In Gold We Trust

Global investors had to muster the courage to keep calm this week, as news of Cyprus’ proposed partial theft of all bank deposits took Wall Street by surprise, closed the country’s banks and drove the price of gold higher.

The thoughtless idea was intended to capture a portion of the $31 billion in bank assets held by Russians. According to the Financial Times, Cyprus has developed a “well-earned reputation for being a haven for dirty money from Russia.”

Although Cyprus’ government came to its senses and blocked the proposed seizure, the damage has been done. To many people around the world, raising income taxes may be one thing, but changing the rules to steal hard-earned savings from all citizens rattles their confidence. What Adrian Ash of BullionVault says is “most amazing” about this situation is that “small savers are no longer sacred.”

It’s remarkable to see the response from Cypriots, as they protested in the streets, with “NO” stamped on their palms, demanding the government take its hands off their money. In the photo below, you can see their pushback to sanity.

How did this tiny island make it into the European Union (EU) in the first place? The Financial Times gave an insightful background this week:

“Many EU leaders had been deeply reluctant to admit Cyprus into the union in 2004, without a peace settlement that reunified the island. But Greece had threatened to veto the entire enlargement of the EU – blocking Poland, the Czech Republic and the rest – unless Cyprus was admitted. Reluctantly, EU leaders succumbed to this act of blackmail.”

Five years later, we are seeing the fallout of Cyprus due to Greece’s financial woes. Many accuse Greece of cooking the books to get into the EU, and then the country proceeded to blackmail the EU at the expense of other European countries.

Crooks get punished, but what about others who unfairly change the rules or break them? Think back to the anger generated by the Ponzi scheme run by Bernie Madoff, who lost $20 billion in cash. In addition, $65 billion in paper wealth vanished. He’s serving 150 years in prison, his son committed suicide, and he’ll forever be known as a thief and a rat.

In Gold We Trust

Since the global financial crisis began, there’s been a rash of poor economic decisions from socialist policymakers scrambling to bring in more revenue to cover their overspending. Rather than streamline regulations to facilitate trade and flow of funds or cut back on welfare programs, they’d rather maintain the status quo and increase taxes.

In Greece, tough cost-cutting austerity measures were shot down after organized unionized workers were rioting in the streets. France’s socialist president, Francois Hollande, has been trying unsuccessfully to increase the top income tax rate to 75 percent in an attempt to “squeeze fat cats and hit the mega-rich, making them bear the brunt of ‘sacrifices’ needed to fix public finances,” according to The Guardian last summer.

In Hungary and Italy, we have seen the unintended consequences of envy policies after implementing a financial transaction tax.

These types of “envy policies” that would be frowned upon by Moses on Mount Sinai aren’t only happening across the Atlantic. Recently, Gene Epstein from Barron’s compared the U.S. debt situation to that of Greece’s. He writes that national debt could “easily reach 153 percent of economic output by 2035” and unemployment could climb as high as 20 percent, but the solution doesn’t lie in “asking the rich to pay a little more.” He says,

“Barron's calculates that immediately increasing the marginal tax rate to 50% on the top 1% of the country's earners would bring in $500 billion over the next 10 years. This would barely dent the country's debt load, which would then be $20 trillion, and do little to forestall a financial crisis.”

I believe poorly thought out government policies hurt the formation of capital and destroy people’s trust in paper money. Leaders may have good intentions, but some of their actions show disrespect for private property and individualism.

This only reemphasizes gold as an important asset class.

It may be apt timing for investors to become reacquainted with gold, as our oscillator chart shows that the yellow metal appears to be oversold. On a year-over-year basis, gold has fallen more than 2 standard deviations, an event that has rarely occurred over the past 10 years. As I’ve indicated before, following these extreme lows, gold has historically rallied.

It’s only an event like Cyprus to prompt you to make sure your portfolio has a modest weighting of 5 to 10 percent in gold and gold stocks.

The Transformation of Turkey to a Soaring Eagle?

