Weekly Currency Dilution Alerts
Because few others seem to care about the topic, despite the risk to anyone with significant exposure to the USD, EUR, JPY, GBP, etc, we continue to sound the alarm about the stealth tax that major central banks of the world have in store for you by making your money worth less than it is today.
The EUR
As noted above, future bailouts for Spain, possibly Italy too, are likely to be affordable only with printed funds. Also, ECB head Draghi hinted this past week that further EUR appreciation might require ECB intervention.
The Yen
As noted in part 1, the latest money printing headlines continue to roll in from Japan. The early exit of the current BoJ Governor means the new administration may start printing new piles of JPY sooner than previously expected. That was good news for Japan’s exporters and stocks, because the belief is that a cheaper JPY will boost their returns. However it will also lower the value of assets held in Yen. While that’s definitely bad news for Japanese savers, it could become a real problem for Japan if bond markets decide that the risk of being repaid in diluted yen deserves to be compensated in higher yields.
Your humble author is not the only one to see this problem. As noted in seekinalpha.com’s market currents column for Thursday:
5:31 AM Shinzo Abe’s desire to appoint a Bank of Japan governor who will boldly go where no BOJ governor has gone before is hitting opposition in his own cabinet and among financial bureaucrats, who fear that radical new policies could spark a dangerous rise in bond yields (Emphasis mine). It could mean that the Japanese PM might have to settle on a compromise candidate, especially as he needs the consent of the parliament’s upper house, where his LDP party lacks a majority.
The GBP
We’ve been watching the BoE for a while as it seems to be moving closer to some kind of policy that weakens the GBP. Again from seekinalpha.com’s market currents column for Thursday, news of reduced purchasing power for the Sterling:
7:19 AM More from the Bank of England: Coming to a Fed decision near you? “CPI inflation is likely to rise further in the near term and may remain above the 2% target for the next two years … it (is) appropriate to look through the temporary, albeit protracted, period of above-target inflation.”
The USD
While the ECB and BoJ have done more talking than actual money printing as of yet, the Fed continues to print $85 bln a month, and believes it can do so without undue risk to the USD’s credibility
7:57 AM What if the Fed is beating a donkey (an economy with 1% growth potential) for not being a horse (3% growth), writes Jeremy Grantham, wondering if the man (Bernanke) who missed the greatest macro event of our lives is also making an incorrect assumption about the economy. “Fine-tuning economic growth … is hardly likely to get any easier by badly overstating trend-line growth … The Fed will keep trying to whack the donkey for far too long.”
A New Way To Help Save Your Local Currency
First, if you haven’t done so already, see here (North America)or here (outside of North America) for information about the most up to date guide on a wide range of conservative strategies to diversify into the currencies most likely to hold their value, and the assets linked to them. You can find a topic summary, reviews, and even read huge chunks of the book.
There’s nothing better to convince central bankers to respect their currency than having masses of investors dump it in favor of better ones. Until they impose capital controls, we don’t have to take their abuse.
Second, for this week only, we have another tool to spread the word about the dangers of the global trashing of fiat currency and how to cope with it without undue risk, training, or aggravation.
DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.
***********
As always, we warn readers that just as any prudent investor diversifies into different asset and sector classes, so too they need to diversify their currency exposure. You don’t need to open brokerage accounts all over the world, or engage in high risk, complex forex trading. You do need to understand the range of safer, simpler, smarter ways to get that diversification. To help you with that, I’ve written the only collection of forex solutions for mainstream risk averse investors and traders, The Sensible Guide To Forex, Safer, Smarter Ways To Survive And Prosper From The Start.