Februrary 2013

Why Everyone is Wrong About the Dollar

You hear it all the time. The dollar is dying. Every gold bug and fiscal hawk claims that unprecedented money-printing by the Federal Reserve will push the greenback’s value to zero. At the same time, they also claim the precious yellow metal will soar almost 300% to $5,000 an ounce.

There is only one problem with this scenario. It’s complete nonsense.

There are even those who believe the dollar’s days as the world’s reserve currency are over — marking the “End of America.” That’s also nonsense, but more on the greenback’s reserve currency status later.

Sometimes, it takes a broader view to see the obvious.

Even the biggest financial crisis in history wasn’t enough to kill the greenback — in fact, it had the opposite effect. In case you didn’t notice, in late 2008, the last time we had an actual financial meltdown because of a debt crisis, the U.S. dollar went up 27%. So that should make you go… hmmm.

And conversely, between 1985 and early 2008, during the boom before the financial crisis, the dollar’s value slumped by 58%. Why? We debased it by creating $57 trillion in private and government debt. The Federal Reserve does not create much money, our private and government borrowing systems do!

The point here is that it is not exactly the growth of money and dollars over time that’s causing all the problems. Think of it this way. Since computer chips were invented, they have multiplied by trillions to create massively more chips per person, fostering a revolution in human communications and empower-ment. This is clearly a sign of progress. Steve Jobs realized the possibilities of this in the late 1970s. 

So why isn’t the multiplication of dollars viewed as progress? Economic progress has always required more dollars per person to improve our standard of living. More dollars facilitate a more complex urban society with greater trade and specialization of skills. Inflation, or more dollars, is not in itself a bad thing — at least not longer term.

But borrowing to live beyond our means is. In many ways, printing money is debt. But money printing is a short-term panacea that will not work long term. And, so, the real problem today is not the money printing in recent times to combat the

Inside This Issue:

Biggest BS Chart Ever ....................Pg 2

Truth About the Greenback ............Pg 4

The Madness of Gold ......................Pg 6

Portfolio Update ..............................Pg 8

Editors

Harry Dent and Rodney Johnson

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recent financial meltdown, but the massive debt that was created between 1983 and 2008 that was the root cause of that meltdown.

A falling greenback is exactly what the Fed and the U.S. government want — mostly because it makes American exports more competitive in the world’s marketplace. It’s a strategy with a rationale to boost U.S. economic performance.

Nonetheless, there is no question this hurts savers. While inflation is running higher than the manipulated interest rates (again, courtesy of the Fed), conservative investors and those on fixed in-come are seeing their standard of living fall.

There are always casualties of currency wars. Foreign holders, like other central banks, see the value of their U.S. dollars fall. Those who price their exports in dollars, like oil-producing coun-tries, are also hurt.

But none of this will knock the U.S. off of its currency throne. The U.S. is here to stay. Those who think — and invest — otherwise, do so at their own peril.

The Biggest BS Chart EverAlmost every gold bug and fiscal hawk out there

remains fixated on what I like to call the “Biggest BS Chart Ever.” This is the chart they whip out to demonstrate the declining value of a dollar over time. I’m sure you’ve seen it. Here it is below.

$0.01900 1920 1940 1960 1980 2000

$0.25

$0.50

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$1.00

Value of the Dollar

There is also a similar chart, one that measures the dollar in terms of gold. This simpleton chart is the most moronic I have seen in my decades-long study of economics. It means almost nothing and

is used to scare people into thinking that the U.S. dollar is going to hell in a hand basket and that your wealth is being robbed by inflation. In fact, it actually means the opposite.

Back in the early 1980s, I had one of my many great “ah-ha” moments as I was rapidly and in-tensively studying 3,000 years of Western history, from the rise of Greece through the recent era of U.S. dominance.

What I saw was that inflation over the long term actually correlates with a rising standard of living, and it’s particularly higher when popula-tion is growing, urbanization is rising, empires are being built and new technologies are advancing. This was the case during the Greek and Roman empires, the centuries following the invention of the printing press, gunpowder and the discovery of America, and during the last century after the introduction of electricity, automobiles, mass pro-duction and, most recently, the information revo-lution and internet.

