The Tycoon Report

Why the Decline of the U.S. Dollar is here to Stay.

In one day the dollar erased most of the gains it had made since the beginning of the year. The next day it bounced back some. Why the decline of the dollar is here to stay.

 THE NEW TRIUMVIRATE?

No, I'm not talking about Michael Eisner, Robert Iger and James Stewart. Nor am I talking about W., Schroeder and Chirac. Sure they hugged and kissed in public, but we all know that in private, W. took the french fries and saurkraut and tossed them to the dog under the table.

Nope, the triumvirate I happen to be talking about involves Warren Buffett, Bill Gates and Fan Gang. Fan Who? Fan Gang. No you won't find Fan on the Forbes 400 list. Nor will you see him at the next board meeting of Berkshire Hathaway.

Nope, Fan happens to be a Chinese economist that works for the state-owned National Economic Research Institute in Beijing. But that's not what makes Fan so unique. What makes him so unique is what he said at the World Economic Forum in Davos, Switzerland last month.

At first glance, it was a statement so subtle that not many people here in the States paid attention to it. But I did. Why?

Because it has major implications for investors all over the world. What he said was that "The U.S. dollar is no longer seen as a stable currency and is devaluing all the time..." In other words he dissed the dollar. Tossed it to the curb. And that puts him in good company.

Specifically it proves that he shares the opinion of America's two richest business tycoons - Warren Buffett and Bill Gates? Why? Because the Oracle of Omaha has been bearish on the greenback for a couple of years now and his little buddy has just joined him. That's right.

In a recent interview with Charlie Rose, Bill Gates, the Seer of all Seer's, said that he was "Short the Dollar." He went on to call the federal debt "Scary," and complained that the U.S. budget deficit is in "unchartered territory." Unpartriotic? Hardly. Realistic? Definately. But that was only the beginning.

The BIG news happened this week when South Korea announced that it was moving out of dollar denominated assets. Yup. One of the Asian Tigers - who've been helping finance our budget deficit by loaning us $2 Billion per day - has decided that they don't want to loan us money anymore. That made oil prices shoot up past $50 per barrel. And the stock market drop 174 points - its biggest one day drop in a couple of years.

So why is everybody so nervous? Here's the quick answer: Oil rose because it's priced in dollars. In other words, the countries that sell oil collect dollars every time they sell a barrel. And if the value of their dollars decline they need to make up for it somehow. That's one of the reasons supply will be tight for some time and prices will stay high.

But there is another problem. A problem that WILL AFFECT YOUR PORTFOLIO if you don't take action now. In short, here it is: Asia is starting to move away from U.S. government debt. In other words, they don't want to loan us money anymore. But we still need the money because the U.S. government is running massive deficits. So the BEST CASE SCENARIO of that decision is to send interest rates higher. And that could hurt you as an investor.

But it's the worst case scenario that could really hurt you. It's called the inflation scenario. That's because when people stop buying bonds at current rates, what they are saying is that they want to get paid more interest for the risk. And if the Asian Tigers all do it at the same time, we will see an inflationary spike in interest rates. That means that the bump in salary you were so proud to get will buy you less than you thought it would. And that could have a devastating effect on some stocks.

BUT NOT ALL STOCKS.

As a matter of fact there are plenty of companies that can actually DO WELL in an inflationary environment. Companies that can raise prices above the inflation rate. Companies that have pricing power. We think this is so important for you to know about that we've prepared A FREE REPORT just to show you what companies they are.

To get the free report, "5 Rules to Profit From in 2005" in adddition to 3 OTHER FREE BONUS REPORTS, sign up for a 30-day free trial today.