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The U.S. Dollar Bear Market Trend into 2012

Currencies / US Dollar Jul 13, 2009 - 09:16 AM GMT

By: Uncommon_Wisdom

Currencies

Best Financial Markets Analysis ArticleLarry Edelson writes: No doubt you’ve heard about last week’s G-8 Meeting in L’Aquila, Italy. And no doubt you’re hearing a lot of sound bites from the G-8 and the media about the U.S. dollar being a very hot topic at the meeting.

To be sure, the dollar is the central topic on most leaders’ minds right now. After all …


arrow The TRUTH ... The United States is now the most indebted civilization in the history of the world and ground zero for the financial crisis.

arrow The TRUTH ... Foreign investors are growing very tired of the United States government’s national debt, which has now hit $11.5 TRILLION and is growing at the rate of about $3.88 billion a day. That’s $2.7 million per minute, and $44,000 per second!

arrow The TRUTH ... And we all see the federal budget deficit exploding higher, now at $1.84 trillion … equal to almost 13 percent of GDP — hocking our children and grandchildren’s lives to an insurmountable mountain of debt that would require more than 80 percent of the world’s surplus savings to finance.

Moreover …

arrow The TRUTH ... We all see the Federal Reserve, the steward of the nation’s dollar, also in hock up to its eyeballs, its balance sheet having ballooned from $860 billion in liabilities in September 2008 to more than $2 trillion today, and likely to rocket even higher as the Fed continues to print money out of thin air like there’s no tomorrow.

Not to mention the unfunded government IOUs coming due for Social Security, Medicare, and Federal pension payments — totaling an estimated $104 TRILLION.

But so far, the media is almost unanimously proclaiming that the dollar will somehow manage to remain the world’s reserve currency.

Even some of the statements leaking out of the G-8 meeting last week confirm that no immediate changes lie on the horizon for the dollar’s reserve status.

But how accurate are these reports? Should you believe the media?

Should you believe statements coming out of the G-8 meeting that the dollar’s reserve status is intact?

Once gold breaks above the $1,010 level, I expect it to reach new record highs.
G-8 leaders continue to downplay calls for a new global reserve currency in their official statements, but you can be sure they are talking about it behind closed doors.

My answers: First, definitely don’t listen to the media. You rarely get the truth from them. Most of the time they simply rehash what they’re being told.

Second, as far as government statements go, well, we all know about them, too. Rarely are they accurate when it comes to making economic forecasts of any kind.

And with a hot-button topic as sensitive and game-changing as the dollar’s reserve status is — do you really think they’re going to come out and tell you their real intentions?

Hardly!

So that’s why I think it’s critical that you read between the lines of all the garbage in the media about the G-8 meeting, look past what governments are telling you they’re doing, and instead focus on what’s really going on.

It’s also why I strongly believe and implore that you start preparing NOW for the imminent death of the dollar.

Amongst my reasons …

A. India has now joined with Russia and China in questioning the dollar. That’s not small talk. It’s an official statement made recently by Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh — urging the government to diversify its $264.6 billion foreign-exchange reserves to hold fewer dollars.

B. Russian President Dmitry Medvedev has repeatedly called for the G-20 to start working on a supranational currency. And despite the conciliatory tone he struck with President Obama on many other matters in their recent meeting in Moscow, Medvedev is not likely to back down on the dollar.

Why? Because Putin, who really pulls the strings in Russia, wants the dollar dethroned.

C. China will NEVER officially reveal that they want the dollar replaced. With the largest dollar reserves in the world and the most at stake, why would China want to shoot itself in the foot by openly admitting they want the dollar replaced?

Beijing is too smart and too good at hiding its real intentions. So instead of officially acknowledging they want the dollar demoted, Beijing will play along trying to unofficially support the dollar’s reserve status by mostly denying they want a change — ALL THE WHILE PREPARING FOR THE INEVITABLE.

That’s why the Chinese renminbi is now trading, for the first time ever, as a currency in Hong Kong to settle commercial cross-border transactions.

And it’s why Beijing has recently arranged the equivalent of almost $100 billion in currency swaps with various Southeast Asian and Latin American countries, setting the foundation for its currency to become a major international player — and ultimately part of the equation of a new world currency.

Even more significant, it’s also why Beijing increased its gold reserves by 76 percent — way back in 2003.

Notice I said “way back.” Reason: Beijing officially acknowledged the increase in its gold reserves six years after the fact. Proof of what I just told you above: That Chinese officials never officially acknowledge what they are actually doing until way after it’s done.

More proof the dollar is toast …

D. Overseas central banks and fund managers are now under intense pressure to dump the dollar. The international currency market is more powerful than all the central banks and treasuries of the world, with more than $3 TRILLION trading hands in the currency markets EVERY DAY.

And the recent decline in the dollar — at a time when overseas investors have such huge holdings of dollar-denominated investments — is killing these investors.

Case in point: In April, U.S. bond purchases by foreign central banks plunged 41 percent.

Overseas fund managers are also heading for the exits. Japanese pension fund managers, for instance, invested immense sums in U.S. Treasuries. But in the last three months, they’ve suffered nearly 10 percent losses on the dollar, plus 11 percent losses on long-term Treasuries.

The same is happening to Chinese, Korean, Taiwanese, and European fund managers — who are all facing losses of similar magnitude on their dollar-denominated investments.

Lastly, and most importantly …

E. Major technical and cyclical indicators confirm a massive decline in the dollar lies ahead. Naturally, that does not rule out occasional, and sometimes even strong, short-term rallies in the dollar.

But all of my indicators tell me the long-term bear market in the buck is not only intact, but the descent into the worst of the dollar bear market lies ahead.

Just consider the greenback’s performance: Despite the worst global financial crisis since the Great Depression …

Despite a massive world-wide credit contraction that supposedly should have made the remaining dollars in circulation worth dramatically more as investors around the world paid down debts and flocked to the safety of supposedly the world’s strongest currency …

The dollar is worth roughly half of what it was worth in 1986 …

Worth 37 percent less than its value in 2001 …

And is a mere 11 percent higher than its all-time record low set in April of last year!

That’s like the Dow Industrials rallying from its March low of 6,469 to barely 7,268!

Moreover, the long-term cycle forecast, courtesy of my colleague Richard Mogey at the Foundation for the Study of Cycles, confirms my own cycle work, as you can see in this chart I have for you from the Foundation.

U.S. Dollar Monthly

Notice how the dollar’s cyclic forecast points sharply lower, with no end in sight for its bear market until at least 2012.

Make no mistake: Despite occasional rallies in the dollar, it is on the verge of its worst decline yet. And by the time the dollar’s bear market comes to a close, it will likely be dethroned and supplanted as the world’s reserve currency.

Don’t get me wrong. I’m not unpatriotic. I’m just facing the truth. Every fiat currency in the history of the planet has failed and been replaced by a new monetary system. The dollar will be no different.

Bottom line: Given we are at most only three years away from the dollar disappearing as the world’s reserve currency …

… I consider it absolutely essential that all subscribers make sure they are current with my core gold and other natural resources recommendations. Even if those assets stage a pullback, as they are doing now.

They are what I consider tangible assets that offer the potential for real wealth, by not only helping to protect you from a falling dollar, but also by positioning you to profit handsomely to boot.

Detailed recommendations and further analysis can be found in my Real Wealth Report.

Best wishes,

Larry

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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