I had always thought inflation was a bad thing. And there are certainly periods in history when inflation really was bad, such as during the 1970s, when productivity was very low or when there were wars that cost a lot and fail, like WWI for the Germans (leading to hyperinfla-tion with the reparations on top of an already bankrupt nation). So how could inflation ever be a good thing?

But by the logic of this chart of a falling dollar in value, people should be much poorer than they were in 1900 … but that is clearly not the case. It looks as though inflation should have finished everyone off, but it didn’t.

A Typical Household in 1900Let’s look at the simple evolution of the hu-

man family to explain why inflation usually ac-companies progress and why a successful and more urban economy needs far more dollars per person to function and flourish.

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Let’s go back to the beginning of the chart — to a time when the dollar adjusted for inflation started falling. Back then our economy was much more rural. Most people were still farmers, trap-pers or miners. It was a very basic commodity economy, not as complex an industrial or service economy as we have today.

Life was much simpler back in those days, but much less affluent. It was also much harder and riskier. One bad weather season could be life-threatening. Random raids from outlaws or wild animals could destroy everything.

So, how much money and income does this ru-ral family need? Not very much. It built its own house and the family hunted, fished and farmed for most of its food, which it cooked themselves. Clothes were homemade and the family often edu-cated the kids themselves. It was a life of constant babysitting.

It was an economy and lifestyle that was largely self-sufficient with very little trade. There was al-most no reliance on services and transactions from other people — except perhaps some basic tools, pots, guns, ammunition, flour, seed for planting and a plow.

All of these things had to be bought at the small general store several miles away in a little town with almost no government services to pay for. When there was a dispute, it was usually settled with a gunfight and muddy dirt roads that didn’t cost much to maintain. Many would barter with neighbors or stores.

You didn’t have a lot of money, but you didn’t need a lot of money, and you certainly didn’t need credit for buying homes or cars.

Now Let’s Fast Forward 113 YearsIt’s 2013, and we are smack in the middle of a

highly urban, industrial and service economy. The typical household has massively higher incomes than those in 1900 and it outsources a massive number of tasks.

Almost no one hunts or grows their own food anymore, and few parents educate their own kids.

And who builds their own house nowadays? I don’t even fix one thing at my house, because I don’t have a clue how to do it. Many households these days have maids, nannies and babysitters, and they use all types of local services from dry cleaners to pharmacies to gas stations. At the same time, we use all types of utilities, many of which are delivered right to our house — electricity, wa-ter, sewer, cable and internet.

Meanwhile, we go to doctors, tax accountants, lawyers, dentists, financial advisors, mortgage brokers, real estate agents and so on. What was health-care spending in 1900? Was there a retire-ment to even plan for? We also buy and download massive amounts of information. We borrow to buy cars over six years and houses over 30 years so we can afford what we need, especially while we are raising our kids. I wish I had a time machine for all those who want to return to the so-called “good old days” — and then watch them beg to come back.

The real economic fact of all this is that tech-nologies and greater urbanization has allowed us to create progress through a simple concept called specialization of labor. In other words, the more we focus on what we do best and specialize in skills in that area, the more productive we become. And if we are going to get paid more for our special-ized services and delegate the others, we need sig-nificantly more money and credit to facilitate this kind of economy.

That’s why the amount of dollars in the econo-my by necessity has had to increase and why infla-tion is natural and very productive, most of the time. And the cost of the goods you consume will clearly rise when you pay a lot of middlemen and specialists to produce and deliver them. The real point here is that over time our higher wages from greater specialization more than offset the rising costs of living in a more urban, interactive and specialized economy.

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The Truth About the GreenbackThose who say the dollar is dying are fools, who

base their unfounded theories on cockamamie myths like these:

Myth #1: Governments are purposefully debasing our currencies and eroding our purchasing power so they can spend recklessly and pay back their debts in lower dollars.

