Psssst… Make Big Money Betting Against America

It was a wild ride in the markets last week. By Friday, the stock market plummeted nearly 370 points in a single day; oil reached an intraday high of $90 per barrel; gold hit its all-time high, the Dollar reached its all-time low against the Euro, Pound, and most other world currencies; and China, Japan, and other nations dumped U.S. Treasuries at a historic pace. Oh, and I’m making money hand over fist by betting against America.

As the global economy grows stronger, countries become more tightly linked to one another. And that link is based entirely around money changing hands — or, in other words, foreign exchange. I’m sure we all know what foreign exchange is. Whether you are using an Introducing broker, or a White label broker, it is a relatively easy market to get into, but one that is said to be hard to master. Though many people seem to be using that method as an investment and it seems to be making them money. Some people are even getting financial brokerages like Gleneagles Securities to help them with this, increasing their chances of making more money.

Everyone in the world knows the information that follows (except for Americans, of course). Because currency-based trading is a zero-sum game, in order to make money, someone has to lose money. From the world’s point-of-view, the losers should be the people behind the most dangerous rogue nation in the world. You know, the “voters” who elected the oil-fascist cowboy-imperialists twice in a row. It didn’t have to be this way, but it is. And, you don’t have to be one of the losers, either.

How bad is the situation in the U.S. financial system? Well let’s put it this way: Jeopardy, the popular TV quiz show, is about the only place you could make money by taking shares of the United States.

“I’ll Take ‘Shares of United States’ for US$500, Alex.”

The appeal of the U.S. is fading fast. At the end of last year, the fundamental backdrop for the U.S. included depressing figures like:

• Trade deficit of US$765.3 billion
• Current account deficit of US$856.7 billion (a not-so-small 6.5% of GDP)
• A gross national debt of US$8.5 TRILLION and still rising
• Exploding supply of money and credit

Okay, that’s the set-up. Below, is the investment strategy:

I realize that most of my readers are not sophisticated traders. The strategy below may be over your most of your heads. Still, ETFs based on currencies are very safe — since you actually own the currency. This is one of the ways I bet against America. Here they are in order of safety:

1. Foreign Currency CDs in US Banks (easy, safe)
2. ETFs (Traded on the Chicago Exchange)
3. Currency Futures (Traded on the Philidelphia Exchange)
4. The Foreign Exchange or Forex (tricky but a sure thing these days)

The article below discusses #2 — ETF’s (Exchange Traded Funds) but if you’re a German speaker that wants to research ETFs in more detail then visit dieser Webseite to find out more about it.

“Shares of United States?” What is That?

It’s now October. The year is winding down, and the situation doesn’t seem to be getting any better. So like most analysts, you may be asking yourself: What’s going to happen next, especially if you think that “shares of the U.S.” don’t really exist?

Well, in a way, they do exist, and you can capture these “shares” by investing in the U.S. dollar.

Think of a country’s currency as simply a share of stock in that country, with values fluctuating depending on the perceived investment potential of that country. Targeting the fundamentals is the same whether you’re trading shares of a company or currency of a country.

So as an investor, do you usually look to buy companies with pathetic earnings? Do you want the companies that are drowning in their own debts or can’t keep their books in the black? No, of course not. You want companies that have control of their balance sheets and have growth potential.

Same goes for the currency markets. Trades are made depending on how investors perceive a country’s fiscal and economic health. Countries whose economies are very promising attract investment capital. And their currencies, like shares of stock in a bull market, reflect that increasing value.

Borrow Low, Lend High

I’m sure you’ve heard the expression “Buy low, sell high.” It makes sense if you’re trying to earn profits in any market.

But there’s another expression: Borrow low, lend high. Borrowing low and lending high is a strategy that banks have used for quite some time. It’s what their business is based around. And it’s a very simple and effective way to profit.

Imagine you paid 4% to borrow US$1,000. Then you loaned US$1,000 dollars and charged 6% interest. You’re easily sitting on a 2% profit of US$20 (6% interest earned of US$60 minus 4% cost to borrow of US$40). But with banks, these transactions are much larger and more frequent.

Currency participants, institutional and individual investors alike, have been wrapped up in this same banking strategy. It’s become so heavily focused upon that they’ve even given it a name. You’ve likely heard of it – the carry-trade.

The Carry-Trade Lives…and Dies

Unless you’ve been hiding under a rock, or have recently returned from a summer-long vacation, you’re probably aware of the recent credit crunch that has spooked global markets.

Stemming from bad U.S. sub-prime mortgage loans, the unstable credit market has driven a large number of investors to run for cover. These fleeing investors have taken whatever funds they could salvage with them.

A clear sign of liquidation can easily be seen by monitoring the value of the Japanese yen. As I’ve told my readers many times before, interest rates in Japan are low – very low. And investors have taken advantage of these low rates by enacting the “borrow low, lend high” strategy I talked about earlier.

But instead of making loans, they’re actually making investments in assets that return a much greater yield than the 0.05% it costs to borrow yen. This is the carry-trade and it’s led to a beaten and battered Japanese yen. (Recall that borrowing yen effectively pushes the value of yen lower.)

Score Big from the Coming Yen Appreciation with the Right ETF — One Easy Trade

The Japanese currency is currently the most undervalued major currency versus the dollar. Prior to its recent rally, the yen was about 30% undervalued against the buck. That’s a serious undervaluation and signals to me that a change is coming.

It looks as though the yen has begun to reverse course as carry-trade money flows back where it came from – Japan. Japan’s economy is looking stronger all the time too.

You see, Japan is still recovering from a 14-year bear hug of deflation which began in 1989.

However, there are strong signs the economy is recovering. In fact, Japan grew at a 3.1% pace in the first quarter of 2007. So Japan grew at one of the fastest rates among the world’s major industrialized countries (the U.S. grew at only a 1% pace, while the Eurozone grew at just 2.1%).

Once Japan kicks its economy into overdrive, it will be liftoff for this Far East nation’s currency.

To make the most of what I anticipate will be a massive yen appreciation, I like the CurrencyShares Japanese yen ETF (FXY). This currency exchange traded fund gives you all the benefits of any normal ETF (diversification, low fees), plus you gain exposure to the profit windfall that’s headed for Japan.

Use: Rydex CurrencyShares ETFs

There you have it. A typical trade signal (this one from currency expert Jack Crooks). This trade will be made for me automatically on Monday (although I am already holding this position in Currency Futures, as well).

The bottom line is — don’t hold Dollars if you can help it. On Halloween, the Dollar may lose really BIG, if Bernanke lowers interest rates again. If you had a fistful of Euros (or any other currency — just throw a dart at a map) you would make good money on November 1st.