General of Darkness
13th December 2013, 10:58 AM
http://inflation.us/images/nialogo.jpg
When the mainstream media discusses the strengthening or weakening of the U.S. dollar (USD), they almost always refer to the latest movements of the U.S. dollar index (USDX). The USDX compares the USD's value vs. a weighted basket of six foreign currencies.
57.6% of the basket is weighted towards the Euro, a fiat currency governed by the European Central Bank, which currently has its interest rate set at 0.25% - the same interest rate that the Federal Reserve has set in the U.S.
13.6% of the basket is weighted towards the Japanese Yen, a fiat currency governed by the Bank of Japan, which currently has its interest rate set at 0.1% - even lower than the Fed Funds Rate in the U.S.
11.9% of the basket is weighted towards the Pound Sterling, a fiat currency governed by the Bank of England, which currently has its interest rate set at 0.5% - only slightly above the Fed Funds Rate in the U.S.
9.1% of the basket is weighted towards the Canadian Dollar, a fiat current governed by the Bank of Canada, which currently has its interest rate set at 1% - tied for the highest interest rate in the basket.
4.2% of the basket is weighted towards the Swedish Krona, a fiat currency governed by the Sveriges Riksbank, which currently has its interest rate set at 1%. (The Sveriges Riksbank is the world's oldest central bank.)
3.6% of the basket is weighted towards the Swiss Franc, a fiat currency governed by the Swiss National Bank, which currently has its interest rate set at 0%. (The Swiss National Bank is strongly considering the introduction of negative interest rates.)
The USDX was created by the Federal Reserve in 1973 after the elimination of the Bretton Woods system. The USDX began at 100 and is currently 80.21, which could potentially mislead people into believing the USD has only lost 19.79% of its purchasing power since 1973. Gold prices since 1973 have risen from $65 per oz to their current level of $1,227.30 per oz - an increase of 1,788%, which indicates an actual 99.47% decrease in the purchasing power of the USD.
Many people mistakenly believe that the USDX basket of foreign currencies gets reconstituted on a regular basis, based on the latest trends in the currency markets. Many people assume that the six currencies in the basket are the six most traded currencies after the USD. In reality, the basket hasn't changed since 1999, and that was only because of the creation of the Euro.
From 1973-1999, the USDX actually compared the value of the USD to a basket of ten currencies. Prior to 1999, instead of the basket being 57.6% weighted towards the Euro: 20.8% of the basket was weighted towards the German Mark; 13.1% of the basket was weighted towards the French Franc; 9% of the basket was weighted towards the Italian Lira; 8.3% of the basket was weighted towards the Dutch Guilder; and 6.4% of the basket was weighted towards the Belguim Franc.
These five currencies carried a total weighting of 57.6% - the same as the Euro that replaced them. Considering that the Euro initially replaced the currencies of 11 different European Union member states and today is the official currency of 17 member states, it's very odd that the Euro's weighting is equal to the five currencies it replaced in the basket. Certainly, there was more than enough justification for all of the basket weightings to be completed reconstituted in 1999.
NIA considers the USDX to be a worthless indicator that in no way reflects the rapidly declining purchasing power of the USD. The reality is, its foreign currency basket weightings haven't once been reconstituted during the past 40 years. Today, the Euro accounts for only 29.6% of the world's non-USD fiat currencies traded on a daily basis - down from 34% in 2010, which is far less than the Euro's USDX basket weighting of 57.6%.
The Swedish Krona, which is the 5th highest weighted currency in the USDX basket - is today only the 10th most traded non-USD currency. In today's rapidly changing global economy, the Swedish Krona accounts for only 1.6% of the non-USD fiat currencies traded on a daily basis, down from 1.9% in 2010. It is absurd that it still carries a 4.2% weighting of the USDX basket!
The Australian Dollar, which isn't even in the USDX basket - has been rapidly growing in importance ever since it became a free floating currency in 1983, a decade after the USDX was created. The Australian Dollar is now the world's 4th most traded non-USD currency and accounts for 7.6% of the world's non-USD fiat currencies traded on a daily basis - up from 6.6% in 2010.
