The dollar has recently been gaining ground. And is there any wonder! The euro tumbled two percent after The French referendum on the European constitution became known, and then even further after the even more resounding "No" from the Dutch population. The dollar, by default, gained ground.

"France and Europe reeled on Monday from a resounding French 'No' vote that could sound the death knell for a proposed constitution for the European Union," a Reuters wire story reported.

"The charter, designed to ensure smooth decision-making in the enlarged bloc, requires the backing of all member states to enter into force."

"While the outcome was not seen jeopardizing the monetary union that underpins the euro," Reuters hopefully surmised, "leaders feared the expected political uncertainty could hit investment and reform efforts."

And let’s face it - particularly the French population, collectively, would never agree to even a hint of economic reform which would defile the sanctity of the 35 hour working week. 35 hours is ample, or so they have decided. Inconveniently however, economic policies that promote short working weeks and low productivity do not always yield an abundance of jobs. The French unemployment rate recently touched a 5-year high of 10.2%.

So where does leave the good old faithful US dollar – touching year high levels against the Euro.

But it would be imprudent indeed to proclaim a new dollar bull market. A Euro bear market - yes; but a dollar bull market – I don’t think so – at least in the medium to long term. In fact there is likely to be a growing disatisfaction with all paper currencies – euros as well as dollars. Perhaps the answer lies in the ground – with that fascinating and enduring yellow metal - gold.

But for those interested in diversifying out of both the dollar and the euro – but still remain in the currency world, here’s the information you’ve all been waiting for:

A look at opportunities in world currency investing.

Although we’ve heard it a lot over the past year or two, the voices are getting louder and louder. There now seems to be a distinct possibility that the Chinese yuan will revalue later this month from 3% to 5%. At least those are the noises coming out of China.

The following information comes from Tom Dyson, reporter on The Rude Awakening, young sister publication of our syndicated Daily Reckoning...

"That's the scuttlebutt from several Chinese traders, CEOs (party connected) and a couple of fund managers," he responded when pressed for his source moments later. "It makes sense - there is absolutely no sense of urgency over here, but they are seeing some pressure from the threat of tariffs on textiles. It will not be some huge revaluation - 5% would be high - 3% more likely to pacify 'the West.' Take it for what it's worth, if it happens, you will have the inside track on the number."

Certainly,looking at the spreads in the forward market, one has to conclude something's going on. The banks trade currencies at either a spot rate or a forward rate. The spot rate is the rate you get for changing your currency immediately, while the forward rate is the rate you get for agreeing to change your currency at a certain point in the future.

One month ago, the yuan was trading at a 70-point premium in the 1-month forward market. Recently, however, that premium had increased to 400 points. One way of stating this is that the market is predicting a 400-point move in the exchange rate – from 8.2765 yuan per dollar to 8.2365 - imminently. Looking 12 months ahead, the premium is closer to 4,000 points, implying an exchange rate of 7.89 yuan to the dollar, or a 5% appreciation.

But sources say that we're still a long way from a floating renmimbi, and if they do anything, it’s likely they'll simply move the peg a notch or two - nothing dramatic, but just enough to appease the politicians for the time being.

Now lets take a look at some of the fundamentals from a social perspective. Chris Mayer, Fleet Street editor, has been researching what sociologist Thorstein Veblen dubs "China's new leisure class" – a burgeoning Chinese middle class with an appetite for travel and tourism, and a market segment that will grow exponentially as the yuan floats higher...

"This trend will have enormous investment implications as the world caters to the Chinese and their spending patterns. I have written about the growing number of Chinese tourists before, and my latest investment idea is a play on the idea of this new leisure class. It doesn't take a lot of imagination to picture how traveling Chinese with money burning holes in their pockets will benefit hotels, for example."

In 2003, according to the World Tourism Organization, some 20 million Chinese traveled abroad spending $48 billion dollars in the process. The WTO project 13% annual growth in Chinese tourism over the next decade and by 2020, some 100 million Chinese will travel abroad each year for their holidays, making China the fourth largest source of outbound travelers, they say.

"Increasing affluence in China, and the emergence of a large middle class, will help the travel industry generally. Interestingly, the Chinese like to gamble.In 2003, 90% of Chinese travelers to the United States visited Las Vegas, so you can see there are many ways to make money off Chinese prosperity without the perils of investing in China."

In my next post, we’ll be taking a look at how you can get a foothold in the “new economy” of China without the risks of direct investment.

