Subscribe: Free Weekly Dollar and Gold Report The WallStreetWindow free weekly newsletter is packed full of ground breaking financial views, stock picks, and commentary on the stock market, currency, and global markets. Join today to start to profit from Mike's financial advice. Start now Investor’s View Magazine The 24th Hour for the Dollar December 2006 Hedge fund manager and newsletter writer Mike Swanson sees a big decline in the dollar and a return of the gold bull market just ahead. "I just took some short positions in the dollar today and am going to start to build a long position in gold stocks over the next few weeks. Gold tends to trade opposite to the dollar and the dollar is about to resume its long-term decline," he said. Swanson, has had an uncanny track record when it comes to gold stocks. In his newsletter, WallStreetWindow, he first recommended that people buy them in the Spring of 2002 when gold was under $300 an ounce. He then sold them in the following summer and told his subscribers to buy them back in April of 2003. Incredibly, he put out a sell recommendation one day before gold peaked last December. "We had an incredible ride in gold last year and I made a literal fortune when I got out," he said. Swanson thinks that gold investors are going to experience similar rewards this year. Most investors may be totally asleep when it comes to the dangers of a falling dollar, but there appears to be a buzz of activity inside the Federal Reserve and the Treasury Department. In two weeks the Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke are going to travel to China to discuss the US trade deficit with China and probably try to talk the Chinese government into lowering the value of the yuan. The Treasury Secretary is taking steps to prepare for a dollar crisis. According to the Wall Street Journal, Paulson "has reinvigorated the President's Working Group on Financial Markets, which had languished. Mr. Paulson is chairman of the Working Group, which coordinates government policy on financial markets and includes the heads of the Federal Reserve, Securities and Exchange Commission, and Commodity Futures Trading Commission. Mr. Paulson has insisted that they meet about every six weeks. Before his arrival, the group met every few months and sometimes as infrequently as once a quarter." The Wall Street Journal went on to say, "Mr. Paulson is having the Working Group look at the systemic risk posed by hedge funds and derivatives, and the government's ability to respond to a financial crisis, officials said. He has ordered his chief of staff, Jim Wilkinson, to oversee the creation of a Treasury command center to track markets world-wide and serve as an operations base in a crisis. The center would revive a market-monitoring room closed in a 2003 budget cut." As you probably know the Working Group on Financial Markets is the official title of what some people call the "plunge-protection team." After the Wall Street Journal article came out, Fred Barnes, of the neo-conservative Weekly Standard magazine, wrote this: "Paulson believes a financial crisis is overdue a serious crisis that would be a body blow to the economy. This fear is shared to some extent by Bush and Bolten, who wanted a major Wall Street player at Treasury in case an economic emergency occurs." According to Mike Swanson, "the accumulation of debt in the United States cannot continue much longer. In the last century the ratio of debt to GDP hovered between 120% and 160%. In 1929 debt rose to 260%. Now the ratio of debt to GDP is at a mad 300% and has been growing over the past year. Something has to give." Economist Mark Thornton, author of Tariffs, Blockades, and Inflation, agrees. He thinks investors need to pay attention to gold. "There is always a bull market somewhere in the economy. It could be junk bonds, real estate, a particular currency, tech stocks, foreign markets, land, blue chips, or small caps, " he says, "Today we are in a bull market in gold and commodities. Oil and gas are at all-time highs while metals such as silver are up more than 25% in 2004." The Bulletin of the Atomic Scientists created the famous "Doomsday Clock," whose hands they move forward and backward as they see the dangers of nuclear war ebb and flow. A few years ago they moved the hands of the clock seven minutes to midnight, a setting higher than it was at the end of the cold war, because the US had rejected a series of arms control treaties while terrorists had been seeking to acquire nuclear weapons. If you were to draw a similar clock to describe the threat of a currency crisis in the United States its hands would certainly be in the 24th hour.
The dollar has taken a plunge during the past two weeks. The US dollar index broke below its 85 support level and has been falling ever since. Its next support area is 80, which has been support for the dollar index for thirty years. "It seems very likely that this level will be tested within the next few months. And if the dollar index stays below 80 for more than a few weeks a full blown dollar rout will be very likely," says Mike Swanson.
The thing about currencies is when they get in a trend they tend to stay in that trend. The fundamentals behind currencies include economic growth rates, interest rates, and debt levels. The dollar topped out in 2000 and 2001 as the bubble in the Nasdaq burst and the US economy entered into a recession. It then fell until the Fed began to raise interest rates in 2005. That cycle of interest rate hikes helped to put a bid underneath the dollar. That cycle came to an end this summer and it now appears that the Fed will actually start to lower interest rates next year. Fed funds futures contracts are now predicting a 60% chance of a rate cut in March as recent economic data points to signs of a slowing economy. A slowing economy and falling interest rates will bring with them a resumption of the dollar bear market. "I would expect an orderly drop in the dollar index down to the 80 level to occur in the first quarter of 2007. After that though, if the dollar stays below 80 for several weeks, a full blown dollar crisis will likely begin. Gold, of course, will move up ahead of that. I expect gold to go through the 700 level early next year as the US dollar index tests 80. A move below 80 in the dollar index however, will bring the price of gold above $1,000 an ounce," says Swanson. This is the 24th hour. I'd say we are 15 minutes away from midnight on the dollar clock. Be alerted when Mike Swanson makes a trade. Sign up to his free weekly report. Receive Swanson's FREE WEEKLY Investment Report Join Mike Swanson''s Free Weekly Email Letter packed with market insight, gold news, and stock picks. With over 60,000 subscribers, including investment advisors, mutual fund managers, and hedge fund managers it's one of the most popular investment letters on the Internet.
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Subscribe to Our Free Weekly Currency Report Who is Mike Swanson? Mike is known for his independence, objectivity, and integrity and by the fact that his predictions and advice are often at odds with those produced by WallStreet. That's why he has been so profitable. Swanson holds a Masters Degree in history from the University of Virginia and has a broad knowledge of the history and political economy of the world financial markets. He has been a professional trader for over 6 years and is also head of the Strategic Investment Committee for Daniel Capital Management. The predecessor to WallStreetWindow began in 1999 as a small investment newsletter known as The Stock Market Report, which was primarily distributed to a few close friends and business associates of Swanson. It wasn't very long before the quality of Mike's research and his uncanny ability to find profitable investment opportunities began to shine. His readers witnessed him generate an 800% gain over 4 years and win 2nd place in the Robbins Trading Contest in 2003. This success led to a rise in demand for access to his research, and Mike started the successful website WallStreetWindow, that now has over 60,000 subscribers. Since its formation, his popularity as "TraderMike" has continued to grow, and the accuracy and timeliness of his research has paid dividends for his many subscribers. |