Other currencies rapidly rising in importance include the Mexican Peso, Chinese Yuan, and New Zealand Dollar. The Mexican Peso is now the world's 7th most traded non-USD currency and accounts for 2.2% of of the world's non-USD fiat currencies traded on a daily basis - double its share of 1.1% in 2010.
The Chinese Yuan is now the world's 8th most traded non-USD currency and accounts for 1.9% of of the world's non-USD fiat currencies traded on a daily basis - more than double its share of 0.8% in 2010. Its rising share of the global currency market illustrates the growing power and influence of the Chinese economy. Most notable about the Chinese Yuan becoming the 8th most traded non-USD currency is the fact it hasn't yet become a free floating currency.
The Chinese Yuan is unofficially pegged to the USD in order to boost the Chinese export market. For many years, China's USD peg has propped up the U.S. economy and America's standard of living - by allowing Americans to import cheap goods from China that they otherwise wouldn't be able to afford. However, since 2005, China has periodically allowed the Chinese Yuan to appreciate vs. the USD - mostly during times when China had a strong need to counter rising price inflation. Over the past eight years, the Chinese government has allowed the Chinese Yuan to gradually appreciate by a total of 33% vs. the USD.
Over the past two years, China has become a lot less shy about publicly expressing concern about the value of their U.S. Treasury holdings. In June 2012, China surpassed Japan as the largest holder of U.S. Treasuries. China currently owns nearly $1.3 trillion in U.S. Treasuries, and this for the first time ever is becoming a major political issue in China. In fact, this past October when the U.S. needed to raise its debt ceiling in order to avoid a debt default - China's Commerce Minister warned that if the U.S. did indeed default on its debt - the Chinese would stop buying U.S. Treasuries.
NIA believes it is absolutely insane how U.S. credit ratings agencies like Moody's can still rate U.S. debt AAA, even after it was on the verge of default. AAA ratings should be reserved for countries with low levels of debt, positive trade balances, low inflation, and zero risk of debt default. China's Dagong Global Credit Rating is now the world's only credit ratings agency with any remaining credibility. On October 17th, Dagong downgraded the U.S. debt rating from A to A- and maintained a negative outlook.
Although gold prices have temporarily declined this past year due to investors selling the GLD ETF in order to seek higher returns in bitcoins (we are LOL) and newly public overvalued dot-com stocks like Twitter (TWTR), gold has found huge support at its current levels due to China taking advantage of these artificially low gold prices - to greatly diversify its foreign currency reserves. The IMF still reports that China's only holds 1,054.1 tonnes of gold reserves, which is only equal to 1.3% of its total foreign currency reserves - but this hasn't been updated since 2009.
Over the last two years, China has imported an unprecedented 2,116 gross tons of gold. In just the first eight months of 2013, China has imported 997 gross tons of gold - including China's two biggest gold import months in history: China imported a record 224 tons of gold in March 2013, and 131 tons of gold in August 2013. When China eventually discloses to the IMF its latest gold reserves, it will most likely surpass Frace, Italy, the IMF, and Germany - to become the second largest holder of gold behind the U.S. (possibly the #1 largest holder of gold because the U.S. government stubbornly refuses to audit its gold reserves at Fort Knox.)
To further position itself away from the USD, China in October 2013 announced an enormous currency swap deal with the European Central Bank, worth up to 350 billlion Chinese Yuan. The currency swap agreement was designed to boost trade and investment between China and European nations, without the need to convert their currencies to USD. Just a few months beforehand in June 2013, China signed a similar swap agreement with the Bank of England worth up to 200 billion Chinese Yuan.
In addition, China earlier this year announced that it is easing restrictions on the ability of foreign businesses to use the Chinese Yuan to invest in the Chinese financial sector. Clearly, China is taking baby steps to position the Chinese Yuan to eventually replace the USD as the world's reserve currency. It is now expected that China will free its currency and allow it to float within the next five years.