In the meantime, protect your dollar assets and learn how the foreign exchange markets work at the same time. Here’s a good place to start: Forex Trading Systems

America, along with the rest of the world, is about to run out of cheap gas. When it happens, your wealth... your health... and your whole way of life will come under jeopardy!

Now, we all KNEW this crisis was coming soon, but even according to the so-called 'experts'... we weren't supposed to run out of energy for another 25 - 30 years. But that's not the way it's happening. Adison Wiggin of The Daily Reckoning brings us the following report:

"Already, we're seeing the symptoms of a collapse: soaring oil prices; tension between petroleum-starved economies; deadly terrorism in Saudi Arabia… But this time, it's not about ideology... it's about geology. Deep underground, the world's source of cheap oil is on the brink of running out. And nothing you do to make or protect your money can or will ever be the same again.

First a little history. And let’s start at the very beginning ('a very good place to start', so I’ve heard)...

Millennia ago, oil was a laxative. Then in 480 BC, the Persians used oil to dip and light fire-tipped arrows, which they launched over the walls of Athens. Back then, it's hard to believe, oil didn't mean much at all!

The world had the Renaissance, the Enlightenment, and the American Revolution... all without the benefit of oil. Then something changed… something people didn't expect to make such a difference at the time.

Cities got bigger. Big cities needed better lamps. Along came kerosene! In 1861, Nikolaus Otto invented the first gas-burning engine. Along came gas!

Then Ford showed us how to mass-market cars… and build mass-market factories. Oil made it possible to mass-produce food, cities... and war...

For the whole of the 20th century, we soaked up cheap oil to run our cars and heat our houses... light our porches... and power our tractors. Oil gave us plastics. And petrochemicals.

Oil shaped America... and the rest of the developed world. It changed us. And without oil, America… and the rest of the 'civilized' world shuts down... farms close; hospitals don't open; streetlights don't burn; trains and trucks don't run; planes don't fly. This isn't some fantastic doomsday scenario. It's just simple fact.

We burn through nearly 30 million barrels a year. Even 90% of the chemicals we use for farming, making drugs and making plastics... all come from oil. It's a habit we can't quit.

Some of us commute a hundred miles per day to and from work. Six billion people... driving 700 million cars. Globally, cars alone outweigh humans by 4 to 1. Every day, each car uses four times more energy in fuel than people need in food.

At the airport, a thousand planes a day take off and land, each carrying as much as 24,000 gallons of fuel. Passenger jets alone burn about 1,200 gallons of fuel each hour!

The phones, Internet, televisions, washers, dryers, refrigerators and stereos in our homes... the trucks, trains, planes and ships that deliver food to our supermarkets... our factories, tractors, turbines and compressors... weekend car trips to the beach, boxes of cereal on grocery store shelves, fudge-ripple ice cream in the freezers, heaping piles of fruit on the produce rack... none would exist or arrive without oil. On average, most food in North America travels 1,300 miles from farm to plate!

Now some disturbing statistics:

Over the last five years, the world has burned 27 billion barrels per year. But the oil industry only discovered 3 billion new barrels per year. How long can you use up nine times what you're finding in replacement? Not long!

In the 1930s, a geophysics professor at Columbia University made a discovery worth billions of dollars to oil investors and oil companies. He discovered how a liquid under pressure - like oil - can get trapped under hard rock. He also discovered how to get it out. And oil companies STILL use his discovery to find and recover millions of gallons of oil. Oil they otherwise would have missed completely.

But then Dr. Marion King Hubbert made another discovery. In 1956, Hubbert discovered that oil fields CHANGE dramatically as you drain out the oil.

At first, barrels of crude come squirting out of the drill hole. That's when times are easy. But after years of pumping, pressure disappears. Suddenly, the REST of the oil gets harder and more expensive to draw out.

When your entire business depends on how much oil you have in reserve, this is a very big deal. In fact, the biggest deal. When you get to the halfway drainage point - the 'peak' - the cost of getting the rest of the oil out skyrockets. Supply enters a permanent downward spiral. And pretty soon you have to look somewhere else if you don't want to run out of petroleum.

In 1956, Wubbert worked for Shell Oil. His bosses BEGGED him not to release his controversial 'peak oil' findings. But during a speech, he painted a chilling picture nonetheless... for a room full of oil executives and engineers. He told them that by 1970 the United States - the world's largest oil power - would hit its own devastating oil production 'peak.'

