Also In Today’s Letter…

• The Real Safe Haven that the Treasury Can’t Offer
• Central Banks Continue to Trade Up the Buck
• Four Things to Know Before You Invest Abroad

Did you hear that the U.S. is auctioning off another $81 Billion in Treasuries this week?

Yes, that’s a bit lower than the record-high bond auctions the U.S. has held recently. (The Treasury auctioned off an astounding $123 billion in notes on October 27th.).

But still $81 billion isn’t anything to ignore.

It’s just further proof for me that sooner or later we’re going to see a day of reckoning for bonds. That’s a day when no one, (or very few) show up for the U.S. bond auction. On that day, the U.S. will have only one left to pay for all these debts they’ve been racking up.

They’ll have to print their way out of this hole they’ve dug themselves in.

You know what amazes me? With the nutcases in the world shooting off missiles, and ramping up nuclear capabilities, the bailouts here in the U.S., the countless government programs we can’t pay for, there are still some people that believe U.S. Treasuries are a “safe haven.”.

Of course I’ve proven time and again that investors who believed that and bought during the financial meltdown last year lost tons of money.

After all, yields fell to 2.20% in January, as all the Mom and Pop investors were rushing into Treasuries. That meant that prices were sky-high, and then as soon as stocks rallied again, prices started to fall.

Now will this be the auction that fails? No I doubt it. But, in my opinion, we will experience that at some time in the next year, especially given the government deficit spending!

And, should a Treasury auction fail, well being long Treasuries isn’t going to look too much like a “safe haven” position anymore, is it?

The Real “Safe Haven” that the U.S. Treasury Can’t Offer

While the U.S. government continues to peddle paper debt that may or may not sell, gold continues to rise.

As I’ve said time and again, gold is not only a hedge against both inflation and deflation, it’s also the true safe haven investment that you can’t find in the Treasury market.

While we’re talking about gold, I saw this quote that hit the nail on the head last night…

“It’s not that gold has changed, but gold buyers have changed,” said Suki Cooper, a precious-metals strategist for Barclays Capital. “It’s a structural shift we’re seeing on the investing side, from Asian central banks right down to individual investors buying ingots and coins.”

That’s right! Gold hasn’t changed. It’s still has to be mined out of the ground, it can’t be made by any alchemist.

The demand in gold has skyrocketed in the past couple of years. It’s pushing people to send in their gold bracelets, necklaces and rings to cash in as gold prices surge. So selling any and all gold they can get their hands on, and this group over there is buying it, for a rainy day.

Gold’s recent rise has been spectacular to say the least, moving through the $1,000’s to $1,100 very quickly. I think there are two things in play here…

1. The demand for gold driving the price higher.
2. The dollar is so weak that it’s forcing gold to rise.

I heard a guy say the other day that “Gold hasn’t gained. The dollar has gotten weaker…”

What? Nothing about the demand? You better check your facts again, guy.

Central Banks Keep Trading Up the Dollar

The folks over at Barclays say that they have recalculated the dollar’s share of global currency reserves.

The dollar once stood at 80% of global reserves. Back in 2002, before the weak dollar trend, the dollar made up 73% of global reserves. Now that has fallen to 62.8%.

But, says Barclays, this is almost entirely a result of weaker valuation rather than attempts by central banks to diversify holdings away from the dollar.

Hmmmm… Now, I do agree that the Euro’s gains vs. the dollar in the past seven years would cause quite a bit of slippage in the dollar’s value in terms of central bank reserves.

But “almost entirely?” I sincerely doubt it.

One could point at the Reserve Bank of India’s gold purchase last week. They bought $6.7 Billion “worth” of gold. You can’t tell me that wasn’t to diversify their reserves!

And notice central banks are diversifying out of the dollar. Who’s to say when they’ll stop buying our Treasuries too?

That’ it for today… Hey! Tomorrow is a holiday! It’s Veteran’s Day tomorrow. My dad was a Veteran, and each year, I go back to a story that my darling daughter, Dawn told me. A few years ago, at Dawn’s school, they had a Veteran’s Day celebration, and had everyone bring in pictures of relatives in their military uniforms. When the picture of my dad, (Dawn’s grandpa) came up on the screen, she was amazed, and sent me a note saying she had never seen how much I look like her grandpa (my dad). So, let’s stop to think about why the day is a holiday! And thank a Veteran…

That’s all… I hope you have a Terrific Tuesday!

Chuck Butler

Chuck Butler serves as both a senior editor of The Currency Capitalist and a senior contributor to FX University Daily. Chuck Butler focuses on the factors that affect a currency’s value over the long run – from trade and fiscal balances to interest-rate policy and credit expansion. Because of his concentration on the fundamentals, he has correctly called the dollar’s demise and the euro’s rise since 2001. As you read above, Chuck is also calling for the 27-year bull market in Treasuries to end in the next year. Read more on this prediction in his latest special report.