If China were to eliminate their peg to the USD today, NIA believes the Chinese Yuan would rise vs. the USD by as much as 50% overnight. In NIA's opinion, a free floating Chinese Yuan would quickly become the world's most traded currency - especially now that China owns such huge gold reserves to potentially back its currency. A large increase in the purchasing power of the Chinese Yuan would also greatly boost China's GDP overnight, to a level that is very close to U.S. GDP.
China's current household consumption as a percentage of GDP is a shockingly low 36% - well below the world's average of 60%. America's current household consumption as a percentage of GDP is an artificially high 72% - double China's consumption rate. As the Chinese Yuan appreciates significantly vs. the USD, China's household consumption will rapidly increase, as America's household consumption dramatically declines - with both countries likely to see their consumption rates meet somewhere between 55% and 60%.
Not only do Chinese households currently consume only half of what American households consume as a percentage of GDP, but of the annual consumption of Chinese households - 33.9% of their expenditures are spent on food vs. an insanely low 6.8% in America. This can also be directly attributed to the artificially depressed purchasing power of the Chinese Yuan and its peg to USD, which is allowing the U.S. to export food inflation to China.
Of the world's developed countries with advanced economies, New Zealand is set to benefit most from the Chinese Yuan becoming a free floating currency and the Chinese seeing a rapid improvement in their standard of living. When the Chinese Yuan appreciates in purchasing power to a level set by the free market, it will cause a very large increase in Chinese demand for agricultural imports. New Zealand's economy is more heavily dependent on agriculture production than any other developed country in the world.
New Zealand is now the world's largest dairy and sheep meat exporter. Since New Zealand signed its free trade agreement with China in 2008, New Zealand's exports to China have more than quadrupled to an annual $8.87 billion and now account for about 19% of the country's international sales. In 2012-2013, China became New Zealand's largest export market for sheep meat. China imported 131,000 tons of sheep meet from New Zealand vs. the UK (New Zealand's previous leading export market for sheep meat) importing only 74,000 tons. China accounted for 28% of lamb exports, 52% of mutton exports, and 33% of sheepmeat exports.
The Chinese are currently demanding lesser quality sheep meat from New Zealand that sells for an average of $4,800 per tonne. In comparison, the average sheep meat value exported by New Zealand to the U.S. is $11,500 per tonne, and to the EU is $9,000 per tonne. When the Chinese Yuan appreciates in value, Chinese citizens will begin demanding better quality food imports, which could cause New Zealand's export values to China to rapidly double or triple from their already record levels.
The central banks of both New Zealand and Australia currently have interest rates set at 2.5%, far higher than any of the currencies in the USDX basket. New Zealand's central bank is expected to be the world's first major central bank to raise interest rates in 2014.
The USDX closed at a 5-year high on March 9th, 2009 of 89 vs. the USDX's current value of 80.29. The USDX shows the USD losing only 9.8% of its purchasing power during this time period. For being a worthless indicator, it is amazing how close the USDX has been to the deceptive U.S. consumer price index (CPI), which we all know well understates the real rate of price inflation. From March 9th, 2009 through today, the CPI indicates a total decline in the USD's purchasing power of only 8.9% - less than a 1% difference from the USDX.
Out of the world's top 10 most traded non-USD currencies, it is the very two currencies that the USDX is most heavily weighted towards - the Euro and Japanese Yen - that happened to be the two weakest performers from March 9th, 2009, through today. During this time period, the USD lost 8.1% of its purchasing power vs. the Euro and the USD gained 4.9% in purchasing power vs. the Japanese Yen.
In terms of gold, the USD has lost 24.6% of its purchasing power since March 9th, 2009. Is gold really the most accurate indicator of the U.S. dollar's purchasing power? Does owning gold really allow you to retain your purchasing power?