Now, you've got to picture this:

At the time, America could crank out more oil than any other country in the world. So nobody believed him. In fact, they ridiculed him. And the controversy that followed nearly ruined his career. Shell even hired other geologists willing to put the peak date in 1990 or even 2010... and Hubbert was all but shunned by the industry bigwigs.
But guess what happened. Like clockwork...

The United States hit its production peak in 1971! Oil well after oil well across Texas and Louisiana started to dry up. Domestic oil production took a downturn and never recovered. Within just three years, gas and oil prices soared... and US oil imports TRIPLED. OPEC suddenly had an advantage over the United States it had never had before. And the face of oil economics... and oil politics... changed forever.

Hubbert had been right. Many people got wiped out financially during the crisis that followed. But it turns out that was only the beginning!

See, the data Hubbert had discovered a full 14 years before the US oil peak didn't just predict a peak in the lower 48 states of the America... the same data ALSO predicted similar peaks for the rest of the world's petroleum nations... until the entire GLOBAL OIL PRODUCTION hit a permanent downward slide!

Sure enough, look what's happening... one by one, other oil producing countries have started to fall.

Libya peaked in 1970. Iran peaked in 1974. Romania - once Hitler's prize petroleum conquest - peaked in 1976. Brunei peaked in 1979. Peru in 1982. Cameroon in 1985. Indonesia peaked in 1997. So did Trinidad.

So far, a total 51 oil-producing countries have already SLAMMED into a wall of peak oil production. That's dramatic. On average for the whole European region, the peak year for oil production was back in 2000! For the whole Asian-Pacific area, it arrived in 2002! And for the former Soviet Union, the oil peak came in 1987!

I don't have to tell you what this means...

Shrinking energy supplies ALWAYS mean skyrocketing energy prices, even when the collapse in supply is temporary. What will it mean when that supply collapse is permanent? What will it do to the stock market... to budding small businesses... to the job market... and to the prices of everyday goods?

Another 16 major oil-producing countries have not yet hit their peaks... but the peaking dates are ALSO right around the corner. Many, many people will get caught unaware. However, others could make hundreds of thousands of dollars simply by buying the right energy and resource investments.

And what is more, some countries might have a lot less oil than they are prepared to admit! That's right. All along, someone has been LYING to us about how much oil they actually have on hand. I'm talking, of course, about the royal family of Saudi Arabia...
You saw what happened recently when Shell Oil shocked investors by admitting to over-estimating their oil reserves by 4.5 BILLION barrels. Think about that. Because it was an earth-shattering revelation...

When Long Term Capital Management crashed, it lost $1.6 billion. When Enron fell apart, it wiped out a breath-snatching $60 billion in investor capital. Yet when Shell admitted their reserve shortfall of 4.5 billion barrels... priced at the recent peak for oil prices... that's effectively a $189 BILLION blunder. No wonder Shell shares plummeted 9% in a single day!

But compared to what the crown princes of Saudi Arabia are doing, Shell Oil's indiscretion looks like child's play! That's right… when it comes to remaining oil reserves, here's the real scandal: Saudi Arabia claims to have enough that they won't hit their oil peak until 2011. Saudi petroleum minister Ali Naimi recently told a Washington DC energy conference "Saudi Arabia's oil reserves are real...There will be no shortage of oil for the next 50 years."

BALONEY! Do they have as much oil as they say they do? Absolutely NOT. What Naimi isn't telling you OR his colleagues is the truth about the Ghawar field. Ghawar was Saudi Arabia's biggest oil field discovery. In 1948, it held a mind-blowing 87 BILLION barrels of oil. That's a huge amount.

Then in the early '70s, the world's top four oil companies - Exxon, Chevron, Texaco, and Mobil - estimated there were 60 billion barrels of oil in the Ghawar. That's still incredible.

Since then, though, the Ghawar has churned out 55 billion barrels of crude. You do the math! SIXTY BILLION minus 55 BILLION... means only 5 billion barrels of oil left! That's not 50 years of oil. It's barely enough to sustain global demand for another THREE WEEKS!
The Saudis know it, too. Every day, they quietly pump 7 million gallons of seawater under the Ghawar oil reservoir just to sustain pumping pressure.