Our research shows clearly that urbaniza-tion, economic progress and demographics are the root cause of most of the inflation and progress over history — not intentional govern-ment policies (outside of the occasional banana republic).

There are times when governments let infla-tion get out of control, but no central banker or president would want to piss everyone off by pur-posefully creating 1970s-type inflation. This kind of thing is only excusable in times of major war. And they never pay back in cheaper dollars either (unless they default), as the dollar-doomsdayers usually claim — because the higher the inflation rate, the higher the interest the government (and everyone else) pays. Yes, they have to pay back their debts with principal plus interest, just like everyone else, and the interest more than accounts for the cost of inflation.

$01900 1920 1940 1960 1980 2000

$5

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$25$26.88 in 2011

$3.79 in 1900

$30

Wages Climb 7.1 Times Since 1900

The chart above shows that, after adjusting for inflation, wages have climbed 7.1 times since 1900 — a period during which inflation surged and the dollar’s “value” plunged. Hence, it’s not the value of a dollar that counts, but what your income in dollars will buy.

We use manufacturing wages, simply because they have the longest history of information. Average wages would be even higher today, be-cause managerial, professional and technical jobs have seen the greatest growth.

It is ridiculous to suggest that our standard of living since 1900 has been eroded by the inflation or creation of more dollars — yet I continue to hear this nonsense. In fact, during this period, it probably increased at a faster rate than any time in all human history.

Myth #2: The falling dollar is eroding our store of value and capacity to save.

Even as the “value” of a dollar has fallen, your ability to preserve such value has not — unless you are still living in the little house on the prairie and stuffing your wealth under your mattress. In spite of claims to the contrary, we all get paid interest that is largely based on inflation rates plus a pre-mium for risk.

Since 1900, one-year government or risk-free interest rates adjusted for inflation are pretty steady and have averaged at 1.31% over inflation with long-term averages of 4.59% vs. 3.28% inflation. Meanwhile, 10-year Treasury bonds are more vola-tile, but have averaged 1.52% more than inflation (4.80% vs. 3.28% inflation). So, you can preserve the value of your savings and a bit more with little or no risk and are not being robbed.

However, in periods like the last four years, the government has pushed risk-free Treasury rates below inflation to save the banks and stimulate the economy. It is true that, currently, they are robbing your savings capacity and this is likely to continue to be the case for several years to come. Nonetheless, this is a rare occasion. Similar phe-nomena occurred during the Great Depression and World War II —times of severe crisis, like the one we are in now.

Myth #3: The U.S. dollar and other currencies will to decline to zero.

5Boom & Bust

If I had a dollar every time I heard this state-ment, I’d be a rich man. For some reason, a lot of people seem unable to grasp the fact that curren-cies trade relative to one another. Currencies do not have an absolute value like stocks or bonds.

And because we are no longer a commodity-based economy — gold is no longer the best stan-dard; there is simply not enough of it and it is not growing in value as fast as higher-value added goods and services that now drive our economy. It was a good standard up until the late 1800s. If you print more currency for no good reason or just to artificially stimulate like now, yes you can devalue it vs. another currency that is not doing that.

But what happens in a period like now where al-most all major nations are doing this? The Fed has printed $2 trillion in QE out of thin air with $1 trillion a year to come. But the European Central Bank has printed more than $3 trillion with much more to come. That’s why the dollar has actually gone up a bit against the euro in the last few years. Meanwhile, Japan has created the equivalent of $5 trillion in QE and now has the most aggres-sive money printing strategy of all after a failing economy for over two decades.

Overall, when everyone is printing money to-gether, currencies do not simply fall to zero, they appreciate or depreciate relative to each other’s money printing, trade imbalances, debt and eco-nomic progress.

601980 1990 2000 2010

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100

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160U.S. Dollar vs. its Trading Partners

-58%

In fact, the above chart shows that the U.S. dol-lar measured against its trading partners has actu-

ally appreciated since the economic crisis began in early 2008, but only after depreciating 58% from its high in 1985 during the great boom. The truth is that we debased the U.S. dollar during the great boom and debt bubble. The downturn of the next decade will tend to destroy debt, which means fewer dollars that are worth more!

