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You’ve seen the headlines: U.S. Dollar Plunges! U.S. Dollar Surges!

Why should you care? More to the point, why won’t the dollar just hold still?

Actually, in one sense it does hold still. Whatever happens in the currency markets doesn’t change the number of dollars in your wallet — or your bank account. But it can certainly change what your dollars are worth in comparison to other currencies.

If you live in the U.S., the day-to-day swings in the dollar are nothing to worry about. The long-term downtrend in the dollar is another matter. Since the beginning of 2002, the U.S. Dollar Index has dropped more than 30 percent. That’s almost a third of your international purchasing power — gone!

Even worse, the Obama administration’s reckless spending — with the willing complicity of Bernanke’s Federal Reserve — threatens to send the dollar even lower in the coming years.

What can you do about it? Once again, ETFs come to the rescue!

ETFs Make Currency Trading Easy …

Investing in foreign currencies used to be difficult. Your choices were limited to trading risky futures, lining up at the currency exchange window at major airports, or bringing home some funny-looking bills and coins from your international vacation.

Now, thanks to ETFs, you can load up on euros, yen, pesos and pounds just as easily as you buy a stock. You can even go short in some of these currencies with inverse ETFs. So there’s no reason to keep all your eggs in the dollar basket any longer.

Of course, the fact that you can do something doesn’t mean you should do it. Always have a clear goal in mind before you trade any ETF, and make sure you understand the risks. And even if a trade makes sense for you, get started slowly.

For instance, suppose you just want to diversify your portfolio so you can have some protection from a falling dollar. If you don’t want to make a big bet on the dollar against any single currency, take a look at an ETF like the PowerShares DB U.S. Dollar Index Bearish Fund (UDN).

 

UDN gives you exposure to all the major world currencies.

UDN is designed to replicate a short position in an index that tracks the U.S. dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. In other words, UDN goes up as the U.S. dollar goes down against this basket of other major currencies.

Or you can take the opposite position with the PowerShares DB U.S. Dollar Index Bullish Fund (UUP). This one goes UP as the currencies mentioned above fall when measured against the greenback.

Maybe you have a strong feeling about the British pound. How can you turn your forecast into a profit opportunity? One simple way is buying CurrencyShares British Pound Sterling Trust (FXB), an ETF that holds a position in the United Kingdom’s currency.

Have a yen for the yen? CurrencyShares Japanese Yen (FXY) gives you a chance to profit when the yen is outpacing the dollar.

You can buy the British pound with FXB.

Lately, though, the opposite has been more often the case — the yen is one of only a few currencies weaker than the dollar in recent weeks. That ought to tell you something about Japan’s economy! So is there a way to profit if the yen drops?

You bet there is!

The ProShares UltraShort Yen (YCS) is a bearish yen fund. It’s also 2X leveraged so your gains are amplified if your bet is correct. For instance, if the yen drops 10 percent, this ETF’s shares stand to rise 20 percent. However, if you’re wrong, your losses can add up quickly. Therefore, timing your trades correctly is very critical.

I Want to Highlight One Other
Currency ETF Because It’s So Unique …

The PowerShares DB G10 Currency Harvest Fund (DBV) tracks an index that shifts exposure based on the yield of the ten top world currencies — the G10.

With DBV, you’ll have the equivalent of a long position in the three highest-yielding G10 currencies and a short position in the three lowest-yielding G10 currencies.

If you know anything about hedge funds, you probably recognize this as the so-called “carry trade.” Put simply, it’s borrowing at low interest rates and using the loan to buy higher yielding assets elsewhere. It was an easy way to make big bucks for years. But those managers had their heads handed to them in 2008.

Now it’s beginning to look like the carry trade may start to work again. If it does, DBV is an easy way for you to get access to the same strategy millionaire hedge fund investors are using.