Sure, Saudi Arabia has another 300 oil reservoirs to draw from. But they still get as much as 90% of the oil they sell from a tiny handful of those reservoirs. The rest have already started to dry up! And that shouldn't surprise you, because five of Saudi Arabia's oil fields are so old, they were discovered between 1940 and 1965!
What about the rest of OPEC? Are they lying to us about total reserves too?

In 1986, OPEC made a new rule for its members: You could only export as much oil as your reserves. Within weeks of the 1986 quota rule, almost every OPEC country 'upgraded' its reserves so they could push more oil out the door and rake in more oil revenues for their coffers. Here's the thing: Those countries made the overnight 'upgrades' in their reserves WITHOUT a single new oil well discovery being made... and WITHOUT a single new rig being built! It's a scandal that has ALREADY cost investors and energy buyers hundreds of billions of dollars.

Over the entire history of the Oil Age... starting in 1859... the world has burned approximately 950 billion barrels of oil. Some of the most respected geologists in the world put the remaining oil reserves at 1 trillion. That sounds like a lot of oil. Until you consider:

When you average together peak production dates for all the major oil producing countries... including Saudi Arabia and the rest of OPEC that have not yet peaked... YOU GET A GLOBAL PEAK PRODUCTION FORECAST FOR SMACK-DAB IN THE MIDDLE OF 2006!

That's the conservative estimate. CBS MarketWatch says the coming peak oil crisis will 'dwarf that of 1973.' And the San Francisco Chronicle is saying we're looking at 'social and economic upheaval across the globe...'

And it's not just the geological crisis that will make energy scarce. For instance, take a look at China...

• General Motors just made an announcement. They're about to double their production of cars for the Chinese market.

• China had just 700,000 cars in 1993. Now they have 7 million. They also had only 15 million motorcycles then. Now they have over 100 million!

• China's energy use alone has already doubled over the last 20 years. Suppose China started using oil at a rate like, say, Mexico?

• Right now China uses just 1.7 barrels of oil per Chinese citizen. Mexico uses 7 barrels per person. If China matched those rates, total DAILY oil demand in China would soar to 24 million barrels per day… more than in the United States. And about 30% of the total oil demand worldwide!

• China expects to import TWICE as much oil as the United States within the next 15 years. Their rate of oil demand growth is already double the percentage demand growth worldwide.

According to the International Energy Agency (IEA), global demand just grew this year at its fastest pace since 1980. Average global demand is 88.1 million barrels a day. Out of that, about 20 million barrels of daily oil demand comes from the United States. That's a hard number to get your head around.

Think that $50 per barrel is expensive? How about $150 per barrel or more?

The reality of this could arrive sooner than you imagine. And when cheap oil finally does disappear, the world will search desperately for something... anything... to fill the void.

But wind, solar, hydrogen, thermal and more... most of these alternatives to oil energy are just NOT READY for prime time. They're either just too expensive to use or too different and complicated to develop SOON enough to make a difference.

However, among the most immediate options that DO work is the most incredible energy breakthrough by far... liquid natural gas (known as "LNG").

Natural gas, as you know, has been around forever. You have it lighting your stove, fueling your pilot light, maybe heating your water. But there has always been a big downside to natural gas. It's hard to move it around. In gas form, it can't flow through a pipe like oil. And you can't pack it into the hull of a cargo ship like you can several tons of coal.

"LNG" - liquid natural gas - changes all that:

The gas is super-cooled to a temperature of minus 260 F. You know that cooled gases turn into liquids. And in this new liquid form, natural gas is MUCH easier to handle. It takes up just 1/600 of the space it needed as a gas. It's also incredibly cheap to move around. And because it's natural gas, it still burns cleanly… even more cleanly than oil or coal. And the economics of LNG are perfect for the tricky crisis ahead.

Alan Greenspan recently told Congress that LNG is an ESSENTIAL "safety valve" for exactly the kind of tight supply energy crisis we're facing ahead. Here's what that means for you as an investor:

Washington is ready to throw huge money behind LNG. Investors who get in early, in the right LNG-focused companies, could make a FORTUNE.
The Big Oil companies are excited, too. At a recent energy conference, Exxon Mobil CEO Lee Raymond recently gushed (no pun intended) over the future of LNG. In fact, virtually all of the major energy companies have LNG research, facilities and exploration going on right now... they're getting ready to build more... and across Asia and Europe, this looks like the boom technology of the energy industry for years to come.

There's no denying this will be one of the most important new energy sources of the century! It's practically guaranteed by the fundamentals. Natural gas itself is already the fastest-growing energy market in the world . Nine out of 10 new electrical power plants burn natural gas. And consumption worldwide will double by 2025!