Myth #4: The U.S. dollar will soon lose its status as the world’s reserve currency.

Some naysayers claim the dollar’s day is done as the reserve currency of the world. Like others of their ilk, I’m afraid they’re just not getting it. And they are overlooking one important fact — it’s re-ally no fun to be king.

But first, let’s look at what all the fuss is about. What would happen if the U.S. continues to man-age its currency like a drunken sailor manages his paycheck? Starting in the 1970s (except for a couple of brief interruptions), the U.S. has con-sistently worked hard to cheapen the greenback, mostly to make its exports cheaper to the world. And since the financial crisis, the Fed has super-charged this trend by adding outright money-printing to its usual tools of lower interest rates. It has already printed trillions of dollars and there is no end in sight.

Now here’s the point — the U.S. is currently printing $85 billion per month under a program that has no termination date, and what has been achieved? Sure, money has been consistently si-phoned off from all who hold dollars, domestic citizens and foreign central banks alike. Inflation has soared in countries like China that export large quantities to the U.S.

Many foreign nations have squealed about U.S. currency mismanagement. But what has it done to the status of the U.S. dollar as the world’s currency reserve? Absolutely nothing!

There is no question that foreign holders, like the Chinese government, have worked to mini-mize their new U.S. dollar purchases, or even

6 Boom & Bust

created some bilateral agreements denominated in other currencies, but there is not a chance of a wholesale shift away from the greenback. And certainly no country is itching to snatch the crown from America’s head. Why? It’s no fun to be king.

Which country really wants a stronger cur-rency? The British, who remain stuck in recession? The Japanese, who have vowed to fight to create inflation and have threatened the Bank of Japan if it doesn’t print enough yen? The Chinese, who run an essentially closed currency, only allowing very limited foreign transactions in their currency? The euro zone countries, which continually argue over the best way to contort their own laws to allow further debasement of the euro to save their failing nation members?

When Nixon closed the gold window in 1971, it cut the last tether that anchored cur-rencies to a basic commodity, and it changed the currency game for the world. With no currency tied to a metal or other commodity, every cen-tral bank could now manipulate their currency as they saw fit.

This unfettered ability to seemingly ease the pain of a down economic cycle by shifting the val-ue of currency from savers to spenders (by devalu-ing the currency and encouraging borrowing), is now a staple of every major country on the planet. With everyone debasing their currency as quickly as possible, which country truly wants its currency to supplant the greenback as the world’s reserve currency?

The silence is resounding, because, in a world of debased currencies, every country wants its ex-ports to be more competitive on the global mar-ket. Strengthening a currency achieves the exact opposite.

The Madness of GoldOf course, there is always the possibility of sim-

ply reverting to a gold standard, where citizens and foreign-currency holders alike demand that a large country like the U.S. reconnect its currency to

the metal. Sure, this move would serve savers and those who use the currency as a reserve as well as in contracts because it would preserve value. But it would also cause the currency to strengthen at an astonishing rate as savers around the world rushed into the currency. And again: which country really wants a currency that strong in today’s world of a race to debase currencies? Which country wants a dramatic export slowdown?

A return to gold would also remove a govern-ment’s ability to adjust the currency as it sees fit. And which government is going to give away its ability to manipulate the business cycle? This would leave the business cycle to fluctuate in re-sponse to the production and pricing of gold which emanates from some of the most unstable countries in the world. Other than Ron Paul, there aren’t many politicians out there desperate to get government out of the money game.

With all of that said, there is one group of ex-porters that would love to see the dollar strengthen. Because they sell an essential good with inelastic demand — oil.

Large oil producers, who generally trade in U.S. dollars, would have their economic fortunes boosted by an increase in value of the greenback. As the price of oil in other currencies rose because of the U.S. dollar’s strength, the demand would not necessarily fall at the same rate, leading these exporting nations to increase their overall take.

Right now there is not a single currency of any size that is backed by a commodity, so the entire currency world is relative. Each currency is valued only by how much of another currency it will buy. This means the sand is always shifting underneath every currency.