There you have it: Six ETFs to help you get in on the world’s currency markets. However, more than two dozen other currency ETFs and ETNs are now available. Unfortunately I don’t have room here to give you the whole list, but they aren’t hard to find. Look around and you’ll see many ways to get out of the greenback — or bet on its recovery.

Best wishes,

Ron

 

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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Storm #3
Auto Sales Down 44 Percent!

At their peak in February 2007, U.S. and foreign-owned companies sold automobiles in America at an annual pace of 16.6 million units.

Last month, their sales pace plunged to 9.3 million, a decline of
44 percent (including the best performers like Toyota and Honda).

Again, as with housing, we saw a tiny uptick in the prior month, hailed by high officials as a “sign” of improvement. Yet, as with housing, it was weaker than all prior “signs of a turn” over the past 26 months – each of which was followed by a sharper plunge.

Any lights at the end to Detroit’s dark tunnel? Only those of three speeding freight trains:

• The Chrysler bankruptcy, despite all the talk of a “quick and easy” procedure, is not only frightening U.S. car buyers away from the Chrysler brand, it’s also scaring them from other U.S. and foreign makers. And it’s not only hurting auto dealers and parts suppliers, but also smacking auto lenders. Meanwhile …
  
  
• GMAC, the nation’s largest auto lender, is already in its death throes, with the government now estimating it could suffer additional losses of a whopping $9.2 billion over the next two years. Will the Obama administration bail it out? Perhaps. But it would still have to downsize its operations, throwing another monkey wrench into General Motors’ sales. Meanwhile …
  
  
• General Motors is now sinking even more rapidly toward bankruptcy than it was just a few months ago. According to last week’s New York Times column, G.M., Leaking Cash, Faces Bigger Chance of Bankruptcy …

“Even after receiving $15.4 billion in federal loans, General Motors is once again on the brink of financial collapse.

“The automaker’s first-quarter earnings released Thursday showed that G.M. was losing more money and sales than it was in late December, when the government began its bailout.

“With its cash reserves down to the bare minimum and its revenue plunging, G.M. seems more certain each day to be heading toward a bankruptcy filing. …

“The company’s chief financial officer, Ray Young, called the drop … ‘a staggering number,’ and said consumers were showing increasing concern about G.M. products because of the potential for bankruptcy.”

General Motors’ CFO added: “Once you start losing revenues, you get yourself into a vicious cycle from which you cannot recover.”

Sound familiar? It should. It’s the same vicious cycle I’ve been warning about for many moons – falling revenues prompting mass layoffs, and mass layoffs driving down revenues.

Storm #4
Biggest Decline in Consumer
Credit Ever Recorded!

Any economist counting on the consumer to get things going again had better go back for some more Rorschach tests …

… because you don’t need a therapist to interpret the image depicted in my chart below. It shows very clearly how the nation’s lenders are dumping consumers and making a mad dash for the exits:

In the third quarter of 2007, banks dished out $44 billion in net new loans on credit cards, autos, and other consumer credit (excluding mortgages).

Then, just 12 months later, in the third quarter of 2008, that giant credit machine collapsed to a meager $8.7 billion, a decline of 80 percent!

But the collapse didn’t end there. In last year’s fourth quarter, not only did new credit disappear, but lenders actually pulled out of the consumer credit market to the tune of $19.5 billion.

And they did it AGAIN in the first quarter of this year, pulling out another $12.2 billion.

It is the biggest collapse in consumer credit ever recorded.

Now do you see why I’m recommending a shrink for any economist fixated on a recovery?

They know how important credit is. They know that few Americans have the savings to splurge on consumer goods. And they’re tired of knowing that a recovery is virtually impossible without credit.

And yet here we are, with the biggest-ever collapse in consumer credit – and they’re still searching for the “signs”!

Storm #5
Big Banks!

Whether the government lets big banks fail or not, the impact on the economy is similar: A massive contraction of bank loans and credit, sabotaging attempts to revive credit flows and stimulate the economy.

Reason: These banks must build capital quickly, and the only realistic way to do so is by cutting back on their lending.