LNG will meet a huge and growing portion of that demand. It's already starting. World oil trade increases at 2.9% per year... while world LNG trade is increasing at more than TWICE that rate... or 6.7% per year! When "E-Day" hits in 2006... global LNG trade should be about 34% HIGHER than it is right now!

Your opportunity to make money investing in the right LNG companies over the next couple of years is HUGE. Make no mistake.

However, you won’t get rich playing LNG's future by buying stock in the majors like Exxon Mobil or any of the other Big Oil companies. They've just got too much else going on. It would be like buying an ocean to catch a fish! It’s necessary to hunt out the specialists in LNG production.

Here's another explosive opportunity you don't want to miss... METHANE.

In the golden age of Texas oil... you could practically tap a new well just by kicking over the right rock. There was that much oil sitting that close to the surface.Those days are over for oil. But right now there are over 700 trillion cubic feet of coal bed methane gas just sitting in coal beds all across the United States and Canada. At least 100 trillion cubic feet of this gas is recoverable already.

Now consider this... unlike most of today's big oil deposits, coal beds are huge and flat. They also sit very close to the surface. And virtually ALL coal beds also contain methane gas. Methane, propane and butane ARE the main gasses in natural gas. And with natural gas demand exploding... new coal bed methane technology will give ENORMOUS new opportunities to smart investors!

Just as in the old days of easy Texas oil wells, the fact that most coal beds sit close to the surface means gas developers do NOT have to drop deep drills to get at the gas. It's right there, within easy reach. Which makes it very cheap to get out of the ground.

And that's not all... exploration costs are low, because most of the coal beds in the United States and Canada have already been discovered. So all that's left now are the costs of processing and recovery.

So there you have it… not only can you survive the demise of cheap oil. Investing in the right LNG and METHANE stocks should enable you to prosper.

To read the full article, see the Agora Publishing site for An Urgent Warning

To learn how to trade the commodity markets and prosper, take a look at some commodity trading systems at Online Trading Systems

Recently the CRB index - an index of 17 commodities - surged to its highest level in 24 years. On the same day, copper reached a 16-year high. Then oil made an attempt at a 24-year high - $55.67 a barrel is the mark, set on October 25, 2004. Oil now stands at around $57/barrel and commodities are likely to tread water for a while, however, make no mistake - the overriding trend - on FUNDAMENTALS - is UP.

And the price of gasoline at the pumps isn’t exactly heading south. For the data, take a look at the Oil and Gas prices. Look out for $60+/barrel in the not distant future.

Justice Litle, reporting in The Daily Reckoning, takes a closer look at some of the longer term influences which will shape the world energy markets in the future:

"China's oil demand has doubled over the past decade, and the pace is only increasing. There will be ups and downs along the way: When the current infrastructure boom and the flood of foreign investment slow, energy demand will slow for a time also. But in the long run, the trend is inexorably steep. Consider this from The Economist (from "The Hungry Dragon," September 2004):

"In around 20 years' time, China's income per person could be close to South Korea's today. If its energy consumption per person also rose to current South Korean levels, its energy demand would quadruple. The increase alone would be greater than America's total consumption today, yet China's energy use per person would still be only half that in America. At present there is only one car for every 70 people in China, against one car for every two Americans. If car ownership were eventually to rise to American levels, there would be 650 million cars on Chinese roads - more than all the cars in the world today."

How is China going to ensure energy security with such a tall order to fill, let alone generating capacity for such incredible demand? First, by developing strategic ties with key energy producers who prefer an alternative to the "Bush doctrine" of the United States; second, by investing in local production and alternative energy sources that will reduce reliance on imports over time.

With key producers like Venezuela and Russia already in place, and with Canada as a long-term energy source, China's secondary focus is on alternative energy.

Through development of local resources and investments in cutting-edge technology, China can further close the energy gap and reduce dependence on outside partners. To this end, China is upgrading its nuclear power capabilities and investing heavily in advanced technology that will turn coal into petroleum products. It is in this area where Western investment opportunities remain; while it is not feasible to invest in the Venezuelan or Russian governments, China cannot avoid partnering with Western companies when access to technology is required.

