6 Ways To Make Big Profits from a Falling Dollar

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Jarret B. Wollstein, Editor

The U.S. dollar is plummeting. However, select commodity and metals stocks are rising even faster. Gold recently hit a 27-year high, and top-performing commodity, agricultural and energy stocks are up over 50-100%+ in one year. Here are 6 ways you can cash in big on a falling dollar and insulate your portfolio from recession.

One of the most consistent financial trends of the past half-century has been the falling U.S. dollar. Indeed, the U.S. dollar has been falling against major foreign currencies for over 39 years. In the last few years, the dollar’s fall has been accelerating: The dollar has dropped against 15 of the 16 major trading currencies, including the euro, British pound, Swiss franc, and Japanese yen.

Between 1969 and 2007, the dollar fell by 74% against the Swiss franc and Japanese yen, and 65% against the euro. Based on economic fundamentals and world geopolitics, a falling dollar is likely to continue for many years. Indeed, at this point, even hyperinflation and the replacement of the dollar by a new currency, such as the proposed North American “amero,” cannot be ruled out. Take a look at this CNBC interview with Steve Previs, VP of Jeffries International Ltd.

All of this is terrible news for many U.S. stocks, any savings you keep in U.S. dollars, and the U.S. economy in general. However, the falling dollar is also creating some of the greatest profit opportunities I have ever seen. While the dollar has been going down, select commodities, strong foreign currencies, and foreign commodity stocks have been going up even faster.

In the last year alone, oil is up 48%, gold is up 26%, and the Canadian dollar is up 28%. Even better, select investments linked to these commodities and currencies, including options and futures, were up anywhere from 150% to over 2,800%!

So while the dollar decline is going to be terrible for most investors, it is great news if you invest in the right stocks, currencies and commodities. In this blog and my website which is coming soon, I will show you those opportunities, so be sure and bookmark this page, subscribe to the RSS, and tell all your friends about it. But first, it’s important that you understand the . . .

Causes of the Dollar Decline

Like all currencies, the more dollars the U.S. government creates, the less each individual dollar is worth. The quasi-government agency responsible for the U.S. money supply is the Federal Reserve (“Fed”), which is actually a private corporation representing major U.S. banks, with a chairman appointed by the President of the U.S. Since its inception in 1913, the Fed has been an engine of monetary inflation, increasing the U.S. money supply so much in the past 95 years that the dollar is now worth less than 3% of what it was in 1913.

During the last decade alone, the U.S. money supply has been growing at anywhere from 6% to 13% a year, with consumer prices rising proportionately. The most comprehensive measure of our money supply is a statistic known as “M3,” which includes all coins, currency, checking and credit account balances (M1), plus all savings, small time deposits and non-institutional money-market accounts (M2), plus large time deposits, and repos of maturity greater than one day at commercial banks and institutional accounts.

Increases in M3 are by definition monetary inflation, which results in higher prices. The economics of inflation are simple: When more money chases the same goods and services, prices go up. The more dollars there are in circulation, the less each dollar is worth (this is also known as “currency debasement.”)

With the U.S. money supply now growing at 10-12% a year, it is no surprise that the U.S. dollar continues to lose purchasing power, and just about everything we buy is getting more expensive fast. Since few workers get annual raises anywhere near 10-12% a year, people are seeing their living standards deteriorate and more and more are facing bankruptcy as their homes now lose value.

The Fate of the Dollar

For hundreds of years, gold and silver were money. However, because gold in particular was so valuable, carrying it put owners at risk of theft. So gradually people substituted paper “warehouse certificates” redeemable in gold and silver, for the gold and silver themselves.

Unfortunately, this also opened the door to counterfeiting and even more serious, currency debasement by government. Bit by bit, in the 19th and 20th centuries, most governments broke the link between silver and gold paper certificates and any precious metals — first by decreasing the gold reserves backing up their paper . . . then by refusing to redeem silver and gold “certificates” for silver and gold . . . and finally by eliminating all precious metals backing for their currencies.