The official stress test results released Thursday on 19 U.S. bank holding companies were supposed to help determine exactly how much capital they’ll need, and the total came to $75 billion.

That’s no small amount. But the stress tests will go down in history as the world’s most elaborate effort to paint lipstick on a pig.

To show you why, first, let me provide our analysis based on data from TheStreet.com Ratings, the Comptroller of the Currency (OCC), and the banks’ first-quarter financial statements. Then I’ll show you why I believe the official results grossly underestimate how much capital the banks will need and how much pressure they’ll be under to slash lending.

We find that …

• Seven institutions – JPMorgan Chase & Co., Citigroup, Wells Fargo & Co., Goldman Sachs Group, GMAC LLC, SunTrust Banks, Inc., and Fifth Third Bancorp – are at risk of failure and may have to cut back lending dramatically to stay alive.
  
  
• Eight institutions – Bank of America, Morgan Stanley, PNC Financial Services Group, US Bancorp, BB&T Corp., Regions Financial Corp., American Express Co., and Keycorp – are borderline, meaning they could be at risk of failure with worsening economic or financial conditions and will also have to cut back on lending.
  
  
• Only four institutions – MetLife, Bank of NY Mellon Corp., Capital One Financial Corp., and State Street Corp. – appear to have adequate capital to withstand worsening conditions. But even they may voluntarily cut back their lending in an attempt to maintain their current financial health.

Moreover, of the $11.6 trillion in assets held by the 19 institutions, those likely to cut back dramatically represent $6.56 trillion, or 56.5 percent, of the assets; while borderline institutions hold $4 trillion, or 34.7 percent.

Only $1 trillion – just 8.8 percent – of the assets are held by institutions with adequate capital, based on our analysis.

In contrast, the government is trying to persuade us that most have plenty of capital … the rest can easily raise it … and none will have to slash lending in a way that would sabotage the prospects for an economic recovery.

So what explains this vast discrepancy between the official conclusions and ours?

The simple answer: Three unmistakable deceptions in the government’s stress tests …

First deception: The assumptions.

To come up with estimates of future losses, the government assumed what they call “a more adverse” scenario. But their more adverse scenario is actually less adverse than the current reality!

Hard to believe? Then just look at their own numbers in the chart the Fed published recently:

• Their “more adverse” scenario is predicated on the presumption that the GDP will contract no more than 3.3 percent this year. But in actuality, the GDP is already contracting at an annual pace of 6.1 percent!
  
  
• Their “more adverse” scenario also assumes that unemployment will average 8.9 percent this year. But unemployment has already reached 8.9 percent in April, and no one – not even economists fixated on recovery signs – is anticipating anything but a further rise.

Either they’re delusional. Or they’re cheating at solitaire.

Second deception: No mention of systemic risk!

The banking regulators have published two major white papers on the stress tests – “Design and Implementation” plus “Overview of Results.” However, in these papers, they have failed to even mention the greatest risk of all: systemic risk.

This is the risk that …

• A few key players in highly leveraged instruments like derivatives could default on their trades.
  
  
• These defaults could set off a series of failures, with the most severe impacts felt by banks that hold the largest share of the derivatives in the country.

This is the giant risk that the Government Accountability Office (GAO) wrote about in its landmark 1994 study, “Financial Derivatives: Actions Needed to Protect the Financial System,” warning of “a chain reaction of market withdrawals, possible firm failures, and a systemic crisis.”

This is the giant risk that triggered the collapse of Bear Sterns, the failure of Lehman Brothers, and the $180 billion bailout of America’s largest insurer, AIG.

It’s the giant risk that AIG executives themselves wrote about in their recent memorandum, “AIG: Is The Risk Systemic?,” warning of a “cascading impact on a number of life insurers already weakened by credit losses” … and “a chain reaction of enormous proportion.”