Nuclear power is a natural choice for China. The standard "green" objections to nuclear power simply do not exist in the Middle Kingdom. Furthermore, China has awful problems with water shortages, air pollution and acid rain. A nuclear alternative could remedy some of these issues by substituting nuclear energy for fossil fuels and removing stress from the environment. Nuclear power has another green aspect as well: It produces virtually zero carbon dioxide, and thus does not contribute to global warming.

China has plans to develop a new type of reactor design known as a PBMR, or pebble bed modular reactor. The pebble bed reactor is theoretically cheaper and easier to build than traditional PWR (pressurized water reactor) plants. The pebble bed reactor also has a safety edge in that it is supposedly "meltdown proof": The reactor's uranium "pebbles" (actually the size of billiard balls) are coated with high-density carbon, preventing exposure in the event of a coolant leak. Thus, in theory at least, the disasters of Chernobyl and Three Mile Island could not happen with a PBMR. Furthermore, because the pebble bed reactor design is modular, extra generating capacity can be added over time, allowing for further development as needed and less lump sum expense for initial construction … …

On another experimental front, China is spending more than $3 billion on a coal-liquefaction plant in Inner Mongolia. The Shenhua Group, China's largest coal producer, has partnered with a U.S. technology provider to convert coal into petroleum products. In a nutshell, the process involves breaking coal down into hydrogen-enriched molecules, which are then converted to traditional oil products. According to Zhang Yuzhou, vice president of Shenhua Group, "The project consists of two phases of construction, and after the second is complete, the plant aims to yield 5 million tons of oil products annually and greatly reduce China's reliance on crude oil imports."

The winners and losers in China's quest for energy security revolve around transport, exploration and technology. China's demand for oil imports will rise inexorably over time, even as their internal energy sources come on line. This will create a rising demand for tankers, which in turn may benefit shipbuilders over the long cycle. As oil economics turn in favor of further exploration, there will be more opportunity in development and wildcat-style exploration projects, with big profits to the winners and heartbreak for those who come up dry. Look for the oil majors to participate indirectly in any exploration boom as well, spreading their risk through funding and backing of smaller players.

And of course, alternative energy technology is coming into its own. For the past few decades, alternative energy was simply not an economically viable option: Crude oil was too inexpensive, the initial development costs too high, to take alternatives seriously. But now, the development seeds are being sown, with compelling economics on the horizon for fossil fuel substitutes. In this arena, the companies positioned to profit most are those with hands-on intellectual property...alternative technologies that can be sold, licensed or leased but not easily copied or stolen, due to implementation requirements and need for hands-on expertise.

With the 20th century's books now closed, China looks to the 21st...and they know it is their time. In this new century, the dragon will rise again. As investors, we ignore China's destiny at our peril. Whether we see China as friend or foe is irrelevant; in fact, whether or not China fully succeeds in its ambition is irrelevant. What is certain is that China's strategic actions, and the resulting reactions, will dramatically alter the global landscape. We are in the beginning stages of a sea change."

So there we have it - as investors and traders we would be wise to pay heed to these global economic trends in the energy and related industries. For those with an eye to the future, there are phenomenal profits to be made; but for those with their heads firmly buried in the sands of time, possibly equally large losses.

In a future post, we’ll be taking a look at how to safeguard your investments and actually profit from the forthcoming turmoil.

For the full article, see The Dragon is Ravenous

Confession - I’m a Euro bear ... fundamentally speaking.

And that flies in the face of the "conventional wisdom" one hears on almost every street corner these days. Not to mention from the lips of the likes of George Soros and Warren Buffett.

But lets not confuse issues. On long term fundamentals I’m a Euro bear, on short to medium-term "trades" I’d be foolish not to be a Dollar bear and Euro bull.

But it’s the fundamentals that interest me most. Of course the technicals are fine to enable one to eat, but its in the fundamentals - and I’m talking hear about the global economic picture – the BIG PICTURE - not just about "selective" fundamentals, plucked out to justify one position or another – that you’ll find where we’re ALL headed in the long term.

Sure, at the moment the euro is between a rock and a hard place. Eurocrats and perma-bears like to blame the US dollar’s decennial low against the euro for Europe’s currency and economic troubles. And when we talk here about "Europe", I’m referring to Continental Europe (Eurozone if you like) and not the UK, which is a relative economic oasis at the edge of it’s continental neighbour’s economic wasteland. The Ugly Americans, according to them, are importing more than they export and thus requiring the (allegedly ever-so-thrifty and prudent) foreigners to bankroll Yankee consumption.

