The Huge Euro Story No One is telling

THE STRONGEST BEAR MARKET IN THE WORLD

This week, we take our euro "mythbusting" to a new level. After all, the euro just hit a new level...

 

As we noted last month, one of the big myths in the marketplace is that despite the huge government debt problems plaguing Europe right now, its multi-nation currency, the euro, looks like it is holding up relatively well. We say, "Look again... But look at it in terms of gold."

 

You see, the problem with conventional euro price quotes is they value the currency against other weak paper currencies, like the U.S. dollar and the British pound. Gold, on the other hand, is "real money". But it's not used in the conventional calculation.

Today's chart uses such a calculation. It displays the euro in terms of gold over the past two years. As you can see, when priced in gold, the euro isn't holding steady at all... it is plummeting. Just yesterday, it registered a new downside breakout to close at an all-time low against gold. The glacier-like bear market of paper currencies versus gold continues...

 

How to Handle the Coming Gold Correction

How to Handle the Coming Gold Correction

By Brian Hunt, editor in chief, Stansberry & Associates

Friday, January 21, 2011

 
It's not natural.

As our friend and master investor Chris Weber recently noted, never in the past 200 years has a widely traded stock market or commodity registered 10 consecutive years of higher prices.

But as of December 31, 2010, gold has. Gold's 10 consecutive years of higher prices is an astounding, once-in-eight-generations occurrence.

Here's the thing: That uninterrupted 10-year uptrend is not a natural state for gold. It's not a natural state for any asset.

Knowing this… and knowing that even the biggest, healthiest multiyear bull markets need to take "breathers," it's as natural to expect gold to correct and end the year lower as it is to expect someone who has run flat out for 10 miles to take break.

How deep could gold's "break" go? Below is a 10-year chart of gold. As you can see, gold could correct all the way down to $1,100 an ounce and remain in the confines of its big bull trend.

 Most people who own gold would freak out about a 20%-plus drop. That's because most people who own gold view it the wrong way. They think it's an investment… and they'd like to get filthy rich from it. That's not how the seasoned investor views gold.

Gold isn't an investment.

A thousand shares of health-care company Johnson & Johnson is an investment. J&J pays a dividend. It's a stable, profitable business that's going to grow its cash flows and distribute a portion of those cash flows to it shareholders.

An income-producing rental property is an investment. Bought at the right price, a rental property will return all your original capital in the form of rent checks.

Gold isn't like those two examples at all. Gold doesn't pay interest or a dividend. It doesn't have profit margins. You can't price it based on earnings.

Gold is money. It's a real, hold-in-your-hand form of wealth. The hot shots on CNBC dismiss gold's role as money as a bubble or a fad. I have to agree with them… It's just a passing fad that has lasted for 5,000 years. It should only last a few thousand more.

Gold has been used for money for thousands of years because it's easily divisible, it's easily transportable, it has intrinsic value, it's durable, and its form is consistent around the world. And as our friend Doug Casey reminds us, it's a good form of money because governments can't print it up on a whim. You can't Bernanke your way to wealth with gold. You have to work and save to accumulate it.

In sum, could gold suffer a big correction from here? Absolutely. It's had an amazing string of gains. Gold is well within its rights to take a break. That break could easily shave hundreds of dollars off its current price.

But when I look at the U.S. government's absolutely stupid "kick the can down the road" approach to our fiscal problems… when I hear howls from special interest groups after even small government spending cuts are suggested… I begin to see a potential gold decline as a huge opportunity to accumulate more real wealth.

That's why if a natural gold correction occurs in 2011, I'll be buying more.

Good investing,

Brian Hunt

Is Now the Time to Buy ?

Dear Subscriber,

Gold is now down about 6% from it's high, as I write this. Has it finished it's "correction," or will it go even lower?

I can't say for sure. But I can tell you that before you buy a single ounce of gold, you should read geologist Matt Badiali's report on his favorite way to buy gold right now.

See below for the full write up...

Good Investing,

Brian Hunt

Editor in Chief.