In March 2009, the average Big Mac at a U.S. McDonald's was priced at $3.54. Today, he average Big Mac at a U.S. McDonald's is priced at $4.68. For $100, you could've bought 28.249 Big Macs in March 2009. Today, $100 will only buy you 21.368 Big Macs. This equals a decline in the USD's purchasing power of 24.4%, almost exactly the same as the USD's decline in purchasing power vs. gold during this same time period of 24.6%! If you owned gold over the last five years, you can still afford to purchase the same amount of Big Macs as back in 2009.
There are two currencies out of the top 10 most traded non-USD currencies that well outperformed gold between March 9th, 2009 and today: The New Zealand Dollar (NZD) and Australian Dollar (AUD). During this time period, the USD lost an unbelievable 40.5% of its purchasing power vs. the NZD - as well as 29.1% of its purchasing power vs. the AUD!
Take a look at the chart below:
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=nzdusd&uf=0&type=2&size=2&sid=1757351&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&startdate=3/9/2009&enddate=12/13/2013&rand=831301331&compidx=aaaaa%3a0&comp=gld%2c+audusd%2c+eurusd%2c+jpyusd%2c+cadusd&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=335&width=579&mocktick=1
From March 9th, 2009, when the USDX set its 5-year closing high of 89 through today: the NZD has appreciated vs. the USD in purchasing power by an absolutely amazing 68%! The NZD appreciated vs. the USD by more than DOUBLE what gold appreciated - due to the fact agricultural commodities make up 70% of New Zealand's exports - and agriculture prices could be the only thing that outperforms gold and silver when the U.S. dollar collapses after being replaced as the world's reserve currency by the Chinese Yuan!
The NZD is currently the world's 9th most traded non-USD currency and accounts for 1.8% of of the world's non-USD fiat currencies traded on a daily basis - up from its share of 1.4% in 2010.
NIA believes one of the best ways to become wealthy in 2014 will be by investing into agricultural companies based in New Zealand and China. In NIA's opinion, Agria (GRO) will become the largest percentage gainer of 2014, being that it owns major agricultural businesses in BOTH countries. GRO's main asset is a controlling stake in PGG Wrightson (NZX: PGW), an agricultural company that is based in New Zealand and trades on the New Zealand Exchange in NZD! This company has been around for 160 years and is New Zealand's BIGGEST agricultural services company - with New Zealand's most diversified agricultural business. GRO is the perfect way to capitalize on the booming NZD!
GRO's 80.81% owned Agria Asia subsidiary owns 50.22% or 379.1 million shares of PGW. Last night, PGW closed at NZ$0.40 and traded HUGE volume of 1.3 million, by far its highest volume of the past month. This large volume increase in our opinion means that a major breakout to the upside is imminent.
Based on the current NZD/USD exchange rate of 0.8257, which is up from only 0.4914 on March 9th, 2009 - Agria Asia's 379.1 million PGW shares currently priced at NZ$0.40 are worth NZ$151.64 million or USD$125.21 million. GRO's 80.81% ownership of Agria Asia values GRO's interest in PGW at USD$101.18 million. With 55.38 million shares outstanding, GRO needs to rise immediately $1.83 per share - based on its PGW shares alone.
GRO also owns a booming China seeds business with 98% revenue growth! GRO has been rapidly reducing its debt, and has well more than enough cash to completely repay its remaining short-term debt. PGW is likely to pay a very large cash dividend in early 2014, and GRO could potentially use the cash it receives for a huge GRO share buyback!
NIA is not an investment advisor and is not making any target prices or financial projections. Never invest based on anything NIA says. Always do your own research and make your own investment decisions. NIA never recommends to buy or sell any stock.
Disclaimer: NIA currently owns 550,000 shares of GRO. NIA intends to sell its GRO shares and can do so at anytime. NIA reserves the right to add to its GRO position at any time. NIA initially discussed GRO in a private report that was released to a small exclusive group of NIA members over two years ago.
This email is not a solicitation or recommendation to buy, sell, or hold securities. Never make investment decisions based on anything NIA says. This email is meant for informational and educational purposes only and does not provide investment advice.