It’s the giant risk that the International Monetary Fund is most concerned about when it warns of another $3 trillion in global losses due to the banking crisis.

It’s the giant risk that prompted former Treasury Secretary Henry Paulson to literally drop to his knees last September, begging Congress for $700 billion in bailout funds for the banking industry.

Since that day, the U.S. economy has suffered the worst back-to-back GDP declines in over 50 years, burning the nation’s fuse even closer to a blow-up.

And yet, suddenly, in a massive undertaking that was supposed to accurately evaluate the banks’ exposure to these dangers, it’s also the giant risk that has been scrupulously scrubbed from 59 pages of official white papers, a half dozen press releases, plus multiple public pronouncements – all about the stress tests, all without a single mention of systemic risk.

This omission is both deliberate and unforgivable.

It means the stress tests have failed to fairly evaluate the credit exposure of each bank to defaults by their trading partners. And it means the tests are creating a false sense of security for investors and the public that can only lead to greater mistrust, more loss of confidence, even panic.

The omission is especially misleading for large banks that dominate the derivatives market … would be at ground zero in any meltdown … and would therefore be among the first to suffer massive losses.

The prime example: The OCC reports that, at year-end 2008, JPMorgan Chase (JPM) held $87.4 trillion in notional value derivatives, including $8.4 trillion in credit default swaps.

(To see for yourself, click here to download the OCC’s latest report; scroll down to page 22; and check out the top line “JPMorgan Chase Bank NA.” Note: The next to the last column “Total Credit Derivatives” is 99 percent made up of credit default swaps, according to the OCC.)

Why is this such a big problem? For several reasons:

• Although it’s cut back a bit, JPM still has 43.6 percent of all the derivatives held by all U.S. commercial banks, or $17 trillion more than Bank of America and Citibank combined. Among the 19 bank holding companies in the stress tests, that puts JPM closer to ground zero than any other bank.
  
  
• It’s well known that credit default swaps are the highest-risk sector of the derivatives market. And yet, in this sector, JPM has 52.8 percent of the total held by all U.S. commercial banks, or nearly double the total held by BofA and Citi. This puts JPM even closer to ground zero.

• JPM execs insist they’re smart and know how to handle their risks very neatly. But if that were the case, why did they suffer a whopping $2.5 billion loss in their credit default swaps in the fourth quarter? (OCC, page 27, Table 7, line 1, last column.)
  
  
• The OCC also reports that, for each dollar of capital, JPM still has $3.82 in total credit exposure. Mind you, that’s JPM’s exposure to just one kind of risk (defaults by trading partners) in just one kind of instrument (derivatives). In addition, JPM is also assuming market risks in derivatives plus a series of risks in its other investing and lending operations. (OCC, page 13, table at bottom of page, line 1, last column.)
  
  
• Despite all this, in their “more adverse” scenario, the banking regulators estimate JPMorgan Chase’s total “counterparty and trading losses” will not exceed $16.7 billion, a fraction of the true potential losses in a financial crisis.

With the fatal omission of systemic risk from their analysis, the government concludes that JPMorgan Chase is in good shape and does not need any additional capital.

The same omission leads to a similar conclusion for Goldman Sachs, despite the fact that Goldman has over $10 in total credit exposure per dollar of capital, or nearly triple the credit risk of JPMorgan Chase.

The only realistic conclusion: Both these institutions will need huge amounts of capital, driving them to cut back massively on new lending.

Systemic risk is the elephant in the room. Everyone knows it’s there. Everyone understands the dangers. But they’re afraid of the answers. So they dare not ask the questions.

The fundamental answer, though, is clear: Systemic risk is what drove the financial markets into a deep freeze seven months ago; and it was that storm which helped drive the economy into a tailspin.

Today, systemic risk is not gone. If anything, it’s far worse.

Third Deception: Improper influence.

In its white paper, the Federal Reserve admits that the stress tests were based, to a large extent, on each bank’s self-evaluation – not only for loan loss estimates that can be derived from past data, but also for the future performance of trading accounts, which can be far more subjective.