The new paper money looked like the old gold and silver certificates, but in the end it was nothing more than paper. Indeed, historically all paper currencies eventually become worthless, including the first U.S. currency, the continental . . . Confederate Dollars issued by the Confederate States of America during the Civil War . . . and German marks issued by the Weimer Republic of Germany prior to the rise of Adolph Hitler.

The same process is now well underway with the U.S. dollar – creating enormous risk to anyone holding dollars or dollar-denominated assets. Bit by bit, one country after another is turning away from the dollar. Indeed recently, China, which holds some $1.33 trillion in U.S. dollars, has threatened to dump their dollars. And more and more Arab oil states have said they are considering demanding payment in euros or gold, rather than depreciating U.S. dollars.

Any move by major economic powers to dump the dollar could result in a dollar panic, in which the dollar loses 40-80%+ of its value in a matter of weeks. It is impossible to know precisely when or even if this will happen. Indeed, such a move by a major U.S. trading partner like China could amount to economic suicide, destroying the value of their own dollar hoard, and crippling trade with the U.S.

However, whether it’s slow or fast, a continued fall in the value of the dollar for the foreseeable future is likely because the U.S. government has little alternative.

Why Governments Inflate

There are only three ways for government to acquire the wealth they need to operate and expand: 1) They can tax it. 2) They can borrow, or 3) They can create it through monetary inflation. The problem with taxes is that no one likes them, and people inevitably take measures to minimize their taxes, such as concealing their wealth, working less, or opening businesses in areas where the tax man can’t get it, such as foreign countries.

Borrowing money isn’t a long-term solution. When you borrow money, you have to pay it back plus interest later. Further if your currency is being debased, fewer and fewer people want to lend you money, because the dollars you pay them back with are worth less than the dollars you lend them. So that leaves only monetary inflation as a method of financing expanding government programs and obligations.

Governments LOVE monetary inflation because not one person in a thousand realizes what is going on, and how they are being robbed by expansion of the money supply. Indeed, our government does everything possible to minimize “official inflation levels,” for instance excluding energy, housing and food costs from official inflation figures. This enables officials like Federal Reserve Chairman Ben Bernanke to say with a straight face that the Fed is “successfully fighting inflation.”

In fact, the Federal Reserve controls the U.S. money supply, which has been soaring, and the Fed in reality is the engine of monetary inflation in the U.S. Thus, even as government has been reporting that “core inflation” has been a mere 2% or 3%, the Fed has been increasing the money sup-

ply the past few years by anywhere from 8% to 13% a year. One result has been the recent acceleration of the dollar decline, as shown by the chart above.

Consequences of the Dollar Decline

While monetary inflation is a convenient way for governments to increase the wealth they control, the consequences for most businesses and individuals are terrible.

1. Higher prices and deteriorating standards of living.

First and foremost, monetary inflation means that the price of virtually everything you buy goes higher and higher. The price of imports and commodities, in particular, soar. Also when monetary inflation becomes rapid, like it is now (easily 10-12% a year), salaries and wages rarely keep pace, resulting in falling purchasing power and deteriorating standards of living.

Today, the middle class is being incredibly squeezed by 10-50% annual increases in the price of everything from gasoline, to food, to housing, to college tuition and health insurance. Indeed, the only reason middle class living standards have not been falling like a rock during the past few years, is because of easy credit and people using the equity in their homes like ATM-machines, thanks to soaring real estate prices.

However, now with tightening credit and with real estate prices falling in much of the U.S., that game is over. So you can expect huge increases in middle-class bankruptcies in the next few years.

2. Savings are wiped out.

Another serious consequence of monetary inflation is that over the long term, the value of savings is gradually wiped out. Thus in 1950 $25,000 in savings could buy a modest home. Today, it won’t even cover the down payment in most of the U.S. As monetary inflation wipes out savings, people invariably save less and less. Indeed, for the past few years, savings rates in the U.S. for individuals have actually been negative. Today, the average American saves less than any citizen of any western nation.

3. Less capital to build and expand businesses.

Low or negative savings also have dire consequences for businesses. Normally, savings provide the capital needed for creating and expanding businesses. When savings are low or negative, it becomes difficult or impossible for businesses to get the capital they need, resulting in lower wages, fewer new jobs, and more business failures. So what has financed U.S. business expansion during the past few decades?