Remember technically any foreign stock or bond play is an investment in foreign currencies too.

That’s because you can earn extra profits off the currency appreciation, should the local currency rise versus the dollar (which is pretty likely these days with the dollar sinking).

Nobody is more skilled in that area than The Sovereign Society’s Investment Director, Eric Roseman.

Eric has years of experience investing offshore… Heck, he tapped into global stocks and bonds before the word “BRIC” ever existed.

On Friday, he stopped by to fire up attendees and answer a number of popular questions:

How are global stock dividends taxed?

• Most global stock markets withhold dividend distributions to investors (28% in USA)… and… unless you file proper documents, you can’t claim a tax credit offshore.

Where’s the best place to find foreign bonds, denominated in a variety of currencies?

• EIB (European Investment Bank) is worth a look. It’s an AAA-rated EU financing arm that currently offers ten different foreign currency bonds.

What’s the best way to defer taxes offshore?

• First, avoid offshore mutual funds…You should set your sights on offshore annuities, which are ideal for estate tax planning and also provide a strong measure of asset protection.

Which countries offer more favorable treatment of stock dividends?

• There are actually ten different countries that levy ZERO withholding taxes on dividends: Hong Kong, Greece, China, Croatia, Mexico, Malaysia, Singapore, Slovak Republic, South Africa and the UK. (But remember, as long as you’re a U.S. citizen, you’ll have to report any income to the IRS.)

It’s been a fun week…a busy week…and if I stay down here any longer, my wife will get suspicious.

So until we meet again… Keep your chin up and your eyes open,
Patrick Bove, Your Conference Insider

P.S. Perhaps you didn’t make it to Los Cabos this year… I know, life gets in the way. That’s why, for the first time ever, we’re giving away the Video and full PowerPoint presentations from this event, absolutely free. We figure there’s no better way to share the wealth and make sure you get equipped for success and protected from the worst – not just this year… but for keeps. To claim your Offshore Advantage Online DVD, check in with us here. Then if you like what we have to say, respond by 11:59pm EST tonight. Simple as that!

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Just a decade ago, if you wanted to venture into the largest, most liquid market in the world – the foreign currency market – your options were pretty limited.

First you had to be a savvy “online person” with one of those “really fast” DSL or cable Internet connections.

Then you had to open a special account with one of the few infant Forex firms of the day. Plus, there weren’t any decent charting packages, practice trading platforms or customer service desks we take for granted at Forex firms today.

Also, assuming you were successful in your trading, you would have spent a large part of those profits in fees. Back then, the Forex firms didn’t have the incentives they have now to offer the narrowest spreads (and therefore lowest fees) possible.

Basically, it was like jumping in the deep end of the pool blindfolded.

But again, that was 1999.

As technology has advanced over the last 10 years and the world embraced the Internet, demand for access to currency markets began to take off. And with that boom in demand, Forex firms, ETF providers and even the oldest stock exchange in the U.S. have all come forward to make currency investing and trading a much easier, cheaper and ultimately more profitable experience for your average Mom and Pop investor. Here’s just a quick glimpse at the new currency innovations of the 21st century…

The Currency Developments…and Three Easier Ways to Buy Currencies

Technically there is no physical exchange worldwide where currencies trade. There’s no trading floor where professional FX traders yell bid and ask quotes to each other across packed rooms somewhere in London or New York.

Still, financial innovation has found ways to make it easier for you to buy and sell currencies. For example…

Since 1999, Easier Forex Trading: Today Forex platforms are no longer few and far between like they were 10 years ago. Today you can sign on to the Forex platform of your choice. And because there are so many to choose from, they offer competing and very valuable services like practice accounts and tutorials that walk you through the trading process. More importantly, the increased competition has dramatically improved their bid/ask spreads making it even more profitable for you the individual.

Since 2005, Currency Exchange Traded Funds ETFs: Rydex Investments was the first to introduce a currency fund in late 2005. This allowed Forex enthusiasts to take advantage of currency moves without any special needs. You don’t need a margin account, special Forex account, or even any special training. It’s as easy and cheap as buying any other stock. Since then, WisdomTree, ProShares, PowerShares, and more ETF providers have introduced their own. Now you can buy over 25 different currency funds through various providers.

Since 2007, “Stock-like” Currency Options: The nation’s oldest exchange, the Philadelphia Stock Exchange (a.k.a. the Nasdaq OMX) introduced a new kind of currency option in mid-2007. They designed these currency options to mimic stock options as closely as possible. The theory was if you could buy regular stock puts and calls, you could buy these new currency options. Today, you can make long or short bets on 10 different currencies on the Nasdaq OMX with options. To buy them, all you need an options-approved stock account.