All of this means one thing - there might be a lot of wailing, gnashing of teeth and tearing of cloth over the shameful way the U.S. has managed the greenback, but the chances that any currency challenges the U.S. dollar for its position of world reserve currency is remote at best.

7Boom & Bust

The more noises we hear about the dollar being near the end of its supremacy, the more oppor-tunity we think is on the table. We have held the USD Bullish Index in our portfolio for some time, and we added the UltraShort Japanese Yen posi-tion last summer. Both positions are still rated a “buy,” because we think the greenback will do well in the years ahead.

Don’t worry about all those people calling for the end of the U.S. dollar. They will still be there next year, and five years after that. And if the U.S. dollar does appreciate in the coming years as we expect, who would want to abandon it for other falling currencies?

The Key to the Real ProblemThe greatest secret is that the private banking

system creates most of the money and debt, not the Fed or the government. This explains why the U.S. dollar has depreciated 58% vs. other curren-cies since the early 1980s — the creation of $42 trillion in private debt and $13 trillion in govern-ment debt at the peak of the debt bubble in 2008.

The U.S. led the debt bubble globally and its currency devalued in the bubble boom, because such debt was primarily the result of aggressive lending practices.

Deleveraging debt is the secret to increasing the value of the U.S. dollar and to rebalancing the economy so it grows again. This happened violent-ly from natural free market systems in the 1930s. However, this time the government is actively pre-venting the rebalance by printing money.

Nonetheless, despite the very real economic problems, you will also find one very real solution:

Real Problem #1: Total debt grew more than 2.5 times the economy for 25 years.

The following chart reveals how total govern-ment and private debt has grown much faster than the economy, 2.54 times as fast as GDP be-tween 1983 and 2008. The paradox here is that

such debt bubbles always occur during good economic times, when technologies are mov-ing mainstream and demographics are driving rising productivity. Life gets good, but people also get greedy. They borrow to bet on what they perceive as never-ending progress and rising real estate values.

01983 1991 1999 2007

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Debt has Outpaced Economic Growth

Trillion

s

Debt Growth 773%

GDP Growth 304%

Governments encourage this phenomenon, even for less affluent people who can’t afford it, and the banks join the party, abandoning all prudent long-term lending standards, because their profits correlate directly with debt growth. However, debt bubbles are never sustainable — for obvious rea-sons: we are speculating and cheating to get ahead, instead of thriving through hard work, innovation and saving/investment.

Real Problem #2: Debt bubbles are always fol-lowed by periods of austerity and deflation.

These debt bubbles always burst and they are followed by deflation — not inflation. History is crystal clear on this. So if you are running around screaming about hyperinflation, you will be disap-pointed.

The 1820s land rush bubble peaked in 1835 and was followed by a seven-year depression with de-flation in prices. The 1857-to-1872 railroad debt bubble was followed by a deflationary depression between 1873 and 1877, followed by off-and-on deflation and deleveraging into 1896.

The farm and stock bubble that peaked in 1929 was followed by deflation and depression between 1930 and 1939. This time, however, the govern-ment is actively inflating the economy by injecting

8 Boom & Bust

artificial money to combat deflation. That won’t work forever, because it does not address the debt problem. It also shows deflation is the real trend, not inflation. How else could you explain why the largest money-printing operation in history has caused so little inflation?

The Real SolutionCash, Cash Flow, Investing in the U.S. dollar and

Shorting Stocks — not gold, silver, the euro or the Swiss franc.

Don’t listen to those who preach hyperinflation, gold rising to $5,000-plus and the U.S. dollar tumbling to zero even though it may seem logical to you. These people mean well and we agree with them about the severity of the debt crisis and the inability to solve it by printing money. It is the consequences on which we disagree.

We side with history, not the same human emo-tions that cause bubbles in the first place! Even if you still question our view of deflation vs. acceler-ating inflation, there is one investment that does well in either scenario: shorting stocks and major stock indices. Stocks went down in the 1970s in-flation crisis and down even more in the 1930s deflation crisis.

