US Dollar Stealth Devaluation Leading to Hyper Inflation
Currencies / US Dollar Jan 06, 2008 - 03:38 PM
Wow, what a start to 2008! So far in 2008, both the Wilshire 5000 (which is essentially the entire U.S. stock market) and the S&P 500 have lost all their gains from the entire year of 2007 in just the first three trading days of 2008. Gold set a new record high , Thursday intraday and closing, at 872.90 and 869.10 respectively. Oil hit $100 a barrel for a moment intraday Wednesday, for the first time ever . The HUI Amex Gold Bugs Index enjoyed an 11.83 percent pop the first three trading days of 2008. Sweet. Treasury Bonds rose 2 points , closing inches from 118.00. The Dollar got carved up , falling into the 75's.
Now that 2008 is here, we thought we would go over our market analysis performance during 2007. Here are some quotes from our January 5th, 2007 weekend issue to subscribers at www.technicalindicatorindex.com , exactly one year ago :
With the Dollar at 84.66 we said, “The Elliott Wave labeling shown at the top of the next page suggests more downside is coming. Is there more evidence that the Dollar will even hit 77.00? Yes, there could be.”
With Gold at 625.20, we said, “ Gold 's Minor degree wave 4 Symmetrical Triangle , which is a consolidation pattern of the Minor degree wave 3 rally that started back in 2001 and extended into the May 12th, 2006 top, is complete. Wave fives typically extend with precious metals, so for wave 5 , $900 is not out of the realm of possibility for Gold.”
With the HUI at 314.12, we said, “The HUI should see a huge rally into Intermediate wave 5 of primary (3). That should likely start in early 2007, and last most of the year.”
With Oil at $56.31 a barrel, we said, “We present the long-term Elliott Wave labeling for Oil (West Texas Intermediate Crude). It finished a huge Intermediate degree wave 3 bull market in July, 2006. The decline since looks to us to be a corrective Intermediate wave 4 down . A huge wave 5 up could take oil above $80 a barrel.”
With the 30 Year Treasury Bond at 112^05, we said, “A major rally in Bonds should unfold, higher than we saw in 2000, which means long-term interest rates could approach 1 or 2 percent, which suggests a major recession or even depression is coming. I hope I'm wrong. Timing? It looks to us like wave d up has topped. Bonds should now decline into the final wave e down through the beginning of 2007. Then we should see wave 5 up, and the recession as well. We have an inverted yield curve, which often predicts recessions, so it all fits.”
As for stocks, out Traders Corner hit on five out of 6 trades. In 2007 we conducted six Traders Corner transactions. Five were winners. The details for these transactions appear at the Traders Corner button on our home page. The average trade earned a 35 percent profit. Many of these trades were very short-term, only open for a few days. The average annualized return on these transactions, given the profits realized and time and amounts invested at risk was 6,647 %.
Our first trade, in January 2007, generated a 35 percent return in 20 calendar days, an annualized return of 639 %. Our second trade, in March, generated a 41 percent return in 5 days, a 3,027 % annualized return. Our third trade in July generated an 88 percent profit in 5 calendar days, for a 6,458 annualized return. Our fourth trade, in August, was closed out worthless after 79 days. Our fifth trade, in October, generated a 104 percent profit in 6 calendar days, for an annualized return of 6,309 %. Our last trade in 2007, in December, generated a 39 percent return in just 1 day, for an annualized return of 14,283 %.
We played the Dow Industrials to rise (bought DIA Call Options) in three of the trades, and played it to fall (bought DIA Put Options) the other three . The only losing trade was a Put Options trade. We were right to believe the market was going to decline, but entered too early.
On a net basis we were up 102 percent for all six trades combined, based upon gross profits realized on the average investment, and were up 310 percent for the year based upon average daily dollars invested.
Trader's Corner is the speculative portion of our fictitious Conservative Balanced Investment $500,000 portfolio . We allocate 5 percent, or $25,000 to this speculative segment. The entire Conservative Balanced Investment Portfolio is shown at the Conservative Portfolio Model section of our website, www.technicalindicatorindex.com . Simply click on the button at the left of the home page. In the Trader's Corner speculative segment of our portfolio, we purchase (do not write or sell) call or put options on major index exchange traded funds. These are high risk transactions that limit losses to the amount invested, but offer great leverage potential for substantial gains.