Moreover, each institution was allowed to appeal the final results, and several banks strenuously negotiated for more favorable grades. They even got regulators to accept their projections of future revenues, treating those future revenues almost as if they were cash in the kitty.

In contrast, we never permit the companies we evaluate to influence our evaluation process or our results. To do so would defeat the entire purpose of the exercise. But much like conflicted Wall Street rating agencies, that’s essentially what the bank regulators have done – from start to finish.

Put simply, the stress tests were too easy; the banks took the exams home with cheat sheets; and if they didn’t like their final grade, they could get the examiners to give them a better one.

Yet despite all these fudge factors, the government still estimates these institutions could suffer $600 billion in additional losses over the next two years.

And this is being portrayed as another “sign” of recovery?!

My view: We will have a recovery someday. But only AFTER we honestly recognize the grave mistakes of the past and own up to the hard sacrifices still ahead.

Until that happens, I’m staying the course, investing my own money in a way that protects me from the dangers and gives me an opportunity to profit from the next decline … which, by the way, promises to be the biggest of all.

If you want to follow along with me, check your inbox for an alert that I’ll soon be sending you personally – with the sender name “Martin D. Weiss, Ph.D.”

Good luck and God bless!

Martin

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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Any economist fixated on so-called “signs of a recovery” needs to have his head examined.

As I’ll prove to you in a moment, the hard-nosed reality is that five major economic cyclones are in progress at this very moment.

The storms are not abating. Nor are they changing direction. Quite the contrary, what you see today is, at best, merely a deceptive calm before the next, even larger tempests.

For investors who follow Wall Street, it could be fatal.

For contrarian investors, however, this insanity opens up some of the greatest opportunities in many years: Precisely when we see plunging barometers all around us, we also have a new surge of hype on Wall Street, driving stock prices higher.

Result: The rally has lowered the cost of contrary investments precisely when their prospects are best. Consider the five storms, and you’ll see exactly what I mean …

Storm #1.
Plunging Jobs

On Friday, the Bureau of Labor Statistics announced that job losses were running at a slightly slower pace than in the first quarter. So Wall Street cheered.

But it’s a joke, and the 539,000 additional Americans out of work aren’t laughing.

Nor are the 23 million people – 15.8 percent of the work force – who are officially unemployed … are struggling with lower paying part-time jobs … or have given up looking for work entirely.

Look. In December 2007, there were 138.1 million jobs in America. Now, there are only 132.4 million.

So even if you accept the government’s tally of the narrowest unemployment measure, 5.7 million jobs have been lost.

Plot those figures on a chart and the picture is absolutely unambiguous: Jobs in America are collapsing. Right here and now!

Where’s that “slightly slower pace of collapse” they’re raving about? You’d need a microscope to see it.

Storm #2
U.S. Housing Starts Down 77.6 Percent!

Housing is the nation’s largest industry. With it, the entire global economy boomed in the mid-2000s. Without it, a recovery is next to impossible.

The big picture: Housing starts, the best measure of the industry’s health, peaked at an annual pace of 2.3 million units in early 2006.

Now, they’re running at barely more than a 0.5 million units.

That’s a decline of 77.6 percent – three-quarters of America’s largest single industry wiped out.

Yes, back in February, there was a tiny uptick: Starts rose from 488,000 to 572,000. And everywhere we heard voices cheering the “spectacular” jump in housing starts.

What they didn’t tell you is that the so-called “jump” was actually smaller than six of the seven minor upticks we’ve seen in housing starts since 2006. Nor did you hear them say much when this measure fell anew in March.

Subscriber, this industry is not recovering. It remains in a state of near total collapse.

The only major change: Lenders have given up waiting for a recovery that never comes. So they’re throwing in the towel, unloading huge inventories of foreclosed properties at fire-sale prices. And they’re calling that a “recovery”?