But with every tiny soundbite emanating from Brussels, Tokyo or Seoul, the dollar drops a bit more. And with every decline, the relative value of European and Asian dollar-denominated currency reserves and company earnings drops as well. Unfortunately, due to insufficient economic reforms in the respective countries, domestic demand is stagnant or even recessive - and in no shape whatsoever to make up for falling US demand.

In Japan, where dollar reserves are estimated at US$820 billion, each cent the dollar loses in value means US$8.2 billion in unrealized losses. In 2004, the European Central Bank (ECB) recorded a tripling of its losses - to over 1.63 billion euros, due mainly to a devaluation of its dollar reserves by 2.1 billion euros.

And its no better in Germany where cash-strapped German finance minister Hans Eichel won't be expecting no check in the mail from the Bundesbank this year: experts forecast a break-even year for the German central bank, with a potential loss of 500 million euros.
Given this dynamic, it becomes quite obvious why China, for one, steadfastly refuses to float the dollar: any increase in the yuan would erode its central bank reserves while making Chinese exports more expensive. And internal demand in a country that still pays third-world wages for workers producing high-end goods is simply insufficient to make up the difference!

European firms, too, are feeling the pain. French defense contractor Thales just cut its forecast for 2005, which it had calculated at an exchange rate of US$1.15. (The dollar is trading at US$1.33 today.) Thales chairman Bernard Arnault was quoted as saying that the company "had to wipe 500m euros off our operating profit due to the decline in the dollar alone." Even the recently celebrated aerospace firm EADS indicated that the weak dollar is forcing it to build 300 of its new Airbus A380 super jumbos to break even. That’s a 20% increase over its previous forecast.

Each drop in profitability and each euro in non-realized central-bank profits translates into greater pressure on the respective domestic market and public debt level. And public debt, as a percentage of GDP, is already higher in Japan, China, Germany, Italy and France than it is in the US.

Did you get that? I’ll repeat for emphasis:

Public debt, as a percentage of GDP, is already higher in Japan, China, Germany, Italy and France than it is in the US.

Each high-level complaint about the weak dollar translates into a further fall in the value of the dollar. The euro’s valuation is choking off the already modest (read "negligible") growth rates in Europe (read "Continental Europe") - and is likely to do so until the central banks take active steps to depress its value.

These steps become even more likely considering that a correction of the US current account deficit would be even worse news. If the US were to restrict imports of foreign goods, for example, the miniscule economic growth rates in Europe and Japan would collapse.

Get it? Good!

But for the short term, and since traders have to eat too, let’s join the party, trade forex and get bearish on the dollar.

Some of the most fascinating areas of trading are, to my mind, the commodities markets. Trading in commodity futures means trading in physical items – all well-known and all of which touch the lives of most of us. The commodity markets are also arguably the least understood by the majority of traders and therefore often avoided.

And within the commodity markets, perhaps the most arcane item to trade, at least by non-specialists, are the meats.

A recent article by veteran commodity trader Kevin Kerr in The Daily Reckoning gives us a rare insight into just what exactly are meat futures. Here are some extracts:

"Few markets conjure up as many images from investors as the meat futures markets do. Some people will think of Old West cattle auctions, with cowboys and ranchers bidding on prized bulls. Others know the meat markets are just like any other market, though they still hold on to the notion that it's exotic and full of risk …

Certainly meats are risky, the same as any market. But they're also a vital market filled with many opportunities for your portfolio. Of course, you're not likely to hear about them from your broker. The sad fact is, most analysts on Wall Street only know cattle as it's served up to them at a Morton's or Ruth's Chris Steak House.

Essentially, meats are traded on Chicago Mercantile Exchange. And as I said, all trading is done much the same as any other commodity. Of course, like all markets, meats have a very unique language. Traders concentrate on data that nobody else looks at …

Cattle are used in a variety of products - leather, soaps, animal feed, even camera film. But of course, when we talk cattle, we're mostly talking beef - everything from steaks to hamburgers.

As far as trading is concerned, cattle are broken up into two different categories: feeder cattle and live cattle …

Feeder cattle - sometimes called lean cattle - are just as alive as live cattle. They're simply calves that will be sent to feedlots to fatten up. Once they've gained enough weight, they can become "live cattle" - ironically, the ones that get shipped out for slaughter.

The slaughtered cattle meat is graded and sorted. If you've bought meat in a grocery store, you probably know a little something about that. The meat you buy is most likely labeled "Choice," "Select," or "Standard." In all, there are six categories of beef, and five yield grades, measuring how much beef came from the cow.

