Thursday, June 9, 2011

US DOLLAR STRENGTHENS LONG TERM: All investments based on a weak dollar become vulnerable By Paul Buzby

There is a long list of events coming together that will strengthen the U.S. Dollar and the U.S. Private Sector (70% of U.S. GDP). To better understand this scenario, let’s break these events down into a logical format. We will start with Europe then proceed through the oil producing countries, China, U.S. Federal Government, Federal Reserve, United States, U.S. Private Sector and U.S. Long Term Debt. At the end of the article, you will have a better understanding of which indicators to follow that will enable you to research this progression for yourself. We will also go over several options that are not tied to a strong or weak U.S. Dollar.

The Eurozone consist of seventeen European Union (EU) member states. Ten of these countries are performing at acceptable levels and seven of these countries are one budget away from defaulting on their loans. Europe needs to maintain a strong Euro in order to compete in a global market. In order to solve their debt crisis and to jump start their economies, Europe needs to two things.  When one of the seven broke countries is about to default on their loans and needs a bail out, the other ten solvent countries will require severe austerity programs to be put in place before granting them the bail out. Europe’s population is made up of 55% public unions. Most of the abuses and most of the budget cuts will be to public unions causing major unrest. These cuts will solve half of Europe’s debt problems over the next two to three years. The U.S. Economy kicking into high gear will result in more exports from Europe, solving the over half of their problem.

Oil Producing Countries

Back in December of 2010 the Republicans and Democrats passed the Bush Tax Cut Extensions. The Democrats added the Unemployment Extensions and the Ethanol Farm Subsidy Extensions to the bill. These extensions will affect three critical things in the U.S. Economy. First, the private sector needed stability on the tax code to plan for the following year. They got it. Second, the job market took another hit for ninety-nine weeks because a lot of people refuse to get another job until their unemployment runs out. Last and most important are the Ethanol Farm Subsidy extensions. The Corn Ethanol alternative is a joke!  It takes one gallon of oil to make one gallon of ethanol out of corn (combines, tractors, fertilizer, etc.). Even environmentalists are speaking out against the corn ethanol alternative. Before the extensions, Ethanol plants around the country were shutting down. However, farmers make three times more money growing corn for ethanol with the government subsidies, than they do producing food to eat. In December 2010 when this law was passed, many farmers switched to growing corn. The problem is that almost 40% of this corn is being converted into ethanol and then burned. The U.S. still exports more food than all the other countries in the world combined; yet, the U.S. is directly responsible for causing a world food shortage. To make things worse, speculators have taken advantage of the shortage to drive prices even higher.

If you are wondering why thirteen Middle East countries are all rioting at once it is because they are starving due to the food shortage and young people can’t get jobs. In the Middle East, 38% of the average person’s income goes to buy food and food prices are expected to double between December 2010 and July 2011. Speculators have jumped in on the unrest to push oil prices up even further. Despite the claims of there being an oil shortage, Saudi Arabia has cut back on production because oil storage facilities around the world are at max capacity. In order to recover, the oil producing countries need two things: They need the U.S. and European economies to kick in to high gear and to consume more oil so the young people in the Middle East can get jobs. They also need Washington to repeal the Ethanol Farm Subsidy Extensions so the U.S. will grow food to eat, not burn.

Note: The death of Osama Bin Laden changed four things in the Middle East. It broke the terrorist moral. It raised U.S. moral.  The U.S. will use all the information they found at Bin Laden’s hideout to eliminate Al Qaeda and the Taliban.  The information the U.S. obtained also includes the names of all the government officials, politicians and businessmen throughout the world who have helped Bin Laden for the last 10 years. During the same week, General Petraeus was reassigned from leading combat operations in the Middle East, to leading the C.I.A. General Petraeus knows all the players. He will use this new found information to blackmail, release the names of these Bin Laden supporters and/or use more extreme measures to bring stability to the Middle East. This will lower the price of oil, driving the dollar up.

Remember how in the 1980’s the media boasted that Japan would become the new world, economic powerhouse and it turned out to be a bubble? Well, here we go again. China has a runaway economy, massive inflation, real estate bubble and an incorrectly valued currency. In addition, China is on the list of the top 25 starving countries (#22) and has an economy that exports 2/3 of its GDP, making it very vulnerable to a slow down. China has 300 million people in the middle class demanding higher wages and the ability to consume more of what they produce. They also have 800 million people that are poor, unskilled and uneducated. When this economy turns, their biggest problem will be figuring out how to feed 1.1 billion mouths.

 The U.S., Europe and oil producing countries kicking into high gear will only delay China’s downturn. China needs to put in place several fundamental changes before they can become the biggest economy in the world, which could take a generation or more (if ever). Canada, Australia, and Japan have tied their economies to China to get through the last three years. When the downturn happens they will have to shift back to the U.S. and Europe or go down with China.