Why Chinese Gold could pay 500% MORE than U.S. Gold over the Next 2 Years 

Read Full Story Here

CHINA DRIVES ANOTHER BIG BULL MARKET

China needs coal. That's the theme of today's chart, which displays the past seven years' of trading in shares of Yanzhou Coal, one of China's largest coal producers.

You see, despite any lip service China gives toward climate change, the country is coal crazy. China's coal consumption increased by more than 200% from 2000 to 2008... and the country generates around 75% of its electricity from the stuff. This incredible demand is driving a huge bull market in companies like Yanzhou...

After a suffering a huge decline in last year's credit panic, Yanzhou has enjoyed an amazing recovery... and now sits at an all-time high. Shares are up 11-fold since 2003.

Yanzhou's rise represents one of our favorite long-term investment trends: Determine what China needs, and sell it to them. One of the "no brainer" ideas here is fuel... the basic and essential need of a modern economy. If China wants to keep its economy racing higher, it's going to require incredible amounts of coal, oil, natural gas, and uranium to power the engine. Yanzhou is a shining example of this trend at work.

This should be read - and reread - by everyone in America

Editor's note: Every day, the Daily Crux team sifts through hundreds of financial newspapers, websites, shareholder reports, magazines, and advisories and selects only the best and most interesting things to read. Each Sunday, we send DailyWealth readers a "rundown" of The Crux's most popular stories.

This Sunday, we'd like to present 2009's top 10 most popular Crux stories. According to our readers, these are the absolute most entertaining, most essential, most "forward to everyone you know" stories of the last year. Enjoy.

Here is 2009's Best of the Crux:

The bankruptcy of the United States is now certain
You must take action now to protect yourself...

The No. 1 reason gold could enter mania phase soon
The four magic words you'll hear when it starts...

Warren Buffett dumping huge amounts of this stock
Make sure you don't own shares... 

Stop flying these airlines today
A startling report of dangerous practices...

Jim Rogers' No. 1 trade right now
"One of the great shorts of our time..."

Shocking video shows Congresswoman can barely read
Please forward to everyone you know so people will realize who is creating laws in this country. This is just utterly absurd...

The best explanation of Barack Obama's agenda we've ever read
This should be read – and reread - by everyone in America. Print it off and post it all over your neighborhood. Forward it to everyone you know.

The White House's secret plan for the dollar
Richard Russell provides today's "must read" comment.

Cut out this food if you want to live longer
"It's very clear that the more [of this] you eat, the earlier you die..."

This tax fact should make your blood boil
MUST READ of the day... and forward it to all of your friends so people will wake up.

Regards,
Brian Hunt.

SILVER STOCKS: ONE OF 2009'S BIGGEST WINNERS

Time to check back in on silver stocks.

To recap, silver is among the most volatile assets in the world. It's half precious metal like gold, half industrial metal like copper... so its price fluctuates wildly along with currency fears, factory production, and interest rates.

As we like to say around the office: If all assets were patients in a mental ward, bonds would be the guy who sits silently in the corner and stares out the window. Stocks would be the guy who wanders the hall and mumbles to himself. Silver would be the guy they keep in the padded room all day. The companies who mine the stuff soar when folks smell inflation and currency mismanagement.

Today's chart shows this idea at work. It displays the 2009 price action of one of our favorite silver stocks, Silver Wheaton (SLW). In response to rising silver prices, SLW has gained 162% this year. If the government's funny-money scheme turns out badly, the gains made this year in SLW are only the beginning. 

HERE'S A CURRENCY TRADE YOU CAN MAKE IMMEDIATELY - Brian Hunt Market Notes

HERE'S A CURRENCY TRADE YOU CAN MAKE IMMEDIATELY

For all the currency traders out there: The euro just fell victim to a textbook "1-2-3 trend change."

In his classic trading book, Trader Vic, the great trader Vic Sperandeo laid down the best way to spot a major trend change. Vic's system is as simple as 1-2-3, and it can make you a fortune if you use it properly. Here it is...