The answer is primarily foreign investment, particularly from China, Japan and Europe. However, as the dollar continues to fall, foreign investment in the U.S. is now faltering.

4. Faltering foreign investment.

As CNBC reports:

“Investors seem to be moving money outside of the U.S., which leads us to believe they are planning for a continual U.S. dollar decline,” said Mark Meadows, currency strategies at Tempus Consulting in Washington.

“What they are saying, he added,” is they are not going to receive as much in return as it will cost them to hold dollars.” In fact, many foreign nations – including key global financial players like China (the world’s most populous nation) and Saudi Arabia (the world’s largest oil producer) – have been slowly moving out of dollars, and have announced they could dump the dollar entirely if it continues to fall. Thus on 10-8-07, the London Telegraph reported this disturbing development:

“Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion of foreign reserves as a political weapon to counter pressure from the US Congress.” “Described as China’s ‘nuclear option’ in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.”

“It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession.” Ambrose Evans-Pritchard, “China threatens ‘nuclear option’ of dollar sales,” http://www.telegraph.co.uk, 10-8-07.

Death of the Dollar May be Imminent

The only practical way for the Federal Reserve to stop the collapse of the dollar is by reversing its policies and a) ending (or at least drastically slowing down) monetary inflation, and b) increasing interest rates. Unfortunately, the Fed shows no signs of doing either. Indeed, just a few weeks ago they lowered interest rates, in an attempt to inject more cash to bolster the US housing market and our sagging economy.

While it is true that ending monetary inflation and increasing interest rates would cause recession and many business failures in 2008, that is far preferable to the alternative, which is the destruction of the dollar.

Why is the Federal Reserve pursuing such a potentially suicidal financial course of action?

First you need to understand that the people running the Fed aren’t stupid, and don’t believe their own propaganda that inflation is a mere 2% to 3%.

They know full well that inflation is now many times higher that official levels, and that continued and accelerating monetary inflation will eventually destroy the dollar. They also realize that warnings from China, Saudi Arabia, and other nations that they might dump the dollar, are no idle threat. I can only draw one conclusion from all this: The decision has been made at the highest levels of the U.S. financial community to abandon the dollar.

Indeed, a new North American currency – the amero, designed to replace the U.S. dollar, the Canadian dollar, and the Mexican peso – is already being pushed at the highest levels of government, as part of their program to create a single North American financial and political community.

While it would take 5-10 years or longer to fully realize this program, there is little doubt that it is already in the works.

What the Falling Dollar Means to You

If I am right, and the plan is moving ahead to dump the dollar and institute a new North American currency, we are about to live through the most dramatic financial changes since the founding of the U.S.

However, even if I am wrong, and the Fed reverses its course, and the dollar is eventually saved, for the immediate future there is little doubt that the dollar decline will continue. Here is what that means for you and your finances:

1. Price inflation is about to get much worse and the price of nearly everything you spend money on – from food, to heating oil, to taxes – will go up sharply. Price inflation could easily be 15% to 20% a year within the next two years.

2. If your income comes from wages, salary or government benefits, your living standard will likely sharply decline.

3. Government programs and benefits will be cut sharply, particularly services for the poor and sick.

4. A recession will likely begin in 2008, and could continue for years. There will be many layoffs and business failures.

5. Housing prices will bottom out in 2009 in most of the U.S., and then start to rise again, as a result of inflation. In some parts of the country such as exurban and rural areas which did not experience the sharp price increases which we had in many major cities, prices are steady or slowly rising. Real estate in these less-expensive markets should continue to do well.

You will be able to make spectacular profits in the next few years from precious metals, energy, commodities, strong foreign currencies, and foreign commodity and energy stocks – although there will, of course, be ups and downs.

6 Ways to Profit From A Falling Dollar

As with all financial events, a falling dollar results in financial winners as well as losers. Here are some potential big winners. But be careful. Currencies and commodities are notoriously volatile, and profitable investing requires excellent timing and patience.

#1. Invest in strong foreign currencies.

As the U.S. dollar declines, comparatively strong foreign currencies are gaining value fast. Here are some of the biggest recent winners. Price increases are from March to November 2007.