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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That’s essentially what Jim Cramer is saying.

“I thought about this all weekend. Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now.”

“I don’t care where stocks have been, I care where they’re going, and I don’t want people to get hurt in the market. I’m worried about unemployment, I’m worried about purchases that you may need. I can’t have you at risk in the stock market.”

But what if you can wait longer than 5 years… ?

“I think what you have to do, if you can withstand it, is just ride it out,”

“I think the previous quarter, the one we’re now hearing from, was a terrible quarter – but it will look good versus the coming quarter.”

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If you live in a rural area and are thinking of buying property, there is a lending source that is often overlooked. Have you considered looking at a USDA loan? The United States Department of Agriculture will actually lend you the money directly if you qualify. What is the purpose of a USDA loan and who can get them?

The purpose of USDA loans is to level the playing field a bit. People who live in rural areas are often too far away from economic growth. When you don’t live in a big city, it might be hard to find a high paying job. To prevent people from all moving into the city, the USDA created their loan program. This way, there will still be someone out on the farms to produce agriculture. If you live in a rural area and want to buy a farm, you have a good chance of qualifying for a loan.

These loans are actually quite flexible and they come straight from the government. There’s no middle man like another bank. You’ll be working directly with the USDA. They will allow you to buy preexisting houses that are for sale in rural areas. You don’t have to start a farm from scratch. But if you want to build a house or a farm, you can do that as well. This option requires you to have a contract for the land before you can get the loan. You also have to have a plan in place with a builder to build your house in a timely manner. The government wants to make sure that you’re actually going to build a house with the money they loan you.

One of the great benefits of a USDA loan is that you don’t have to have a down payment. This enables people from low income areas the option of buying a house without any money upfront. Offering 100% financing gives many more people an opportunity to buy. If people in rural areas are just getting by with their rent payment, they probably wouldn’t be able to buy a house otherwise. With a traditional lender, they would have to come up with a 20% down payment. This enables them to get the house they want without having to save up for a down payment.

The USDA actually bases your loan payments on your household income. They won’t typically allow the payment to be more than 26% of your family’s income. This prevents you from getting in over your head with a big mortgage payment. In addition to these flexible payment terms, they also offer longer mortgages than you can normally find. They offer mortgages with 38 year terms in order to get the payments down to where you can afford them. These types of deals make it possible for a lot of people in rural areas to own their own home or farm.

There is much more information available on USDA loans and rural home loans. If you’d like to find out more about USDA loans, go to USDA loans. If you want to know about rural home loans, go to rural home loans.

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I discovered the concept of batching “Batching Work” last week. I say discovered because I didn’t read the full article. I was too busy. But I did scan it. I’ll take a full read sometime soon be returning to this blog post.

The concept is simple, work on a group of similar activities all at the same time.

20 Tips for Batching to Save Time and Cut Stress: “Collect up a group of similar activities and do them all at the same time. This is the main principle behind batching. You could collect up all your e-mail answering, household chores, reading assignments or phone calls and do them at one time.”

Darren Rowse at How Batch Processing Made Me 10 Times More Productive: “I have discovered that most of the activities that I do in my work can be ‘batched’ in one way or another. I have discovered that many ‘urgent’ things can wait and in fact to make them ‘take a number’ and ‘get in line’ brings order to mess.”

Celine rehashes and expands on what Darren Rowse said at Batch Processing Can Make You More Productive

ZenHabits expands on the topic: “It can also greatly simplify your work day and personal life, as your day won’t be overly chaotic and complicated, you can group similar tasks together and batch process them, and you can be sure of doing the things you really need to do.” Optimize Your Productivity with Daily, Weekly Routines

Nick Pagan Here’s A Quick Way to Boost Your Productivity – Batch Processing: “We can boost our productivity by actively organizing our activities to suit the way our minds work. Sometimes this can mean doing all of one type of activity at once, such as making a set of phone calls, dealing with e-mail or correspondence.”

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