U.S. Federal Government

The U.S. Federal Government is in gridlock. There may be some token reductions on the Republican side and several increases from regulations on the Democrat side, but besides this not much will happen. The U.S. will keep spending at extreme levels until the 2012 election. The one possible chance to significantly reduce spending (50%/50% chance) will occur if the Republicans refuse to raise the debt ceiling on August 02, 2011.  There is plenty of money to pay all of the debt obligations and not risk the U.S. credit rating. Not raising the debt ceiling will force major cut backs throughout the Federal Government (closing departments and firing people). This would actually strengthen the U.S. credit rating around the world. If this happens, the dollar gets stronger.

Federal Reserve

Three years ago the Federal Reserve (ten private banks and 250 individual owners) lowered the Federal Reserve Interest Rate to .25% and started printing a lot of money. This rate is reserved for U.S. and foreign banks. All of these banks refused to lend to private individuals and businesses. They have kept all their money on hand in case of an emergency and started borrowing from the Fed at .25%. Then these banks started buying U.S. bonds and treasuries with a guaranteed 3% return. This has netted the a $2.75% return with zero risk. The stock market, commodity market, public unions and politicians jumped on board with the Federal Reserve for the last 3 years and have done very well.  Private U.S. businesses (70% of U.S. GDP) have not been able to get a loan for three years. In the past, these businesses would have gone to a bank for a short term loan if they had a shortfall. However, since banks are not lending, private businesses have over $1 trillion sitting on the sidelines reserved for issues that they normally would have gone to a bank for a loan. These businesses are not hiring, not buying capital equipment and not taking any risk due to the inability to get a loan. This has put 70% of the U.S. GDP in idle. The U.S. Economy is 25% of the world GDP, and until these private businesses can get loans the U.S. Economy will just limp along.

If you want the true definition of redistribution of wealth, here it is. The Federal Reserve has printed and devalued the U.S. dollar by 20% in the last couple of years. Private businesses (70% of U.S. GDP) had 20% of their buying power taken away with quantitative easing and given to the other 30% of the U.S. GDP: inflated stock market, inflated commodity market, corporate bail outs, housing bail outs, stimulus packages, public union pay increases, public union pension increases, massive health care cost increases, entitlement program increases, education costs sky rocketing, student loans skyrocketing, never ending unemployment extensions, and so on. Very little of this money actually went to the middle class. Most went to the rich who are getting richer or people who do not contribute to the economy. This had been done with 100% support from the U.S. Executive branch.

Ben Bernanke, the Chairman of the Federal Reserve held a press conference in December 2010 and stated the Fed policy would be able to do a QE3 (printing more money) in July 2011 and not raise the Federal Reserve Interest Rate until January 2012 (easy money). This would continue the devaluation of the U.S. Dollar and push the price of gold up. However, skyrocketing food and oil prices are putting pressure on the Fed to move early. The media and U.S. people are blaming the Fed for inflation. Bernanke held another press conference in May 2011 where he laid out a change in Fed policy. QE2 (printing 600 billion) would be completed by the end of June 2011. This statement was slightly misleading because the Fed has accelerated its printing of the QE2 and will be completed May 31, 2011. The Fed will not do a QE3 in July. Lastly, the Fed stated it will look at raising the Federal Reserve Interest Rate in the next couple of meetings. The next meetings are June 21-22 and August 9. All of these changes will make the dollar stronger.
Here are two more things that will strengthen the dollar. August 2, 2011 the U.S. Government debt ceiling will be decided. If the debt ceiling does not increase, the dollar will get stronger. September brings the end to the summer oil peak. If oil prices go down, the dollar gets stronger.

Watch what happens when U.S. private businesses (70% of U.S. GDP) can get loans. Businesses will take the $1 trillion they have stockpiled and immediately hire people (who will start spending), buy new capital equipment (driving manufacturing) and start taking risk because if they run into trouble they can now get a loan. Private U.S. investors have about $2 trillion sitting on the sidelines. When they see some real GDP growth and job hiring in the private business sector they will reinvest. Foreign investor’s current options to invest are: Europe (who is broke), oil producing countries (who are broke and starving), or China (who has more cracks in its economy than Humpty Dumpty after his great fall). The U.S. economy should hit full stride about 6 months after the 2012 election.

The one problem with the above scenario is if U.S. private businesses stall in the fall or winter of 2011. The Fed will force a QE3 on the U.S. people and we will be back to where we were in 2010. I do not think this will happen, but the Fed most likely wants this to happen because they have made more money with QE1 and QE2 than they have ever made in history.