Australian dollar: Went from US $0.79 to US $0.95, a 20% increase.

Canadian dollar: Went from US $0.87 to US $1.11, a 27% increase.

Euro: Went from US $1.34 to US $1.50, a 12% increase.

Swiss franc: Went from US $0.84 to US $0.925, a 10% increase. Even better, call options which we recommended on these currencies in our premiere Intelligent Options Service — and which move much

faster than the underlying currencies — were up as much as 3,000% (30- fold), in just 3-4 months!

Longer-term (6+ months in the future), I don’t think these currencies will go anywhere but up. Look for

these currencies to rise in 2008.

How to invest in foreign currencies

The easiest way to invest is by getting a foreign-currency denominated account from EverBank of Florida, www.everbank.com. With strong foreign currencies like the Canadian dollar, Australian dollar, and euro now appreciating as much as 20% a year against the dollar, this is a no-brainer, and a far better investment than dollar-based CDs.

Two other ways are by buying shares of indices based on these currencies, or by buying call options on these currencies, which we recommend in Intelligent Options (link coming soon).

Australian dollar: Australian dollar Fund (FXA, NYSE), up about 25% between December 2006 and November 2007. Currently up about 20% for the last 12 months.

Canadian dollar: Canadian dollar Fund (FXC, NYSE), up about 27% between December 2006 and November 2007. Currently up about 17% for the last 12 months.

Euro: Euro Fund (FXE, NYSE), up about 10% for the year-to-date.

Swiss franc: Swiss franc Fund (FXF, NYSE), up about 12% between January and November 2007. Currently up about 5% year-to-date.

#2. Buy property in top-performing, non-bubble U.S. markets

Here are the top-performing U.S. markets, as of the end of November 2007:

Salt Lake City median home sales price: $246,700; Percent change: +14.1%

Charlotte, N.C. — $220,000, +11%

San Jose, CA. — $852,500, +9.4%

San Francisco — $825,400, +8.6%

Raleigh, N.C. — $229,500, +7.5%

Austin — $188,200, +7.2%

Pittsburgh — $127,700, +6.1%

Seattle — $394,700, +6%

San Antonio, TX, $154,700, +5.7%

Portland, OR. $299,700, +5.2%

Source: Forbes, Matt Woolsey (11/21/07)

In addition to these cities, there are still bargains to be found in many small U.S. towns and rural areas.

#3. Invest in Precious & Strategic Metals

With the continuing global development boom, the price of both precious and strategic metals has been

going up fast. We also recommend that all investors have at least some precious metals in their portfolio, including coins, stocks and precious metals funds.

Here is one conservative precious metal fund you may want to consider.

Gold ETF: StreetTracks Gold Shares (GLD, NYSE). Up about 25% in the past year. P/E 39.4. Price 78.48.

#4. Invest In Housing Puts

Housing prices have been falling sharply for the past 9 months, and likely will not bottom out for at least 18 months. With some 2 million subprime loans scheduled to reset in the next 18 months, you can expect housing prices to go a lot lower. One good way to profit from this trend is by buying puts on the new Case-Shiller housing-price index (CME, NYSE).

These investments go up as housing prices go down. With housing index put options, you can get up to 30-1 leverage, meaning you make up to $30 for each dollar the index declines Through this new index, you can buy puts (and calls) on any one of 15 different cities, or on a composite housing index covering all 15 cities.

Orders have to be placed through a broker who trades on the Chicago Mercantile Exchange. You can find out more by going to www.CME.com/housing.

#5. Agriculture-Related Stocks

With a rapidly-growing global population and increasing worldwide demand for food, select agriculture and related stocks are well-positioned to prosper as the dollar falls. Here is one enlightening (and frightening) quote:

“The risks of food riots and malnutrition will surge in the next two years as the global supply of grain comes under more pressure than at any time in 50 years, according to one of the world’s leading agricultural researchers.”

“Recent pasta protests in Italy, tortilla rallies in Mexico, and onion demonstrations in India are just the start of the social instability to come unless there is a fundamental shift to boost production of staple foods…”

“The growing appetite of China and other fast-developing nations has combined with the expansion of biofuel programmes in the United States and Europe to transform the global food situation.” (Jonathan Watts, “Riots and hunger feared as demand for grain send food costs soaring,” Guardian, 12-4-07.)