The Only Question Left: Are You a Currency Investor or Forex Trader?

Your in-house currency expert Ashish Advani addressed this question this past weekend, as they wrapped up the Offshore Advantage Academy in Los Cabos, Mexico.

Let’s listen in…

“If you’re looking to invest long-term, say 5-10 years, I recommend buying the currency outright. If you’re more of a short-term trader, consider currency options. And if you’re looking at an intermediate time frame of 1-3 years, ETFs are right up your alley. Typically the spot market takes more time and effort… and is best learned in the company of a professional.

Which does he prefer?

“There are better things to life than just foreign currencies – that’s why I play the options market,” he said. “I buy an option and get on with my life.”

“What’s so attractive about currency options?

“First, you have limited risk. You can’t lose more than the premium. Ashish doesn’t get into a trade without having a profit target in mind… so there’s no wishy-washy guessing about when to get-out. And perhaps best of all – options give you the ability to wait for your strategy to come true.”

“It takes about two or three minutes to put on a trade… You can get in for as little as $700 to $1,000 and can make these trades from any stock trading account… and get back to your life.”

To find out more about your own personal currency trading style, take FX University Daily’s special quiz here.

Good Currency Investing,
Kat Von Rohr, Editor
FX University Daily

P.S. Today is your last day to claim your free currency report. After midnight tonight, we will no longer offer Currencies for the Long Run or How Trading Currency Crosses Can Boost Your Forex Profits as gifts to our long-term FX University Daily readers. So please, click below to grab the free report of your choice before it’s too late.

As you know, Forex is one of the most profitable ways to hedge against the dying dollar.

But the secret to success is matching up the strongest currencies vs. the weakest, which leads to more predictable trades.

So… how can you tell if a currency is weak… or strong?

Here’s Sean Hyman’s “cheat-sheet” from his speech in Los Cabos on Friday.

1.) CPI/Inflation: In currencies, high inflation is a good thing. Because… when the
money supply rises, governments are more likely (in certain situations) to raise
interest rates.

2.) Gross Domestic Product (GDP): Is there growth in the economy or is it shrinking?
By matching up weak GDP currencies vs. solid ones, you can gain a Forex
edge.

3.) Interest Rates: Imagine if you had two banks that offered savings accounts of 1%
and 5%. Where would the money go? Of course to 5% – people want better yields on
their money. Same with Forex… when you anticipate the direction of interest rates,
you can get in before the investment world stampedes in the direction.

4.) Employment Numbers: This well-publicized stat is an excellent indicator of
economic health. From a simple glance, you can gauge the strength of a nation
and its currency. For instance, Australia has half the unemployment rate of the
United States… and the Australian dollar has exploded 28% vs. the buck in 2009.

And for all these reasons, Sean believes the Aussie has a lot more room to run…

Here’s the recommendation he gave out on Friday: Buy AUD/NZD at the market. Sell Limit at the old highs of 1.29.

If you’re not a FX trader, and this trade still sounds like Greek to you… you’re not alone. But don’t let that stop you.

Sean will be speaking at our FX University in February. We’re still accepting a few more guests to join us in Scottsdale, AZ (details here). Fxu event

But if you can’t make the trip, no worries. We’ll give you the entire educational course – in addition to your FREE Offshore Advantage 2009 recordings. Did you claim a copy yet? Get all the details here.

Once again, from on the ground in Los Cabos…
Patrick Bove, Your Conference Insider

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The race to higher interest rates continues around the world. But as of this week, the Fed is still not stepping up to compete.

Like all currency traders, I was listening closely to the Fed’s statement to see if they would remove the easy money policy or show signs of hiking U.S. interest rates any time soon.

And of course they’re not planning on it.

No one can blame them for this, especially considering unemployment is still at 10.2% (as of this morning), banks are still reluctant to lend and the economy is still only floating along on government assistance.

However, on the other side of the world, certain countries are not only winning the interest rate race, they’re preparing to trounce the dollar in the months to come.

As you’ve been reading here in FX University Daily, that includes Australia, New Zealand and Norway. All countries are looking to step up to raise rates (and Australia and Norway have already started the race before the gun went off).

Out of those three currency gems, I’m betting on Australia and the Aussie dollar to rise first as we head into the new year…

My Favorite Currency for 2010…

Now it’s not a secret that I’ve liked the Australian dollar for months. In fact, I wrote you back in July that the Aussie dollar was my favorite major by far.