I urge you to simply and objectively look back at the last financial meltdown in late 2008. Gold slumped by 32%, silver by 50% and oil by 84%. Real estate’s decline was worse than during the Great Depression. Hard assets did not do well at all. However, the U.S. dollar index (UUP) climbed 27%. It was the safe haven. Ponder that for a while and keep listening to our very hard-headed and realistic look at why deflation is the trend, not inflation.

Our colleague and investment analyst Adam O’Dell explains in the following section what you can still do with UUP.

But if you want to hold gold in a deflationary environment, be my guest — but don’t come cry-ing to us when you lose your shirt.

As a historical rule of thumb, gold and silver rise in anticipation of a debt crisis, but they tum-ble when the crisis actually hits and debt delever-aging begins. This creates deflation. It is the U.S. dollar that most benefits from deflation and debt deleveraging, because it destroys dollars, which are the reserve currency spread all around the world and makes them more valuable! The last thing you need to worry about today is a collapse of the U.S. dollar.

Worry more about the next collapse of our economy and the assets that the debt bubble drove higher — from stocks and real estate to commodi-ties to gold and most other currencies!

Best of success,

Harry & Rodney

R Portfolio UpdateNearly two years ago, in May 2011, Rodney and

Harry were outnumbered nearly 400 to 1 when it came to a fight over the future of the U.S. dollar. Nearly everyone at the Global Currency Expo in San Diego thought the dollar was dead. Harry and Rodney begged to differ.

Sure enough, 15 months after boldly standing up to the bears, the U.S. dollar has gained 11% in value against a basket of foreign currencies. We added the PowerShares DB USD Bullish Index ETF (NYSE: UUP) to the Boom & Bust portfolio in May 2011, and we’re sure glad we did.

UUP made a big move higher in fall 2011, gaining 8% in a matter of days. This move gave stock investors the insurance policy they needed, as the S&P500 dropped 20% during this time. That’s what I call a hedge! But it gets even better.

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The U.S. dollar gained value, along with a rising stock market, for most of 2012.

It amazes me how the dollar’s value increases during a rising and falling stock market… yet dollar bears claim the world’s reserve currency will somehow “go to zero” and be replaced by the Chinese yuan or some other half-baked currency experiment, like the euro. It’s ludicrous.

Don’t buy the bull. As Harry and Rodney have proven, the dollar ain’t going anywhere. What’s more, we’re forecasting a rise of at least 25% in the dollar’s value this year. And based on UUP’s current price, just above a very important support level (hint: where it seems large institutional buy-ers come rushing in to snatch up cheap dollars), now’s the perfect time to get in.

Action to Take: Buy the PowerShares DB USD Bullish Index ETF (NYSE: UUP) up to $22.50.

Deflation: Why the Greenback Will Continue to Rise

The most powerful force that will drive the dol-lar’s value higher in the coming years is deflation. In a nutshell, we spent the last two decades inflat-ing the largest credit bubble in history. And now we’re deleveraging it.

Sure, the Fed is masking the effect of this de-flationary season with unprecedented monetary stimulus. But let’s be clear — they can’t do it for-ever. In fact, the Fed itself is now voicing concern over the side effects of its policies. When — not if — the Fed backs away from its massive bond-buying effort the whole gig will be up.

The bottom line remains, the U.S. economy is in a fiercely strong deleveraging phase. We’ve destroyed trillions of debt dollars since the bub-ble burst in 2008. And we still need to destroy another $22 trillion in debt to return to reason-able levels.

That’s why we remain certain that we’re going to see deep price deflation in the months and years

ahead. And as that happens, money actually gains value. This is supply and demand.

Money supply shrinks when there’s less lending, less borrowing and more debt being paid-down or written off. As this happens, the demand for dol-lars goes up… and so does the dollar’s value.

And this also has an impact on the value of gold — in way in which most people can’t seem to see.

Gold Will Tank When Reality Strikes

Despite the fact that roughly two-thirds of gold is used for commercial applications, its price is largely driven by other factors. That’s because ideology-driven gold bugs view gold as a viable currency… a world reserve alternative to the U.S. dollar.