Top-performing agricultural stocks should do well. Here are our stock picks. Prices are as of market close 12-3-07:

Agrium, Inc. (AGU, NYSE). Agrium is an agricultural retailer and fertilizer producer. The company operates 436 retail centers in the U.S., Argentina and Chile. It distributes seeds, agricultural chemicals and fertilizers to growers in the U.S. Shares are up 95% in the past year, and 484% in the past five years. P/E is high at 37.9. Price 60.98.

CF Industries Holdings (CF, NYSE). CF manufactures and distributes nitrogen and phosphate fertilizer in North America. Its core market is in Midwestern grain-producing states. Shares are up a huge 311% in the past year, and 473% in the past 2 ½ years. P/E is 21. Price 95.16.

Deere & Co. (DE, NYSE). Also known as “John Deere,” this company is world-renowned for their farm and garden equipment. Shares are up 85% in the past year, and 272% in the past five years.

P/E 21.6. Price 88.5.

Monsanto Co. (MON, NYSE). Monsanto is one of the most successful chemical companies in the world. They operate in two business segments: seeds and agricultural productivity. Shares are up 111% in the past year and an incredible 1,129% in the past five years. P/E is high at 60.1. Price 101.61.

Mosaic Co. (MOS, NYSE). Mosaic sells fertilizer and animal feed ingredients. It has global sales, including in the U.S., South America and the Asia-Pacific region. Shares are up 224% in the past year and 508% in the past five years. P/E 49.7. Price 72.20.

#6. Energy Stocks

The world’s need for energy now seems insatiable and has nowhere to go but up. The world’s two largest countries – India, with 1.1 billion people, and China, with 1.3 billion – are rapidly industrializing, creating enormous demand for oil, gas, and every other form of energy.

At the same time, cheap oil and gas are rapidly being used up – pointing to much higher energy prices in the future and huge profits from well-managed energy companies.

Here are our top new picks:

Diamond Offshore Drilling (DO,

NYSE). Diamond Offshore Drilling, Inc. (Diamond Offshore) provides contract drilling services to the energy industry worldwide and is also engaged in deepwater drilling with a fleet of 44 offshore drilling rigs. Shares are up 50% in the past year, and 416% in the last five years. P/E is a reasonable 17.8. Price 118.59.

Foster Wheeler Ltd. (FWLT, Nasdaq). Foster Wheeler designs and builds onshore and offshore oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, oil refining facilities, and related infrastructure. Through their Global Power Group, Foster Wheeler also manufacturers steam and electric power generating facilities. Shares are up 181% in the last year, and 519% in the last five years. P/E 28.1. Price 154.85.

Oceaneering Intl (OII, NYSE). Oceaneering International, Inc. is a global oilfield provider of engineered services and products primarily to the offshore oil and gas industry, with a focus on deepwater applications. The stock is up 54% in the past year, and 441% in the past five years. P/E 21.5. Price 67.07.

Schlumberger Ltd. (SLB, NYSE). Schlumberger is an oilfield service company supplying a range of technology services and solutions to the international petroleum industry. Schlumberger’s products and services include the evaluation and development of oil reservoirs (controlled digging, pumping and testing services), well construction and production consulting, and sale of software programs. Shares are up 39% in the past year, and 350% in the past five years. P/E 23.4. Price 93.84.

Transocean, Inc. (RIG, NYSE). Transocean is an international provider of offshore contract drilling services for oil and gas wells. As of February 2, 2007, the Company owned/had partial ownership interests in, or operated 89 mobile offshore and barge drilling units. Shares were up 75% in the past year, and 480% in the past five years.

Surviving a Dollar Collapse

The rapidly falling dollar unquestionably presents a major challenge to investors. But in fact it is nothing new. The dollar has been falling for decades, and still many investors have been able to make excellent profits. So long as you take prudent steps to protect yourself — such as owning precious metals, stocks that rise as the dollar falls, and strong foreign currencies — you should be able to prosper even if the dollar plummets without warning.

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