For another portion of your portfolio, Chris Mayer, managing editor of the Capital Crisis newsletter, suggests looking at the country located just north of Cyprus: Turkey. He names Turkey as the “Unexpected Winner of the U.S. war in Iraq,” as it benefits from the northern Iraqi oil fields that just opened. In addition, it’s a net exporter of refined products.

Since visiting Istanbul a few weeks back, I’ve been excited about the prospects in the emerging Europe area. It appears Turkey is transforming into a soaring eagle; Chris adds a few more reasons the area is promising. Read the article now.

Index Summary

• The major market indices finished slightly lower this week. The Dow Jones Industrial Average fell 0.01 percent. The S&P 500 Stock Index declined 0.24 percent, while the Nasdaq Composite fell 0.13 percent. The Russell 2000 small capitalization index fell 0.65 percent this week.
• The Hang Seng Composite fell 1.85 percent; Taiwan declined 1.66 percent and the KOSPI fell 1.90 percent.
• The 10-year Treasury bond yield fell 6 basis points this week, to 1.93 percent.

Domestic Equity Market

The S&P 500 pulled back slightly this week after reaching a new 12-month high in the prior five-day period. Given the news out of Cyprus, defensive sectors led the broader market as investors took profits in financials, materials and energy.

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Strengths

• Walgreen led consumer stocks and the S&P 500 this week after AmerisourceBergen agreed to handle its pharmaceutical distribution.
• Sprint Nextel outperformed the telecom sector as the Federal Communications Commission’s (FCC) review of Softbank's proposed $20 billion purchase of 70 percent of the company is on track, according to FCC Chairman Julius Genachowski.
• Nike jumped 12 percent on Friday after reporting third quarter earnings that topped analysts’ forecasts. The company showed better-than-expected strength in China, and improving gross profit margins.

Weaknesses

• Cliffs Natural Resources declined 6 percent for the week on downgrades from industry analysts related to global iron ore pricing.
• Morgan Stanley led the decline in the financials this week as investors took profits following further stress in the European banking sector this week out of Cyprus.
• Oracle was the worst performer in the S&P 500 this week as the company reported sales and earnings that missed analysts’ estimates due to slower hardware sales. The shares fell the most since 2011.

Opportunity

• The market continues to be resilient despite further negative news out of Europe regarding a proposed bank tax in Cyprus that weakened investor confidence in the region’s ability to resolve its ongoing debt crisis.
• The Federal Reserve Bank stated this week that it intends to maintain its asset purchase program in order to further stimulate job growth and boost the economy.

Threat

• A market consolidation wouldn’t be a surprise after a strong start to the year.

The Economy and Bond Market

The 10-year Treasury yield fell for a second consecutive week following news out of Europe that Cyprus may enact a tax on bank deposits, fueling fund flows out of the equity market into bonds.

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Strengths

• The U.S. housing market appears to be recovering after stagnating for five years. Housing starts came in at a seasonally adjusted annual rate of 917,000. That’s up from 910,000 in January. And it’s the second-fastest pace since June 2008, behind December’s pace of 982,000.
• Building permits, a sign of future housing construction, increased 4.6 percent to 946,000. That was the most permits since June 2008.
• Additionally, existing home sales rose to their highest level in more than three years, while prices increased nationwide, yet another indication of a housing rebound that bodes well for the overall economy.

Weaknesses

• The Eurozone Purchasing Managers Index fell from 47.9 in February to 46.5 in March, according to the flash estimate. The decline signaled an acceleration in the rate of contraction of business activity for the second consecutive month to the steepest experienced for four months.
• U.K. inflation accelerated to the fastest pace in nine months in February and factory-gate prices increased twice as much as forecast as energy costs surged and the British pound declined.

Opportunity

• The Fed continues to remain committed to an extremely accommodative policy.
• Key global central bankers, such as the European Central Bank, the Bank of England and the Bank of Japan, are still in easing mode. The Bank of Japan in particular appears willing to implement additional monetary policy easing in the near future.