U.S. States

The 2010 census is complete and redistricting will be done in 2011. When the redistricting was done in 2000, the Democrats controlled a majority of governors and state legislators. They heavily gerrymandered the districts leaning liberal progressive.  For the next ten years, we saw liberal progressives (Democrats, Independents and Republicans) get elected as judges, state legislatures, governors, U.S. Representatives, U.S. Senators and the Electoral College shifted 8 votes toward the Democrats. Today is different. 29 governors are Republican and a majority of state legislators are Republican. Four states have passed initiatives so that an independent group will do the redistricting. This will result in a major swing away from liberal progressives to fiscal conservatives. This includes more fiscal conservative judges, state legislatures, governors, 2/3 super majority in the U.S. House, 2/3 super majority in the U.S. Senate, and a shift of 8 electoral votes to Republicans in 2012 election. This fiscal conservative shift will increase for the next ten years.

Forty states have not passed the irreversible debt curve and have the political will to change direction to get out of debt. This will bust public unions (U.S. population is 9% public union). For example, look at the recent changes in Wisconsin and Ohio. Unfortunately, ten states are either past the irreversible debt curve or do not have the political will to change direction. The top four are: California, New York, New Jersey and Illinois. Individuals, companies, corporations, cities and counties can all file bankruptcy in Federal Court. States do not have this option as of today. States have to honor all their contracts and pay their bills. This leaves them one option: fire people. California has been able to limp along because Nancy Pelosi has funneled billions of Federal dollars into California for the last 6 years. That door was closed in January 2011 when the Republicans took over control of the U.S. House. By the end of 2011 many of California’s state, county and city employees will face being fired. California’s county and city bonds will become junk bonds (state bonds are good because they are paid before state employees). California’s counties and cities will be lining up in front of the Federal Bankruptcy court; however, there will be no bail out for the state. The pain will get so bad in these ten states that the next Congress will pass a law allowing states to file in Federal Bankruptcy court. These ten states will then be able to go in front of a Federal Judge, causing all public contracts and public pension plans t become null and void. The salaries, health care plans and pension plans will be realigned to what a comparable job in the private sector pays. Public unions and cooperative bargaining will cease to exist, as we know it, in the next 3 to 5 years.

U.S. Private Sector

There is a new business model taking shape. The old business model was to cut costs on the back end even if this meant outsourcing jobs to other countries for cheap labor, cheap products and cheap service, then selling the product on the front end to as many marketing channels (resellers) as possible. This reduced cost and volume selling approach allowed companies to make large profits up until 3 years ago. The U.S. has lost a lot of cheap manufacturing jobs, but it has gained an equal amount of educated skilled jobs. The new U.S. business model is to manufacture products that require educated skilled labor and make “Made in U.S.A.” mean something. If you have to outsource, do it with and economic friend like Taiwan, where we have real beneficial free trade. Private businesses are cutting out all the middlemen.  Publically Traded Companies are buying out of the stock market because it is manipulated.  Private businesses are only dealing with banks on short term loans only. Private businesses are directly selling to clients through wholesale chains and the internet, cutting out the resellers. Private businesses (70% of U.S. GDP) that have survived are the leanest and meanest U.S. companies in history. A majority of the bad and inefficient companies collapsed a year ago. Armed with this new business model and the ability to get loans, these businesses will storm the world over the next two years. This alone should solve half of the U.S. debt problems with increased revenue from the present day tax code.

U.S. Long Term Debt

When talking about U.S. long-term debt, you are talking about three things: Social Security, Medicare and Medicaid. Social Security is the smallest of the three debt issues. When Social Security was created in 1933, the average life span was 59 and you received full benefits at 65. The problem is people are living longer. The government already has a solution. Raise the age limit to receive benefits. They have already done this once. People who were born in or after 1960 do not receive full benefits until 67. In the next couple of years Congress will pass a law stating people born after 1980 will have to wait until the age of 69 to receive benefits. Then ten years later they will pass another law where people born after 2000 have to wait until they are 71.

The big problem is Medicare and Medicaid. The “Health Care Bill” was marketed to solve this problem. It does not! The “Health Care Bill” was written to redistribute wealth from “everyone” to the health industry, insurance companies and lawyers. It has nothing to do with reducing cost. This law will be found unconstitutional by the Supreme Court or repealed after the next election. However, three good things will come out of this fiasco. First, Congress will pass a bill allowing insurance companies to go across state lines and break the monopolies. Second, Congress will go after the lawyers and pass real tort reform. Finally, the public unions in the health care industry will be realigned to the private sector level. This will solve half the debt problem. Private U.S. businesses (70% of U.S. GDP) kicking into high gear will generate enough increased tax revenue to solve the other half.


