The Dollar Breaks
Down
Peter Schiff
Dec 16, 2005
The U.S. dollar, which has
staged a counter-trend rally all year, looks like it is finally
poised to resume its historic decline. Although the dollar actually
weakened this year against several secondary currencies, the
headlines have focused principally on its 2005 gains against
its two principal rivals, the euro and the yen. However, recent
reversals and technical action in both currencies strongly suggests
the rally has finally exhausted itself.
Earlier this year it also appeared
that the dollar's bear market rally had come to an end. However,
much like a drowning man, the dollar managed to make one more
lunge upwards, marginally exceeding its July peak. That head
fake was a classic sucker's rally, as it emboldened dollar bulls,
and caused tepid dollar bears to throw in the towel. Speculators,
now overwhelmingly long the dollar, will likely add to the dollar's
woes, as they rush to cut losses on losing positions, or preserve
rapidly fading profits.
The problem for those betting
on dollar strength is that despite its year long rally, the fundamentals
have actually deteriorated substantially. Nothing illustrates
that fact better than Wednesday's release of October's record
68.9 billion dollar trade deficit, and Thursday's report that
Americans hocked a record 108.6 billion dollars worth of stocks
and bonds to foreign investors in order to finance it. America's
unprecedented consumption binge and net accumulation of external
liabilities evidences twin economic failures of historic proportions.
The unfortunate reality is
that as bad as October's record setting economic failures were,
they will likely be exceeded in the months ahead. In order for
America's bubble economy to continue expanding, Americans must
continue spending. However, the two key elements required to
achieve this, consumer goods and the means to pay for them, are
both lacking. Therefore any further expansion requires Americans
to import greater quantities of the former and go even deeper
into debt to finance the latter.
With the ECB now raising interest
rates, and the BOJ likely to soon follow, the dollar's perceived
yield advantage will quickly fade. Due to its status as the world's
largest debtor nation, higher global interest rates will hit
the U.S. economy harder than any other, putting further downward
pressure on the dollar. However my hunch is that this time foreign
central banks will not come to its rescue. If that is indeed
the case, there will be no buyers for speculators to sell to,
and Ben Bernanke might be calling in those helicopters
sooner than he had planned.
Dec 16, 2005
Do
not wait for pull backs that may never come. Buy gold at current
prices and do not look back. I still believe the best way for
average investors to participate is though the Perth Mint in Australia.
For more information on their unique, safe, private, low-cost
program visit www.goldyoucanfold.com.
In addition, as the dollar's
value is likely to sink far faster than those of other fiat currencies,
investors can learn strategies to protect wealth and preserve
purchasing power by downloading my free research report on the
coming collapse of the U.S. dollar at www.researchreportone.com
and subscribing to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp.
Peter Schiff
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: pschiff@europac.net
website: www.europac.net
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Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange
County Register.
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial
newsletters and advisory services.
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