I’m sorry. I have news for you… gold is NOT money.

Gold bugs face two problems in their false hopes for $3,000/oz. gold. We’ve hit this topic before, so let me summarize:

History has shown gold prices jump leading up to a major financial crisis. But when the crisis actu-ally hits… gold prices tank.

Inflation and deflation are thought of as mon-etary phenomena. But our research has clearly shown that inflation and deflation are, on a more fundamental level, caused by people. It’s all about demographics. And our analysis forecasts a major deflationary environment to persist for many more years. Cutting to the point… this is really bad for gold. If inflation is gold’s elixir, deflation is its poison.

This is why we’re forecasting gold to drop to $750/ounce. But before that happens, we’re watching cautiously for one last spike higher in gold prices at the onset of the next financial crisis. This will likely send the price of gold back to its September 2011 highs, around $1,940.

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This will be gold’s last, dying breath. History has shown that bubble markets end with one final exhaustive wave of buying before they come tum-bling down.

We’re offering two trigger prices for getting short gold:

If gold goes up to between $1,930 and $2,000/ounce — get short!

If gold goes down below $1,530 — get short!

With our directives clear on the U.S. dollar (get long) and gold (watch the above levels to get short), let’s take a look at another Boom & Bust currency play before turning attention to our stock holdings.

The Yen is Tanking. The ProShares UltraShort Yen ETF (NYSE: YCS) we purchased has shot to the moon, handing us an open profit of more than 30%.

We basically caught the very top of the yen’s strength and we’ve been adding percentage points to our accounts ever since July. This is the first vicious wave of the yen’s decent, which was trig-gered by the return of Shinzo Abe as Japan’s Prime Minister. Abe’s promise was to destroy the yen’s value — although he never phrased it quite like that — and, so far, he’s doing a good job.

But this move isn’t over. The yen still has much further to drop… and this will keep the price of YCS climbing. This ETF is a bit overbought right now, so I’m waiting for a pullback before recom-mending making further investments in YCS. For now, hang on to the shares you own and enjoy the ride!

Agrium (NYSE: AGU) has been remarkably strong over the past two months, gaining 22% since November. Add in the $0.50 dividend pay-ment we collected on December 27 and our total gains in this stock are pushing up to 40%.

2013 is set to be a very bullish year for the

agricultural industry. Farmers have reaped big gains in the last two years and they’re reinvest-ing capital to ensure they’re able to squeeze as much yield from their crops as possible while grain prices are high.

Omega Healthcare Investors (NYSE: OHI) is now trading at its highest price ever. We got in early enough to grab nice gains — we’re up 28% right now — but it appears investors are catching on to this very lucrative business of renting space to operators of skilled nursing facilities.

I’m still expecting demand to grow for low-cost healthcare alternatives and Omega is perfectly po-sitioned to capitalize on this trend.

We’ve already been paid $0.86/share in divi-dend payments since we bought into Omega last May. And we’re due another payment of $0.45 in February — to grab this you must be a shareholder on record as of January 31.

ABB (NYSE: ABB), the Swiss engineering and power experts, just won another $130 million or-der to supply power transmission equipment that will connect the mainland of Finland to the Aland Islands, some 160km away.

This one project highlights well ABB’s competi-tive advantage in the high-tech power and infra-structure sector — there are very few companies with the expertise and technical know-how to ac-complish such tasks. And that’s why ABB contin-ues to win multi-million-dollar orders hand over fist.

Our shares of ABB are already up 14% since we bought them in late October.

Siemens (NYSE: SI) is our other play on the high-tech infrastructure trend that is steadily gain-ing steam. Siemens’ stock price continues to trend higher, giving us nice gains of 27%.

Both Siemens and ABB will benefit from a strengthening U.S. dollar in 2013. As the green-

11Boom & Bust

back gains in value, the foreign exporters — like Siemens and ABB — will gain competitiveness in pricing as their goods and services will be rela-tively cheaper. This will provide a nice tailwind to these companies. I expect both to report strong sales growth this year, especially in their niche markets.