Additional legal disclaimer information: http://inflation.us/legaldisclaimer.html
When the mainstream media discusses the strengthening or weakening of the U.S. dollar (USD), they almost always refer to the latest movements of the U.S. dollar index (USDX). The USDX compares the USD's value vs. a weighted basket of six foreign currencies.
57.6% of the basket is weighted towards the Euro, a fiat currency governed by the European Central Bank, which currently has its interest rate set at 0.25% - the same interest rate that the Federal Reserve has set in the U.S.
13.6% of the basket is weighted towards the Japanese Yen, a fiat currency governed by the Bank of Japan, which currently has its interest rate set at 0.1% - even lower than the Fed Funds Rate in the U.S.
11.9% of the basket is weighted towards the Pound Sterling, a fiat currency governed by the Bank of England, which currently has its interest rate set at 0.5% - only slightly above the Fed Funds Rate in the U.S.
9.1% of the basket is weighted towards the Canadian Dollar, a fiat current governed by the Bank of Canada, which currently has its interest rate set at 1% - tied for the highest interest rate in the basket.
4.2% of the basket is weighted towards the Swedish Krona, a fiat currency governed by the Sveriges Riksbank, which currently has its interest rate set at 1%. (The Sveriges Riksbank is the world's oldest central bank.)
3.6% of the basket is weighted towards the Swiss Franc, a fiat currency governed by the Swiss National Bank, which currently has its interest rate set at 0%. (The Swiss National Bank is strongly considering the introduction of negative interest rates.)
The USDX was created by the Federal Reserve in 1973 after the elimination of the Bretton Woods system. The USDX began at 100 and is currently 80.21, which could potentially mislead people into believing the USD has only lost 19.79% of its purchasing power since 1973. Gold prices since 1973 have risen from $65 per oz to their current level of $1,227.30 per oz - an increase of 1,788%, which indicates an actual 99.47% decrease in the purchasing power of the USD.
Many people mistakenly believe that the USDX basket of foreign currencies gets reconstituted on a regular basis, based on the latest trends in the currency markets. Many people assume that the six currencies in the basket are the six most traded currencies after the USD. In reality, the basket hasn't changed since 1999, and that was only because of the creation of the Euro.
From 1973-1999, the USDX actually compared the value of the USD to a basket of ten currencies. Prior to 1999, instead of the basket being 57.6% weighted towards the Euro: 20.8% of the basket was weighted towards the German Mark; 13.1% of the basket was weighted towards the French Franc; 9% of the basket was weighted towards the Italian Lira; 8.3% of the basket was weighted towards the Dutch Guilder; and 6.4% of the basket was weighted towards the Belguim Franc.
These five currencies carried a total weighting of 57.6% - the same as the Euro that replaced them. Considering that the Euro initially replaced the currencies of 11 different European Union member states and today is the official currency of 17 member states, it's very odd that the Euro's weighting is equal to the five currencies it replaced in the basket. Certainly, there was more than enough justification for all of the basket weightings to be completed reconstituted in 1999.
NIA considers the USDX to be a worthless indicator that in no way reflects the rapidly declining purchasing power of the USD. The reality is, its foreign currency basket weightings haven't once been reconstituted during the past 40 years. Today, the Euro accounts for only 29.6% of the world's non-USD fiat currencies traded on a daily basis - down from 34% in 2010, which is far less than the Euro's USDX basket weighting of 57.6%.
The Swedish Krona, which is the 5th highest weighted currency in the USDX basket - is today only the 10th most traded non-USD currency. In today's rapidly changing global economy, the Swedish Krona accounts for only 1.6% of the non-USD fiat currencies traded on a daily basis, down from 1.9% in 2010. It is absurd that it still carries a 4.2% weighting of the USDX basket!
The Australian Dollar, which isn't even in the USDX basket - has been rapidly growing in importance ever since it became a free floating currency in 1983, a decade after the USDX was created. The Australian Dollar is now the world's 4th most traded non-USD currency and accounts for 7.6% of the world's non-USD fiat currencies traded on a daily basis - up from 6.6% in 2010.
