Sometimes things happen in the financial market and you are left scratching your head asking, “How can that possibly be?” And that’s how most investors feel right now about the flight to the U.S. dollar.
Here’s what the media (incorrectly) is telling us:
Investors are flocking to the U.S. dollar because of fears that Spain, Portugal and Italy will follow Greece’s lead and face a financial crisis. This is placing immense pressure on the euro, forcing the U.S. dollar to rise.
Make sense? Not really.
If we look at the U.S., its finances, in my opinion, are in worse shape than all the European countries put together. The U.S. just posted its biggest single monthly budget deficit on record. In April, the U.S. government spent about $83.0 billion more than it took in! How long
can we stay on this path?
Here’s what is really happening:
I believe that some traders are making a fortune as the euro collapses and the dollar climbs. The bond vigilantes target the European Community and the currency traders reap the benefits, playing the U.S. dollar against the euro. Imagine how much money you would have made over the past two weeks if you were a currency trader betting against the euro. A fortune.
It’s all one big fallacy. The U.S. national debt is projected to reach 90% of U.S. GDP by 2020, as our total government debt almost doubles between now and then. But, in the meantime, people are flocking to the debt-plagued U.S. dollar. Just a game.
If the U.S. dollar was truly regaining its strength as the world’s lead currency, the price of gold would be collapsing. Instead, the price of gold has risen from $300.00 U.S. per ounce in 2002 to $1,200 per ounce today and has not given much back over the past two weeks as the U.S. dollar rose.
I can see the Hamptons very busy this summer with currency trader wealth. The debt rating agencies downgrade Greece’s bonds, the traders walk away from Greek-issued bonds, fear sets in about more European Community countries seeing their debt downgraded, the euro collapses and the currency traders make the big play, shorting the euro and going long on the U.S. dollar. Great job if you can get it.
I guess I’m still stuck trying to figure out why U.S. bonds haven’t been downgraded yet by the debt rating agencies. Oh, I forgot. If that happened, gold would go to $5,000 an ounce. I don’t think the powers that be want to see that happen right now.
Michael’s Personal Notes:
We’ve received a few e-mails lately asking for “clarification” on editorial opinions in PROFIT CONFIDENTIAL. One customer wrote to ask yesterday why Michael Lombardi is saying that “…the bear market will rear its ugly head after it brings enough investors back into the market, eventually retesting the lows of March 2009,” while Mitchell Clark says, “…there will be good opportunities to buy the Dow (index) in the near future as stocks go through a correction.”
For the benefit of our new readers, we do not work as an editorial team, taking one opinion that we all share. The beauty of PROFIT CONFIDENTIAL is that each editor has his or her own opinion that they can express. We present these various opinions to our readers so they can take our opinions and combine them with their other research, readings and findings, to make their own conclusions on investment trends.
We also have many readers that “adopt” a favorite editor. I have my followers (mostly big-picture investors), George Leong has his (mostly the technical folks), Mitchell Clark has his followers (mostly value investors), and the intellectuals flock to Inya Ivkovic.
Hence, we are not presenting a consensus opinion in our editorials. We are presenting varying views from financial analysts we believe have something valuable to say to our readers.
Thank You:
PROFIT CONFIDENTIAL is gaining momentum as people spread the word on our thoughts about the economy and investments. So far this year, in less than five months, we’ve picked up 38,305 new readers of PROFIT CONFIDENTIAL. Welcome and thank you for joining!
Where the Market Stands:
The Dow Jones Industrial Average swung to loss territory for 2010 yesterday, with the index now down 3.5% for 2010. According to wsj.com, the Dow Jones trades at a price earnings multiple of 14.64 and a dividend yield of 2.74.
Has the bear market rally that started in March 2009 ended? I’m still not convinced. Ninety-day U.S. T-bills yield considerably less than one percent, but you can get 2.74% on the Dow index. And I don’t call a P/E multiple of 14.64 expensive considering the cost of
money.
Regardless of whether the bear market rally is over or not, and we will see how that pans out over the next week, whenever the market sells off as rapidly as it has over the past two weeks, a bounce always follows.
What He Said:
“Despite all my ‘yelling’ and ‘screaming’ about gold, I believe only a few of my readers and a small fraction of the general public has taken a position in gold. Why? Because gold’s not trendy…buying condominiums for investment is! If you are an investor, you need to seriously look at investing in gold stocks, because gold bullion prices will likely continue to rise.” Michael Lombardi in PROFIT CONFIDENTIAL, September, 21, 2005. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments. Many gold stocks recommended by Michael’s advisories gained in excess of 100%.
Michael Lombardi, MBA bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.