First, a trending asset has to break its old trend line. The euro did this at point (1). Then, after declining a bit, the asset tries to match or exceed its old high, but fails. The euro did this at point (2). Finally, the asset breaks below its previous low point. The euro just did this at point (3). When this 1-2-3 process takes place, a trend reversal has occurred.

The euro soared in 2009 in kind of a mirror image to the falling dollar. Most currency advisors now consider the euro overvalued. So... you have a currency union suffering big debt problems from Greece and Ireland, you have overvaluation, and you have a textbook trend change. The path of least resistance is now DOWN.

 

THIS IS THE WORLD'S BEST PAIRS TRADE - Brian Hunts Market Notes

Yesterday, we studied one of the great "pairs trades" of the last decade... shorting the old movie rental business model (Blockbuster) and buying the new movie rental business model (Netflix).

Today, we study a pairs trade that compares the "old" way of viewing paper currencies with the "new" way of viewing them.

In the past several years, we've read all kinds of analysis on why gold does what it does... essays on interest rates, central bank gold holdings, and Indian wedding-season demand.

But what gold's bull market really comes down to is folks just don't trust governments, giant welfare giveaways, bailout boondoggles, and the paper currencies behind the charade. Folks know what the yahoos in Washington D.C. do not: You can't tax, regulate, and spend America to prosperity. Folks know "there ain't no such thing as a free lunch."

This knowledge is driving wealth out of vulnerable paper money and into real, honest money – gold... And it's driving the phenomenally successful pairs trade of "long gold, short U.S. dollar" you see below. 

Don't Buy American Gold:

Why Chinese Gold could pay 100% MORE than U.S. Gold over the Next 2 Years

ABOUT THAT EUROPEAN VACATION... CANCEL IT Brian Hunt's Market Notes

ABOUT THAT EUROPEAN VACATION... CANCEL IT

A quick note for all the vacation planners out there: Don't ski in Switzerland this year, stick to Colorado. Don't sip wine in France, stick to Napa Valley.

Today's chart gives you the reason. It's the abysmal performance of the U.S. dollar in 2009.

You can view currencies like the "stock" of a country. When times are good and its finances are in order, a country's currency tends to rise. When times are bad and its finances are a debt-soaked mess, a country's currency tends to fall.

Measured against a basket of other currencies, the dollar is down 10% since the spring. This is an enormous drop for a major currency. It's a drop that has eroded the purchasing power of your savings account, the cash in your wallet, and your "vacationing power" as well. It's the sort of fall that leads American tourists in Europe to shake their heads and say, "Good lord, things are expensive here!" Our advice right now: Keep the vacation in the States. 

SILVER VS GOLD THE PAST SEVEN YEARS

A big question for the precious-metals investor is "Gold or silver... which do I choose?"

Our chart of the week might help you pick. It says: Long term, the returns are similar... but holding silver requires a bottle of Tums at your side.

This chart compares silver's performance (black line) versus the performance of gold (blue line) over the past seven years.

Up until a few months ago, silver and gold were both up 200% since 2003. Silver has enjoyed a surge since August to nudge higher in the race. But the major thing to take away is this: Silver goes through much bigger swings than gold. It suffered a 56% downswing in 2008, for instance.

So... the market's answer to the above question is, "Unless you have a strong stomach, keep most of your precious metals portfolio in gold."

– Brian Hunt

China Govt's Secret New Gold investment could pay 500% over next 2 Years

A BAD SIGN FOR CHINESE STOCKS - Brian Hunts Market Notes

Let's call today "fun with trend lines" day.

A trend line is a stock chartist's way of tracking the health of trends in stocks, currencies, and commodities (you can read the excellent Trader Vic book for the full story on them). The theory goes, once an overpriced, popular asset "rolls over" and breaks through its trend line, it's a good time to short the asset. It's a sign the trend's upward momentum is broken.

Today's chart displays the year's trading action in the Shanghai Composite Index. This is the most widely used gauge of Chinese stocks... and it's close to exhibiting a classic trend line break.

We can't know if this new decline and trend line break will turn into a big wipeout... but we can say that every large decline begins as a small one. If you've been itching to bet against Chinese stocks, the market is getting on your side.