Approximately 4 to 6 times per year, we publish options trades which we believe have high probability profit potential. The frequency varies, depending upon our key trend-finder buy or sell signals, and various risk factors. The details are posted at the Traders Corner section on our website, its button appearing at the left of the home page. We publish: when we get in and get out, at what prices, what option instrument, and what quantity . We attempt in good faith on a best efforts basis to e-mail all paid subscribers shortly after we conduct a buy or sell transaction, and post notice of the trade at the top of the website's home page.
Key to what is happening is a stealth massive devaluation of the U.S. Dollar, which is essentially hyperinflation, which is why the cost of living is going through the roof!
When the Master Planners devalued the dollar over the past five years, they raised the cost of living for everyone. The Middle Class is getting annihilated from this silent event. Incomes are not keeping up. This was done because this administration “equates stock market success with economic success and has directed their efforts to drive up equities at literally any cost,” to quote a subscriber. This is pure fallacy as market declines are proven to be beneficial to Middle Class investors who use the safe, time-tested investing strategy of Dollar Cost Averaging (occurring in 401(k)'s for example), where stock market declines can actually accelerate wealth generation . All this administration has accomplished is to ensure that Wall Street Banking Firms continue to make huge profits. This is not to bash Republicans, as this was not the case under Republican Ronald Reagan.
If the Master Planners are going to trash the dollar anyway, why not hand the bulk of increasing money supply directly to each household. Why not send a check for $300,000 to every household . Now that is a real bailout, it would be effective, and we'd end up in the same place, a dollar valued in the 40's, but with a much stronger economy and a rejuvenated consumer, able and ready to spend. Wall Street would benefit with a “trickle up” benefit, rather than this administration's preference, to hand money to Wall Street and hope for a “trickle down” benefit.
Unless the average American's finances are repaired, anything tried will fail, any more inflation generated will only make matters worse. The Master Planners have gone beyond the point where traditional Fed actions will work. A drastic change in macroeconomic thinking is necessary, starting with honest disclosure of how bad things really are.
Millions of our youth are recognizing this, as they organize to support Congressman Ron Paul for president, who is for the U.S. Constitution, and willing to take on the Federal Reserve.
Once the American household is properly bailed out of its debts, a new currency with a gold and silver backing, as the Constitution of the United States requires, as written by our wise and noble founding fathers, should be the next step.
Get everyone out of their fiat debts by issuing enough fiat money to accomplish that, then get back to a gold and silver backed monetary unit. How's that for a plan?
The Dollar has been devalued by more than a third (38 percent) over the past five years!!!!!. This is why you feel like you are struggling financially. The cost of living has doubled over the past five years .
The Dollar's pattern is ominous as far as its size, its timeframe, and as far as its downside implications. This pattern is textbook . No flaws. This is right in line with the Fed's decision to hide M-3, enabling them to hyper-inflate the economy with too much money for secret purposes (The Working Group's minutes are secret, their market buying intervention activities are secret, the quantity of M-3 being created is secret). Any auditor worth his salt will tell you that secrecy breeds mischief, often with dire consequences. The founding fathers established accountability in our constitution, and the Federal Reserve and the Working Group (a.k.a. Plunge Protection Team) are violating that spirit.
Given the worsening housing and credit market situation, look for the Fed to print and pump M-3 at this economy as if every dollar was worth a thousand votes. The world economy will be cheering this effort, because if they cannot export their goods to a dollar-rich U.S. consumer, their economies will tank. Period. World Central Banks should fully support the Fed's printing presses. And they have, failing to cut their rates, and participating in the recent liquidity flood. Kiss the dollar goodbye. It is being sacrificed .
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by Robert McHugh, Ph.D.
technicalindicatorindex.com
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Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions, buy and sell signals, and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates, buy and sell signals, and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Copyright 2007, Main Line Investors, Inc. All Rights Reserved.
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