Other currencies rapidly rising in importance include the Mexican Peso, Chinese Yuan, and New Zealand Dollar. The Mexican Peso is now the world's 7th most traded non-USD currency and accounts for 2.2% of of the world's non-USD fiat currencies traded on a daily basis - double its share of 1.1% in 2010.
The Chinese Yuan is now the world's 8th most traded non-USD currency and accounts for 1.9% of of the world's non-USD fiat currencies traded on a daily basis - more than double its share of 0.8% in 2010. Its rising share of the global currency market illustrates the growing power and influence of the Chinese economy. Most notable about the Chinese Yuan becoming the 8th most traded non-USD currency is the fact it hasn't yet become a free floating currency.
The Chinese Yuan is unofficially pegged to the USD in order to boost the Chinese export market. For many years, China's USD peg has propped up the U.S. economy and America's standard of living - by allowing Americans to import cheap goods from China that they otherwise wouldn't be able to afford. However, since 2005, China has periodically allowed the Chinese Yuan to appreciate vs. the USD - mostly during times when China had a strong need to counter rising price inflation. Over the past eight years, the Chinese government has allowed the Chinese Yuan to gradually appreciate by a total of 33% vs. the USD.
Over the past two years, China has become a lot less shy about publicly expressing concern about the value of their U.S. Treasury holdings. In June 2012, China surpassed Japan as the largest holder of U.S. Treasuries. China currently owns nearly $1.3 trillion in U.S. Treasuries, and this for the first time ever is becoming a major political issue in China. In fact, this past October when the U.S. needed to raise its debt ceiling in order to avoid a debt default - China's Commerce Minister warned that if the U.S. did indeed default on its debt - the Chinese would stop buying U.S. Treasuries.
NIA believes it is absolutely insane how U.S. credit ratings agencies like Moody's can still rate U.S. debt AAA, even after it was on the verge of default. AAA ratings should be reserved for countries with low levels of debt, positive trade balances, low inflation, and zero risk of debt default. China's Dagong Global Credit Rating is now the world's only credit ratings agency with any remaining credibility. On October 17th, Dagong downgraded the U.S. debt rating from A to A- and maintained a negative outlook.
Although gold prices have temporarily declined this past year due to investors selling the GLD ETF in order to seek higher returns in bitcoins (we are LOL) and newly public overvalued dot-com stocks like Twitter (TWTR), gold has found huge support at its current levels due to China taking advantage of these artificially low gold prices - to greatly diversify its foreign currency reserves. The IMF still reports that China's only holds 1,054.1 tonnes of gold reserves, which is only equal to 1.3% of its total foreign currency reserves - but this hasn't been updated since 2009.
Over the last two years, China has imported an unprecedented 2,116 gross tons of gold. In just the first eight months of 2013, China has imported 997 gross tons of gold - including China's two biggest gold import months in history: China imported a record 224 tons of gold in March 2013, and 131 tons of gold in August 2013. When China eventually discloses to the IMF its latest gold reserves, it will most likely surpass Frace, Italy, the IMF, and Germany - to become the second largest holder of gold behind the U.S. (possibly the #1 largest holder of gold because the U.S. government stubbornly refuses to audit its gold reserves at Fort Knox.)
To further position itself away from the USD, China in October 2013 announced an enormous currency swap deal with the European Central Bank, worth up to 350 billlion Chinese Yuan. The currency swap agreement was designed to boost trade and investment between China and European nations, without the need to convert their currencies to USD. Just a few months beforehand in June 2013, China signed a similar swap agreement with the Bank of England worth up to 200 billion Chinese Yuan.
In addition, China earlier this year announced that it is easing restrictions on the ability of foreign businesses to use the Chinese Yuan to invest in the Chinese financial sector. Clearly, China is taking baby steps to position the Chinese Yuan to eventually replace the USD as the world's reserve currency. It is now expected that China will free its currency and allow it to float within the next five years.
