I intend to kick back and enjoy this coming holiday weekend with my family. I hope you do the same — because I think 2007 is going to be one heck of a year in the markets.
In fact, it looks like the fireworks are already beginning: On Tuesday, the Commerce Department announced that the Producer Price Index rose a full 2% for November, the biggest jump in 32 years!
You can see inflation in nearly every major asset — stocks, bonds, and commodities. You can see it in the plunging dollar, an undeniable signal that inflation is bursting to the fore.
And if I’m right, Washington will soon scrooge you even more by letting the value of the dollar plunge sharply in 2007. Already …
Washington Failed to Get China
To Boost the Value of Its Currency
It looks like Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke wasted a trip to China. I hate to say I told you so, but this was a no-brainer. Why in the world would China ever want to strengthen its currency? It has a cash cow on its hands and 1.3 billion people to take care of!
And even if China were to drastically strengthen the value of the yuan, it wouldn’t make one bit of difference to our trade deficit with the country, which is now at record highs.
Look, the average Chinese auto manufacturing job pays about $2 an hour. There is no way you can close the gap between the cost of production in China by making that country’s currency cost more. Even if the yuan appreciated by 300%, most goods would still be cheaper to produce there.
The only thing that’s going to come out of Washington’s continued pressure on China is trade tariffs, general ill-will between the two countries, or both. The only viable answer is that it’s not a case of the yuan being undervalued, but a case of the dollar being OVERVALUED.
If the U.S. is going to regain a competitive edge in the world, or ever have a chance of narrowing its huge trade deficit, the dollar must fall in value. Period.
Paulson knows this. So does Bernanke. Anything they do to try and talk the dollar up against another currency is merely a smokescreen. And if you buy into it, you’ll be buying into the biggest lie of all time, and you’ll probably lose your shirt to inflation.
Mark my words: Except for a small bounce here and there, I think the dollar could easily lose 20% of its value in 2007.
That in turn will set off the big picture for 2007 that I’ve been warning you about …
- Inflation will ramp up at an accelerating pace. The jump in the Producer Price Index in November that I just told you about will pale in comparison to some of the figures we get on inflation next year.
- Commodities will leapfrog higher again. Gold will head to $740 an ounce and beyond. Oil to $100, then higher.
- Bond prices will succumb to reality, and plunge. Interest rates will unexpectedly soar.
- Real estate prices in the U.S. will take one final hit early next year, then start rising because of inflation.
- Most U.S. stocks will get whacked, while others, especially natural-resource-based stocks, will take off to the moon.
- China and India’s economies will go on an upward tear.
And just in case you’re still not convinced that inflation is becoming a major problem, consider this …
The Pennies and Nickels in Your
Pocket Are Worth More as Scrap!
The U.S. Mint just announced that the U.S. government is now losing .73 cents on every penny it mints, and 3.34 cents on every nickel.
In other words, it now costs 1.73 cents to mint one penny, including the cost of the copper and zinc plus production.
The cost to produce a nickel? 8.34 cents!
So, the U.S. Mint wants to make melting down pennies and nickels, or exporting them out of the country, a criminal offense, punishable by up to five years in prison and a fine of up to $10,000.
Bottom line: Washington is waking up to inflation. It’s costing them big money.
Soon, I suspect the government will want to reduce the metal content of our coinage even more. I can’t blame them.
But bear in mind that this will just stoke the flames of inflation even more — proving, unequivocally, that what I am telling you about the plunging value of the U.S. dollar is right on.
What You Can Do
To Protect Yourself
I suggest sticking with the strategies that I’ve been giving you all along. They are consistent with my big picture view, and should help you emerge a winner:
First, minimize your exposure to the stock market. The exceptions are the gold and natural resource stocks recommended in my Real Wealth Report.
Second, keep the bulk of your money in safe, liquid, short-term investments such as money markets. You can get 5% a year … even a tad higher in some cases.
But by all means, stay out of long-term bonds, whether issued by the U.S. government or private corporations.
Third, if you don’t own any gold, I think you’re making a huge mistake.
The best way to buy gold, in my opinion, is the streetTRACKS Gold Shares ETF (GLD). Each share represents 1/10 of an ounce of gold. When you buy this fund, it’s kind of like buying a mutual fund, but one that holds only physical gold. Plus, you eliminate storage and shipping worries because the gold is held in trust for you.
Fourth, consider joining my colleague Tony Sagami’s Asia Stock Alert to capitalize on the great profit opportunities in Asia.
Best wishes,
Larry
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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