This information was meant to give you key indicators to follow and give you some information to research. This should help you prepare if the dollar strengthens long term. I hope this report gave you an insight to the various factors that could cause a market shift. I do not want people to lose half their portfolio when the market shifts again. Good luck!

Diversification Options for a Strong or Weak U.S. Dollar

There are four options that Rare Coin Wholesalers (RCW) offers to diversify your portfolio for a strong or weak U.S dollar.  They are bullion bars and coins, generic numismatic coins, rare numismatic coins and a Numismatic Trading Account (NTA) designed for wealth preservation and short term profits. 

The first option is bullion coins and bars.  You should not pay more than 4% to 10% above spot to buy gold, silver, platinum and palladium and you should be able sell for spot or more. When the dollar strengthens, precious metals will initially start going down. As U.S. private businesses ramp up, gold and silver will keep dropping but platinum and palladium will start going back up because 50% of these metals go into catalytic converters for the auto and oil industry. American silver, gold and platinum eagles are not on the Patriot Act reportable list. You can buy, sell and trade as many as you want and there are no 1099 form requirements when you want to sell.

Buying and selling gold and silver into an IRA takes time. If you do not know who technical buyers and sellers of bullion are, you need to do some research. These are the big guys like the billion dollar hedge funds. These technical buyers and sellers have what is called a panic line. As of May 2011, the panic line was at $1,300 for gold. If gold drops below this number, these big guys will start dumping their gold and silver could drop below a thousand in days. You could lose a third of your wealth before you are able to liquidate. RCW has been working with Sterling Trust and others to buy and sell gold and silver in an out of your IRA as quickly as possible.

The second option is generic numismatic coins.  There are millions of U.S. numismatic coins that have survived between 1792 and 1932. Most of them are common, less than 5% are rare. These common numismatic coins sometimes follow the precious metal market with additional premiums depending on supply and demand. Currently, the demand and premiums are at extreme lows. If the dollar strengthens, these coins will drop. The time to buy into common numismatics is when gold and the premiums are down. This is not the time, as gold prices are at historical highs. However, the premiums on these generic gold coins are at a low. All numismatic coins (common and rare) could be subject to confiscation but probably not because of the logistical problems with determining fair market value. Numismatic coins are non-reportable, duty-free and are treated as real property and therefore qualify for 1031 exchanges just like real estate.

The third option is rare numismatic coins.  Wealthy people learned a long time ago that you have three main tangible assets: real estate (which is tanking in most places), commodities (like oil and precious metals which are all over the place) or true rarities (Picasso paintings, Louie the 16th desks, truly rare coins, Greek and Roman statues). Truly rare coins have averaged a 12% to 16% increases in value for the last 40 years (PCGS Key Dates & Rarities Index). The key is buying the right coins at the right price and having an exit strategy. RCW believes in the old Ronald Reagan motto “Trust, but Verify”. There are many 3rd party resources to verify that you are getting into the right coin at the right price before you buy the coin. Rare coins are wealth preservation first and capable of making good long-term profits whether the dollar is strong or weak.

The fourth option is our Numismatic Trading Account. When we opened our public division about two years ago we knew we were going to run into people who would have no interest in owning rare coins, but like the concept of diversifying part of their assets into a tangible product. They would not have the time to research, buy, sell and trade in this industry for wealth preservation and to make profits. When people hear about RCW’s trading account they usually think of a stock market trading account. Stocks are a paper asset that can evaporate and the broker is paid upfront no matter what happens. RCW’s Numismatic Trading Account is based on a tangible hard asset which will not evaporate. The coins are owned, titled and insured to the client. RCW makes money when the client makes money. RCW shares in the profit (30% RCW, 70% Client) and uses its unique intellectual buying power in the industry to get coins into the account below the perceived wholesale value. RCW then uses its extensive marketing resources and sales channels to resell these coins. The goal on these accounts is wealth preservation first and achieving 10% to 15% profits annually second. Unlike the stock market, you do not have to pay taxes annually on your gains, only when you take money out of the account.
Rare Coin Wholesalers is one of the largest wholesalers in the industry with tens of millions of dollars of rare coins in our inventory available to the public at the same prices offered to the trade. The owner, Steve Contursi, is one of the top numismatists in the country and has been actively trading in the industry for over 35 years. He has done over a billion dollars in business, making money for his clients and himself. Google Steve Contursi, Rare Coin Wholesalers or RCW and you will find hundreds of positive references. We are a verifiable industry leader.

For more information contact us at 800-347-3250, 949-679-1222 or

Disclaimer: Nothing in this report should be seen as personalized advice on investments. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized advice on investments. RCW does not guarantee investment results or returns of any kind, and makes no warranties or representations about the soundness of any particular investment strategy. Investors should consult investment, legal, and tax professionals prior to making any investment decisions.

No comments:

Post a Comment