If China were to eliminate their peg to the USD today, NIA believes the Chinese Yuan would rise vs. the USD by as much as 50% overnight. In NIA's opinion, a free floating Chinese Yuan would quickly become the world's most traded currency - especially now that China owns such huge gold reserves to potentially back its currency. A large increase in the purchasing power of the Chinese Yuan would also greatly boost China's GDP overnight, to a level that is very close to U.S. GDP.
China's current household consumption as a percentage of GDP is a shockingly low 36% - well below the world's average of 60%. America's current household consumption as a percentage of GDP is an artificially high 72% - double China's consumption rate. As the Chinese Yuan appreciates significantly vs. the USD, China's household consumption will rapidly increase, as America's household consumption dramatically declines - with both countries likely to see their consumption rates meet somewhere between 55% and 60%.
Not only do Chinese households currently consume only half of what American households consume as a percentage of GDP, but of the annual consumption of Chinese households - 33.9% of their expenditures are spent on food vs. an insanely low 6.8% in America. This can also be directly attributed to the artificially depressed purchasing power of the Chinese Yuan and its peg to USD, which is allowing the U.S. to export food inflation to China.
Of the world's developed countries with advanced economies, New Zealand is set to benefit most from the Chinese Yuan becoming a free floating currency and the Chinese seeing a rapid improvement in their standard of living. When the Chinese Yuan appreciates in purchasing power to a level set by the free market, it will cause a very large increase in Chinese demand for agricultural imports. New Zealand's economy is more heavily dependent on agriculture production than any other developed country in the world.
New Zealand is now the world's largest dairy and sheep meat exporter. Since New Zealand signed its free trade agreement with China in 2008, New Zealand's exports to China have more than quadrupled to an annual $8.87 billion and now account for about 19% of the country's international sales. In 2012-2013, China became New Zealand's largest export market for sheep meat. China imported 131,000 tons of sheep meet from New Zealand vs. the UK (New Zealand's previous leading export market for sheep meat) importing only 74,000 tons. China accounted for 28% of lamb exports, 52% of mutton exports, and 33% of sheepmeat exports.
The Chinese are currently demanding lesser quality sheep meat from New Zealand that sells for an average of $4,800 per tonne. In comparison, the average sheep meat value exported by New Zealand to the U.S. is $11,500 per tonne, and to the EU is $9,000 per tonne. When the Chinese Yuan appreciates in value, Chinese citizens will begin demanding better quality food imports, which could cause New Zealand's export values to China to rapidly double or triple from their already record levels.
The central banks of both New Zealand and Australia currently have interest rates set at 2.5%, far higher than any of the currencies in the USDX basket. New Zealand's central bank is expected to be the world's first major central bank to raise interest rates in 2014.
The USDX closed at a 5-year high on March 9th, 2009 of 89 vs. the USDX's current value of 80.29. The USDX shows the USD losing only 9.8% of its purchasing power during this time period. For being a worthless indicator, it is amazing how close the USDX has been to the deceptive U.S. consumer price index (CPI), which we all know well understates the real rate of price inflation. From March 9th, 2009 through today, the CPI indicates a total decline in the USD's purchasing power of only 8.9% - less than a 1% difference from the USDX.
Out of the world's top 10 most traded non-USD currencies, it is the very two currencies that the USDX is most heavily weighted towards - the Euro and Japanese Yen - that happened to be the two weakest performers from March 9th, 2009, through today. During this time period, the USD lost 8.1% of its purchasing power vs. the Euro and the USD gained 4.9% in purchasing power vs. the Japanese Yen.
In terms of gold, the USD has lost 24.6% of its purchasing power since March 9th, 2009. Is gold really the most accurate indicator of the U.S. dollar's purchasing power? Does owning gold really allow you to retain your purchasing power?