Also, in the October issue of Currency Capitalist, I wrote to my subscribers…“If I had to pick just one currency to buy for 2010, it would be the Australian dollar.”

So why the Aussie dollar?

Well for starters, Australia offers the highest interest rates of any currency worldwide, so traders will be buying it up in the months to come to gain higher yields. Australia also has a prudent central bank that’s keeping its inflation under firmly under control.

On top of that Australia is the proverbial grocery store for all its surrounding countries. With its rich commodities, Australia feeds China, India, South Korea and Japan and their host of commodity needs. So as China and her neighbors grow, so will Australia.

Then there’s the gold issue. Australia is a HUGE gold exporter, so higher gold prices do tend to affect the Aussie dollar’s value. As of this morning, gold just hit a new never-before-seen record of $1,100. Nothing but good news for the Aussie.

How to Buy When You Don’t Know
When a Currency Will Rise

As you can tell, I’m pretty excited about the Australian dollar going forward.

But that doesn’t mean there won’t be pullbacks and corrections in the Aussie dollar’s price over the next few months. While it’s easy to see the Australian dollar’s long-term trajectory up, it’s a bit more difficult to time the pullbacks.

That’s why I recommended my Currency Capitalist members play the Aussie dollar with currency options back in October.

Currency options allow you to take advantage of a long-term currency trend, but you can use a bit of leverage to earn even higher gains should the trade go your way.

As of this morning, this currency option is already up a nice 24%. Not bad.

It’s a little late to get in on this option if you’re a Currency Capitalist member, but there are plenty of other opportunities down the line with currency options.

If you’ve never heard of currency options, the Philly Stock Exchange first introduced these gems back in 2007. I call them “stock-like currency options” because the PHLX designed them to mimic stock options as closely as possible.

If you’re familiar with stock options, currency options should be a breeze. Currency options have the same trading times, the same expiration dates, and they’re settled in dollar terms just like regular stock options. Like stock options, you only risk the amount you pay for the option (called the premium). Not a penny more.

The only difference is rather than track an underlying stock, currency options let you place long-term bets on 10 different currencies.

If you’re interested in selling a particular currency, you buy put options. If you’re interested in buying a currency (like say the Aussie or New Zealand dollar), you buy call options.

Best of all, currency options are available through any options-approved stock account. This means you don’t have to open a new account. You just need to call your broker and make sure you’re clear to trade regular options.

As I said in the beginning, the race to higher interest rates has already begun. If you’re looking for a way to play those high-yielders, I would look to options first for long-term currency bets for 2010.

Yours in FX Profits,
Ashish Advani

EDITOR’S NOTE: There’s a good reason why traders call the currency options market the “$71,000 hobby.” It’s because conservative traders are bagging tens of thousands every year with long-term bets on these handful of currency options. In fact, we know a remarkable 77-year-old man from Iowa who’s doing just that. Click here for his full story.

Is the Federal Government secretly planning to confiscate your retirement plan?

According to Larry Grossman, a favorite speaker here in Los Cabos this week, the answer is… yes.

He compares this shocking attack to a classic battlefield maneuver from the late 1860s. At the time, the U.S. Government’s chief domestic threat was Native Americans.

But instead of going after the Native Americans directly, the U.S. government decided to kill off their chief food source: buffalo.

This strategy was wildly successful.

And today, Larry believes the FDIC will use a similar approach to deter offshore investment. Recently, the agency fired a warning shot. They announced an audit of all IRA Custodians in 2010…

By declaring offshore investments to be “high risk,” they’re effectively ratcheting up the pressure on banks and IRA custodians… and forcing them to rethink their involvement with anything offshore. At some point, Larry says, the expenses associated with offshore investments may explode. This will force custodians to cut off access.

And like the once mighty buffalo, they’d be killed off.

Think that’s bad? Well you’re right. But it could get even worse!

A second threat is also moving into view. There’s mounting evidence that the government will use the current financial crisis to “prove to you” they can manage your retirement plan better than you.

There have been hearings in the House of Representatives where the phrase “confiscation of retirement plans” has been uttered.

The effect could be disastrous… with aggressive investment restrictions imposed by a “retirement plan czar”… that could force Americans to accept 100% exposure to the dollar. Worst-case scenario – everyone’s retirement plan would be invested in 30 year Treasuries.

Think it can’t happen?

Maybe you’re right. But if Larry’s prediction comes true and you’re not prepared, the damage could be irreversible.

That said, in any battle, if you can recognize your enemy’s tactics early on, you have the best chance of winning.

And boy, have we got some powerful (yet legal) weapons to choose from. To read our full report on how to shield your retirement plan today, click here.

Once again, from on the ground in Los Cabos…
Patrick Bove, Your Conference Insider

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