Threat

• The economy appears to be gaining momentum. The risk for bondholders is that this trend continues and bonds sell off.
• Inflation in some corners of the globe is getting the attention of policy makers and may be an early indicator for the rest of the world.

Gold Market

For the week, spot gold closed at $1,608.58, up $16.63 per ounce, or 1.04 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 2.25 percent. The U.S. Trade-Weighted Dollar Index rose 0.14 percent for the week.

Strengths

• The day banks reopen in Cyprus will likely mark the collapse of the Cypriot financial system. The feared runs on the banks will be back and the radius of contagion will only be known too late. After all, the tax on bank deposits will have the same real effect as an equal-magnitude currency devaluation; can you see how the European Central Bank (ECB) has found a way to depreciate the euro selectively? The frustration and fears of contagion will find their way into purchases of real assets, and of course gold, as more and more reasons pile up to avoid holding cash as savings or investment.
• Much has been published regarding the nearly four million ounce drop in gold-backed exchange traded funds year-to-date. Investors seem to have concluded that everybody is selling, but this is in fact incorrect. The U.S. Mint reports in its latest commentary that sales of gold and silver coins are soaring; in fact, gold coins reached 80,500 ounces in February up 283 percent year-over-year. Silver coin sales were temporarily suspended when the Mint ran out of stock mid-January. There is strong reason to believe gold-backed ETF selling comes from speculators and momentum players who want convenient proxies for short term gold investments. It is also important to put gold backed-ETF outflows into perspective; the $5.6 billion in outflows for February represent less than 4.5 percent of assets invested in the products, and a small reversal from the more than $70 billion inflows the sector attracted over the last three years.
• Argentines are buying gold in droves. As the fastest inflation in the western hemisphere ravages the country, its citizens seek alternative ways to protect their savings. Banco Ciudad de Buenos Aires is the only gold trader left following attempts by the central government to ban the purchase of gold for savings purposes. Demand has reached levels which threaten to exhaust the bank’s gold supply, leading to the bank starting direct conversations with mining companies to buy the metal directly.
• This week, ConvergEx published a note on some overlooked measures of the U.S. economy which led them to ask the following question. If the economy is doing as well as bulls claim, then please explain why: A record 20-plus percent of U.S. households are recipient of food stamps; Google’s top autofill for the phrase “I want to buy…” is not “a car” or “stock” but rather “a gun;” Investor purchases of U.S. equity mutual funds have reversed, with the last two weeks showing outflows of $1.6 billion; Why are inflation measures ignoring rampant increases in foodstuffs, like the 8.8 percent increase in livestock and crops over 12 months? Not all overlooked indicators are negative for the U.S. economy, they admit, but the negative ones are more numerous and certainly worrisome.

Weaknesses

• The Indian government has imposed new rules making it mandatory for jewelry sellers to collect a Know Your Customer (KYC) receipt from every customer purchasing jewelry worth Rs 50,000 ($919.60). At present, retail jewelers collect receipts from customers buying jewelry over Rs 500,000 ($9,196). Gold sales are expected to decline following the introduction of the duty, however, and as has been evident in India in the past, an ever-larger consumer shift to gold purchases in the black market seem more likely.
• In the first two months of the year not a single company went through the laborious process of listing on the TSX Venture Exchange. The last record of two consecutive months without any IPOs dates back to 2009 when financing was not widely available for juniors. Most recently financing has almost fully dried up for junior mining explorers leaving many of them struggling to stay liquid.
• A recent report by the National Research Council of the National Academy of Engineering shed some light on a concern that has been circling the industry for some time. The report concludes there are not enough young workers in the pipeline to replace a large number of aging workers in the industry, but more troubling is the fact that there is not enough time to capture and transfer the knowledge of experienced workers before they retire. Lastly, it has become evident that, despite the numerous academic programs delivering prepared students, the number of technicians expected to graduate and join the workforce would be insufficient to meet the industry’s needs.