In March 2009, the average Big Mac at a U.S. McDonald's was priced at $3.54. Today, he average Big Mac at a U.S. McDonald's is priced at $4.68. For $100, you could've bought 28.249 Big Macs in March 2009. Today, $100 will only buy you 21.368 Big Macs. This equals a decline in the USD's purchasing power of 24.4%, almost exactly the same as the USD's decline in purchasing power vs. gold during this same time period of 24.6%! If you owned gold over the last five years, you can still afford to purchase the same amount of Big Macs as back in 2009.
There are two currencies out of the top 10 most traded non-USD currencies that well outperformed gold between March 9th, 2009 and today: The New Zealand Dollar (NZD) and Australian Dollar (AUD). During this time period, the USD lost an unbelievable 40.5% of its purchasing power vs. the NZD - as well as 29.1% of its purchasing power vs. the AUD!
Take a look at the chart below:
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=nzdusd&uf=0&type=2&size=2&sid=1757351&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&startdate=3/9/2009&enddate=12/13/2013&rand=831301331&compidx=aaaaa%3a0&comp=gld%2c+audusd%2c+eurusd%2c+jpyusd%2c+cadusd&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=335&width=579&mocktick=1
From March 9th, 2009, when the USDX set its 5-year closing high of 89 through today: the NZD has appreciated vs. the USD in purchasing power by an absolutely amazing 68%! The NZD appreciated vs. the USD by more than DOUBLE what gold appreciated - due to the fact agricultural commodities make up 70% of New Zealand's exports - and agriculture prices could be the only thing that outperforms gold and silver when the U.S. dollar collapses after being replaced as the world's reserve currency by the Chinese Yuan!
The NZD is currently the world's 9th most traded non-USD currency and accounts for 1.8% of of the world's non-USD fiat currencies traded on a daily basis - up from its share of 1.4% in 2010.
NIA believes one of the best ways to become wealthy in 2014 will be by investing into agricultural companies based in New Zealand and China. In NIA's opinion, Agria (GRO) will become the largest percentage gainer of 2014, being that it owns major agricultural businesses in BOTH countries. GRO's main asset is a controlling stake in PGG Wrightson (NZX: PGW), an agricultural company that is based in New Zealand and trades on the New Zealand Exchange in NZD! This company has been around for 160 years and is New Zealand's BIGGEST agricultural services company - with New Zealand's most diversified agricultural business. GRO is the perfect way to capitalize on the booming NZD!
GRO's 80.81% owned Agria Asia subsidiary owns 50.22% or 379.1 million shares of PGW. Last night, PGW closed at NZ$0.40 and traded HUGE volume of 1.3 million, by far its highest volume of the past month. This large volume increase in our opinion means that a major breakout to the upside is imminent.
Based on the current NZD/USD exchange rate of 0.8257, which is up from only 0.4914 on March 9th, 2009 - Agria Asia's 379.1 million PGW shares currently priced at NZ$0.40 are worth NZ$151.64 million or USD$125.21 million. GRO's 80.81% ownership of Agria Asia values GRO's interest in PGW at USD$101.18 million. With 55.38 million shares outstanding, GRO needs to rise immediately $1.83 per share - based on its PGW shares alone.
GRO also owns a booming China seeds business with 98% revenue growth! GRO has been rapidly reducing its debt, and has well more than enough cash to completely repay its remaining short-term debt. PGW is likely to pay a very large cash dividend in early 2014, and GRO could potentially use the cash it receives for a huge GRO share buyback!
NIA is not an investment advisor and is not making any target prices or financial projections. Never invest based on anything NIA says. Always do your own research and make your own investment decisions. NIA never recommends to buy or sell any stock.
Disclaimer: NIA currently owns 550,000 shares of GRO. NIA intends to sell its GRO shares and can do so at anytime. NIA reserves the right to add to its GRO position at any time. NIA initially discussed GRO in a private report that was released to a small exclusive group of NIA members over two years ago.
This email is not a solicitation or recommendation to buy, sell, or hold securities. Never make investment decisions based on anything NIA says. This email is meant for informational and educational purposes only and does not provide investment advice.
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