market to the tune of $96bn — and that’s just one bank — it looks like suggestions that we’re over the credit crunch may be more to do with making headlines than making money.”

As Theo wisely notes, we need to look beyond the headlines. There’s plenty of bad news out there waiting to hit the markets.

Until tomorrow

Ben Traynor

Our investment editors are fine tuning their crystal balls as we speak. In the meantime, The Sovereign Society consensus remains that hard assets and diversification outside the U.S. dollar and domestic financial markets, continue to make sense for the long term.

And when putting new money to work in the financial markets, it’s important to remember that – at all times – you have far more choices than most investors tend to imagine.

For instance, you don’t have to watch the value of your savings disappear.

Four Simple Cures for the Sinking Dollar

The U.S. dollar is in the worst bear market in its inglorious history. Yet you can own other currencies in the spot currency markets with account minimums of as little as a few hundred dollars. You can put your cash in the pound, euro, Swiss franc, Japanese yen, Canadian, Australian or New Zealand dollars without paying commissions or large spreads. You can collect more interest than you would in U.S. dollars at the same time.

You can also own FDIC-insured foreign currency CD’s, foreign currency funds that trade on stock exchanges, and forex options that you can trade from your own stock brokerage account. These are four simple, dollar-protection vehicles that are available to any investor – without needing a special account or high minimum net worth.

You don’t have to chain your equity portfolio to the U.S. market.

Even after yesterday’s rally, the Dow is down nearly 10% so far this year. Yet markets like Canada and Mexico are up. In fact over the last 10 years, the U.S. has not been a top-10 performing stock market once! If the biggest money is to be made where the greatest growth is, you must look to overseas markets to tap into that growth – and to find markets that offer value when the U.S. is overvalued.

You don’t always have to go long the market, especially when it’s overvalued.

How to Avoid an Overvalued Stock Market

Today, any retail investor can short the broad market – as well as some sectors of the market – with inverse ETFs. A few of these (in case you’re willing to take on a bit more risk to back up your very bearish sentiments) even allow you to short the broad market and sectors with leverage so that if the market falls 10%, you could stand to gain 20%.

You don’t have to let your portfolio get battered by market volatility without taking a few shots yourself.

The right types of equity options can pay well in volatile markets like these. Selling puts on stocks you’d like to own at a lower price can generate income for you now and possibly hand you the stock at a discount to the current price.

You don’t have to be overweighted in stocks during a stock bear market.

It is now easier than ever before to own commodities through ETFs – from gold and silver to oil and gas and now even agricultural commodities. This can offer a very low cost way to diversify your portfolio into hard assets without having to open a separate commodities account.

Don’t Place All Your Trust in CNBC

You don’t have to limit your financial information intake to the nightly news and business section of the paper.

You can add to it the views of cantankerous hard-money kooks; debt-leery, scaredy-cat economists; and curmudgeonly deep-value investors – like you’ll find here in the pages of the A-Letter. And perhaps, if we’re doing our job well, we might just help protect your assets in times of crisis and position yourself for significant profits as well.

That’s the business we’ve been trying to build at The Sovereign Society these past 10 years. Through the tech boom and bust, the housing euphoria and hysteria, the age of financial innovation and devastation, we’ve tried to keep a steady eye on the things we think matter.

We think a good balance sheet matters – for people, companies and nations. And we get worried about economies and markets when they become bloated with debt.

We think you should spend your money wisely: Buy shares in companies according to their earnings and earnings prospects, rather than the rumor mill.

We think the best opportunities don’t have borders. Invest in economies that are opening up their markets and becoming more competitive – while they’re still selling at reasonable values. It’s a great way to diversify your portfolio and capture some of the best growth opportunities in the world.

We think a promissory note backed by a vague promise is not a very secure store of value. So we think it is wise to exchange some of those scraps of paper for hard assets that may have a more enduring value.

We also think you have a right to financial privacy and to diversify your assets geographically as well as across asset classes and financial markets. So we try to introduce you to some of the best banking centers and financial institutions around the word.

Your Choice to Prosper

How much of what we offer is right for you? Well, that’s up to you. It’s your choice. That’s the whole point. Through our flagship publication, The Sovereign Individual, as well as through our other products and services – from Commodity Trend Alert to Forbidden Knowledge – we try to bring you what we think may be the best options in the world of global investments and offshore asset protection.

Which bits and pieces you decide to put into action is completely up to you – the real Sovereign Individual. For our part, we’ll commit to doing everything we can so that you consider us among your most able and trustworthy advisors.

In Wealth & Prosperity,
ERIKA NOLAN, Executive Director

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Tech Stocks Weigh on Wall Street

In London, the FTSE 100 added 57 points to end the day at 5,717, just below an intraday high of 5,735. Persimmon was by far the day’s biggest gainer, adding over 7% as the housebuilding sector rallied. For a full market report, see: London market close (http://www.moneyweek.com/file/44391/london-close-footsie-gets-second-wind.html)

Across the Atlantic, the Paris CAC-40 added 42 points to end the day at 4,719. And in Frankfurt, the DAX-30 closed 88 points higher, at 6,578.

On Wall Street, stocks fell for a second consecutive day as the technology sector weighed following disappointing results from Oracle and Google. The Dow Jones fell 120 points to end the day at 12,302. The broader S&P 500 was down 15 points, at 1,325. And the tech-heavy Nasdaq slumped 43 points to close at 2,280.

In Asia, stocks rose today led by property and commodity plays. The Japanese Nikkei was 215 points higher, at 12,820. And in Hong Kong, the Hang Seng was 621 points higher, at 23,285.

Pound tumbles on bearish housing data

Crude oil had fallen back to $106.60 this morning and Brent spot was down by over a dollar, at $104.28.

Spot gold tracked oil lower this morning, falling to $942.60 from $951.80 in New York late last night. Platinum, meanwhile, jumped to $2,030 on speculative buying. And silver had fallen to $18.25.

Turning to forex, the pound was broadly lower this morning as weak consumer and housing data (see below) pointed to an economic slowdown. Sterling fell to 1.9953 against the dollar and hit an all-time low against the euro before edging up to 1.2663. The dollar was last trading at 0.6345 against the euro and 100.26 against the Japanese yen.

And in London this morning, Nationwide announced that UK house prices suffered their fifth month-on-month fall in a row in February, and their slowest year-on-year growth in over a decade. The price of the average home had risen 1.1% to £179,110 from February 2007. Nationwide chief economist Fionnuala Earley pointed to a ‘clear change in sentiment’ as to expectations of future price increases.