About 50 % of the meat is sold as steaks and roasts, 5% as stewing beef, and the rest becomes hamburger.

The butcher can then sell what's left of the cow to leather manufacturers and others that use cattle products.

Not surprisingly, cattle are raised all over the world. At last count, there were more cattle in India than in any other country. Brazil runs a distant second, with China, the United States and Europe rounding out the top five.

Beef doesn't have a very big import/export market - it's usually consumed in the country it's produced. Among exporters, Australia leads the way, followed by the United States. Most of the U.S. beef comes from just seven states - Arizona, California, Colorado, Iowa, Kansas, Nebraska, and Texas.

Like everything else, beef prices are a function of supply and demand. And like all commodities, a variety of factors can affect both.

You'd probably think weather doesn't play as big a role on cattle production as it does with other farm commodities. After all, with cattle there really isn't a planting, growing or harvesting season. Short of a severe drought or a major flood, the cows will always be there.

But the fact is, it takes a lot of money to raise a cow. Feeder cattle need a lot of pasture. And live cattle need a lot of feed. If there's too much or not enough rain, the pastures won't be able to support as many cattle, so ranchers will have to cut back on the number of cattle they raise. That'll limit the supply of feeder cattle, which in turn limits the number of live cattle.

Meanwhile, if grain prices are adversely affected by the weather, the feedlots may cut back on the number of cattle they buy. Again, this reduces the overall supply of cattle.

Demand, on the other hand, can fluctuate wildly. The main factor is usually personal income. The more money people make, the more they're willing to plunk down $50 or $75 at for a steak at Morton's. Usually increased paychecks translate into increased demand for high quality beef faster than most other foods.

If people are tightening their wallets, however, macaroni and cheese may be the meal of choice.

Other demand factors are less than economic. I'm talking about people's diet and preference. The mad cow disease scare pushed some people away from beef. (You might remember that some cattle ranchers blamed Oprah Winfrey for starting an anti-beef drive.)

More recently, diet fads like Atkins have brought people back. So if you're a beef trader, you have to keep an eye on pop culture. Keep track of what talk and tabloid shows are saying, what big celebrities say they're eating. You never know when a simple sound bite could lead to a big rise or drop in beef prices …

Now that we have the cows out of the way, let's look at the pigs. Lean hogs are the other major meats contract...

"Lean hog" may sound like an oxymoron. But as far as trading is concerned, it simply means a pig big enough to be slaughtered. So your pork chops, ham and even bacon come from lean hogs.

In fact, 20% of a pig's meat becomes ham. About 17% becomes pork loins and chops. And 15% - the hog's belly - is used for bacon. (Let's just say the rest of the meat falls under the category of "Other" and leave it at that.)

Just four states account for more than half of U.S. pork production - Iowa, Illinois, Indiana and Missouri. You may have noticed those are all Corn Belt states. That's not a coincidence... because farmers like to keep their pigs near their favorite food source. Yes, corn. So once again, weather plays a big factor in hog prices. If corn is expensive, farmers will feed their pigs less. In turn, it reduces the supply of lean hogs. And that drives prices up.

In fact, a key report to keep your eye on is the Hog/Corn price ratio. Simply put, it's the price of hogs versus the price of corn. Naturally, the higher the price of corn, the lower profits a pig farmer will see. So you can expect farmers to cut back on the number of pigs they raise.

The natural flip side is when corn prices are low compared to the price of hogs. More than likely, farmers will try to take advantage of the high prices to raise more pigs.

Weather plays a role on pigs another way. Pigs have a habit of becoming lethargic when the weather gets too hot - just like people do. Not only do they eat less, they also breed less. That ultimately means lighter pigs are sent to the butcher, while the number of baby pigs decreases. Colder weather makes for better breeding conditions (go figure...), increasing the next generation of piggies …

The demand for pork remains as strong as it ever was. Beef may be "what's for dinner," but pig farmers are busy reminding people that pork is "the other white meat." Meanwhile, the Atkins diet and other fads have reversed people's bacon aversion. In fact, since there's almost no market equivalent to bacon, demand has remained fairly constant."

Read the full article in the Daily Reckoning 03/01/2005.

For a good introduction to the fascinating world of commodity futures trading you can do no better than the Futures Trading Secrets course from Bill McCready: Commodity Futures Trading