As I’ve mentioned before, the Boom & Bust portfolio is properly weighted for current mar-ket conditions. We have roughly two bullish plays for every bearish investment — although each recommendation has been extensively re-searched and carefully selected to capitalize on very specific investment trends. I’m watching the market with a cautious eye and will readjust our holdings when necessary. For now, the focus is on staying the course and collecting our divi-dend payments.

As Harry mentioned, there will be a time when shorting stocks is the name of the game. That’s a sure bet. But for now, as the market-lifting stimu-lus effect is still very much in force, we’ll stay the course.

Adam O’Dell

12 Boom & Bust

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NOTES: The Boom & Bust Portfolio is an equally-weighted strategy and does not include dealing charges to purchase or sell securities, if any. Taxes are not included in total return calculations. “Total return” includes gains from price appreciation, dividend payments, interest payments, and stock splits. Securities listed on non-U.S. exchanges; total return also includes any change in the value of the underlying currency versus the U.S. dollar. For transparency sake, we want you to know that we have an advertising relationship with EverBank. As such, we may receive fees if you choose to invest in their products. Stop-losses: The Boom & Bust Portfolio maintains stop-losses on every stock, ETF and bond recommendation; stop-losses are not exercised for mutual funds unless otherwise noted. Sources for price data: Yahoo! Finance (finance.yahoo.com), Financial Times Portfolio Service (www.ft.com), TradeNet (www.trade-net.ch/EN), and websites maintained by securities issuers.

Senior Editor .......................................... Harry S. DentSenior Editor .......................................... Rodney Johnson Portfolio Manager .................................. Adam O’Dell

Publisher ................................................ Shannon CrouchManaging Editor .................................... Mark S. SmithGraphic Design ...................................... Bruce Borich

Boom & Bust Portfolio

Investment TickerEntry Added

Buy Price

Current Price

Stop Loss

Total Dividends

Total Returns

Call

Boom Portfolio

Brookfield Infrastructure Partners BIP/NYSE 11/21/12 $33.98 $37.05 25% $0.38 10.14% Buy

ABB Ltd. ABB/NYSE 10/25/12 $18.50 $21.08 25% _ 13.95% Buy

The Dow Chemical Company DOW/NYSE 09/21/12 $30.26 $34.43 30% $0.64 15.90% Hold

Omega Healthcare Investors OHI/NYSE 05/24/12 $20.93 $25.90 30% $0.86 27.85% Hold

Siemens AG SI/NYSE 05/07/12 $87.98 $108.23 30% $3.89 27.44% Hold

Atlas Pipeline Partners LP APL/NYSE 04/02/12 $35.12 $33.28 30% $1.69 -0.43% Buy

Atlas Pipeline Partners LP (2nd Entry) APL/NYSE 06/29/12 $31.18 $33.28 30% $1.13 10.36% Buy

Agrium Inc. AGU/NYSE 02/02/12 $82.20 $113.77 30% $1.00 39.62% Hold

PowerShares DB USD Index Bullish ETF UUP/NYSE 10/25/11 $21.51 $21.83 25% _ 1.49% Buy

Associated Estate Realty Group AEC/NYSE 06/20/11 $16.14 $16.45 25% $1.24 9.60% Buy

Bust Portfolio

ProShares UltraShort Yen YCS/ARCX 07/27/12 $41.96 $54.66 15% _ 30.27% Hold

Charter Communications, Inc. CHTR/NasdaqGS

06/29/12 $70.87 $79.22 25% _ -11.78% Short

iShares MSCI Canada Index Fund EWC/NYSEArca

02/28/12 $29.10 $29.08 20% $0.59 -1.96% Short

ProShares Short S&P500 SH/NYSE 11/21/11 $43.00 $32.39 25% _ -24.67% Buy

SPDR Barclays Capital High Yield Bond ETF

JNK/NYSE 07/ 28/11 $40.25 $41.36 20% $4.23 -13.27% Hold