Opportunities

• Rick Rule, Chairman and Founder of Sprott Global Resource Investments gave his comments on the current state of the economy and what is coming for commodity prices. He argues the debasement of the U.S. dollar is the most likely outcome of the current situation, which he describes as follows: The U.S. Federal debt exceeds $16 trillion, off-balance sheet liabilities exceed $60 trillion, annual deficit is close to $3.6 billion. This means the country is attempting to service $76 trillion in debt with $2.5 trillion in revenue, while spending $3.6 trillion annually. He insists that no matter how many dollars we “counterfeit” by printing, the math simply does not add up. A U.S. dollar debasement will increase commodity prices around the world, making the outcome of the “unnerving” commodity markets quite predictable, even though the timing is not predictable.
• Mark Bristow, CEO of Randgold Resources commented earlier this week that unbundling large gold producers is likely to be the next trend in the industry. He argues that any more than five or six mines is not ideal for a mining company in terms of operational control. George Topping of Stifel Nicholaus agrees that an industry restructuring in which the biggest producers are split would likely result in higher valuations. Most recently, billionaire John Paulson, head of Paulson & Co. and largest shareholder of AngloGold called for the company to split its South African assets from the rest of its operations, believing the split would result in greater valuations for the parts.
• Shareholder activism has risen dramatically in the energy sector and is quickly spilling over to the mining industry. Recently, the Clinton Group hedge fund made a hostile bid to throw out management of Stillwater Mining. Clinton asserts the Board of Directors has doubled the CEOs pay, as well as its members’ compensation while engaging in ill-conceived acquisitions. The resulting destruction in shareholder capital is a pursuit of misguided strategic objectives. We welcome the fact that real money is being invested in the industry with the aim of addressing the mistakes of the past, while reminding investors that valuations are depressed to levels where this type of deals become appealing.

Threats

• The recent proposal by the ECB and the Cypriot government to raise €6 billion by implementing a one-time tax on bank deposits can only be referred to as theft. It is a wonderful life – Cyprus style, ironically stated David Zervos of Jefferies. Whether the tax is passed by parliament, or implemented is not the issue here; rather the motive and will by a government to deprive its citizens from their own wealth. Critics from all sectors rushed in, but none mentioned how the situation is not too unfamiliar for U.S. citizens. In the U.S. the government is stealthily taxing its citizens’ savings in a more preposterous manner; the record low interest rates and Bernanke’s financial repression has left most citizens’ savings exposed to rising inflation. As inflation rose past interest rates, the real rates of return turned negative and investors are faced with locking in loses on their government debt investments.
• Aboriginal protests are threatening Canada’s coveted reputation as the friendliest mining jurisdiction. First Nations, as Canadian aboriginals are known, are seeking to renegotiate old contracts and regain control over some areas they designate native reserves. Recently, there have been blockades at Hudbay Minerals’ Lalor Project in northern Manitoba, as well as a De Beers producing property in northern Ontario. There are reports that First Nations have succeeded in impeding the development of at least six energy and mining projects in the province of British Columbia in the past. The word is getting out, and Canadian provinces failed to land the top spots in the most recent survey of best global mining jurisdictions.
• As if aboriginal opposition were not sufficient to keep mining CEOs awake at night, the Quebec provincial government will attempt to pass legislation that seeks to alter the current tax structure for the mining industry. Although the plan is not yet finalized, it appears the legislation will replace the current 16 percent tax on profits with a 5 percent royalty on gross revenue and a variable tax on operating profits – read potential “Windfall Profits Tax.”

Energy and Natural Resources Market

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Strengths

• Natural gas futures climbed to an 18-month high in New York as an unusually cold start to spring in the U.S. may bolster demand for the heating fuel.
• The Baltic Exchange's main sea freight index, which tracks rates for ships carrying dry bulk commodities, continued its upward trend this week for the 17th consecutive day, pushed up by rates across all shipping segments.
• World steel production for February 2013 at 123 million tonnes was up 1.2 percent year-over-year driven by China, where production at 61.8 million tonnes was up 9.8 percent year-over-year.

