Time to hedge against this major currency
Today's Financial News - Posted January 30, 2009
U.S. GDP growth numbers and Japanese industrial output are contracting rapidly. But so are most non-dollar currencies. In fact, rumors of speculators driving euro and ruble into the ground abound on the markets!
by J. Christoph Amberger
Baltimore—TFN: The numbers are in: In the last quarter of 2008, the U.S. economy shrank at an annualized rate of 3.8%. That number was slightly better than expected. But as any experienced market watcher knows, quarterly GDP numbers are prone to at least one round of corrections that can add or detract a half point from the data.
For 2008, it means the United States economy ended the year around 1.5% bigger than it started out on January 1.
That may be the last time for a while that we ended a year with positive growth.
But if you counted on other countries to bail out your portfolio, the news gets worse. Thanks to demand destruction in the United States and the domino effect it’s had around the world, Japan’s factory production has dropped by an unprecedented 9.6%. Toyota Motors is announcing its first losses ever. Honda is idling car factories in Britain until spring.
Looks like when nobody’s buying cars, it makes no difference if you’re sitting on football fields full of SUVs or hybrids.
You’d think the bad U.S. data would help speed up the much-anticipated demise of the dollar. Instead, it’s the euro who’s plunging. Ten days ago, I predicted it would be trading at $1.25 against the dollar. Today, with the suitable delay all my recommendations have in common, it finally dropped to $1.2799.
And Europeans are getting worried. The weak links in the European single currency daisy chain… Ireland, Spain, Portugal, Greece… are seeing their credit ratings slashed due to huge new debt loads. After Iceland (which of course is not part of the EU or the euro), the term “state bankruptcy” is now whispered in Brussels, Paris and Berlin when the gentlemen from Ireland, Portugal and Spain slink by in the hallways.
And the Brits?
The UK is considered on the brink of financial ruin. What FDR’s Lend-Lease did not achieve, consumer overspending is close to succeed with… strip the country of its financial assets: Real estate is hopelessly overvalued, private households are over their ears in debt and its financial sector has been mauled by the crisis. The pound has erased 24 years in gains against the dollar.
“There’s a rumor going around that states cannot go bankrupt,” German Chancellor Angela Merkel said recently at a private bank event in Frankfurt. “This rumor is not true.”
Observers of the more paranoid kind are now seeing currency speculators singling out euro and ruble to wreck these currencies for fun and profit. They might be right. It wouldn’t be the first kind that happened: George Soros, for one, built his fortune and moral foundation as a missionary of responsible sharing and caring on brutally raping the British and Thai currencies and economies.
All this is continuing bad news for those still convinced that shorting the dollar and buying foreign currencies, equities, and commodities is the investment panacea. Plenty of U.S. financial newsletter editors… especially those who do a lot of first-class traveling from capital to capital and five-star hotel to five-star hotel.. are still convinced that Europeans as a whole are still smarter, less crass, more cautious, and overall more cultured.
But as a European, let me tell you, we’re just as ornery and stupid as the worst hillbilly… especially when it comes to money.
This is the time to hedge a catastrophic decline in the euro.
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