Weaknesses

• Rallies in industrial metals led by stronger than expected HSBC China flash PMI were short lived with copper reversing its gains to reach a four-month low this week.
• U.S. raw steel production last week was 1.62 million tonnes, which is a fall of 2.35 percent week-on-week and means that capacity utilization is down to 74.5 percent, the second lowest level year to date. In addition, overall steel output in the first 11 weeks of this year is over 5 percent lower than the same period in 2012.
• Colombia exported 2.9 million tonnes of coal in February, the lowest monthly figure for the past 10 years and just 11 percent higher than the 2.6 million tonnes shipped during February 2003. Striking miners, port delays, and rail logistical problems all contributed to the weak exports.

Opportunities

• Later this year, U.S. oil production is set to surpass the amount of crude the country imports for the first time since 1995, the U.S. Energy Information Administration (EIA) said this week. The boom in U.S. shale or tight oil production unleashed by advances in horizontal drilling and hydraulic fracturing, known as "fracking,” is expected to see U.S. output top 8 million barrels per day by the end of 2014, the EIA said. That would be the highest level since 1988.
• China may have 20-30 million tons of annual shortage in feed grain supply in 2-3 years, boosting needs for imports, Yi Ganfeng, vice president of Beijing Dabeinong Technology Group, the country’s second-biggest feed miller, said on the sideline of the JCI grain conference in Kunming. As China’s livestock industry matures, feed mills will prefer to use bulk-commodity grain, including corn and dried distillers’ grains, in place of traditional materials such as oilseed meal, used by smaller farms now. China’s meat demand may expand about 25 percent from current levels in about 5 years, spurring consumption of feed grain. China would import 10 million tons of corn a year now if there were no policies restricting imports.

Threats

• U.S. drivers may face a $13 billion increase in the cost of gasoline this year as the price of federally mandated ethanol credits has risen 10-fold for oil refiners. Oil refiners such as Valero, the world’s largest independent refiner, and Exxon Mobil are pushing the U.S. Environmental Protection Agency to reduce the amount of ethanol they’re required to add to gasoline to avoid what they say will be a sharp spike in prices at the pump just as the summer driving season begins.
• Refiners buy biofuel credits, known as RINs, which are available as an alternative to actually blending ethanol into gasoline. The cost of those credits has ballooned from seven cents at the start of the year to more than $1 as the 2013 federal mandate for biofuel exceeds 10 percent of gasoline sales, the maximum that refiners say the market can absorb.
• At the annual gathering of the American Fuel and Petrochemical Manufacturers in San Antonio yesterday, Michael Jennings, chairman and chief executive officer of Dallas-based refiner HollyFrontier Corp., said energy traders and hedge funds are treating ethanol credits like a casino, which “will drive, in its current form, higher prices at the pump.” Consumers are at risk of paying 10 cents a gallon more for gasoline this year if the ethanol credits continue to sell at a price of more than $1.
• The Wall Street Journal is cautious on iron ore miners. A "Heard on the Street" column says with most forecasters seeing a drop in iron ore prices, miners should proceed with care and maintain a healthy price to uphold profitability.

Emerging Markets

Strengths

• The HSBC China March flash PMI was 51.7 which beat the market consensus of 50.8 and is better than 50.4 in the previous month. Subindices for production and new orders also were improved. PMI above 50 indicates that economic activities are in expansionary territory. A People’s Bank of China (PBOC) survey of entrepreneurs in the first quarter also found that business confidence and macroeconomic heat indices both improved significantly compared with the fourth quarter of last year.
• The Philippines 20-year treasury yield fell 42.5 basis points to 3.625 percent after cutting the special deposit account rate to 2.5 percent. The flattening of the long bond is favorable for long-term funding for capital expenditure planning, balance sheet strengthening and liability refinancing. It also should shift investors’ interest from income products to the equity market.
• The Shanghai Securities Journal reported that the National Development and Reform Commission is considering revising up subsidies for distributed solar from the earlier drafted Rmb0.35/kwh to perhaps Rmb0.4. Also this week, the National Energy Administration surprised the market by approving wind power volume of 28GW versus 20GW previously. Clearly, environment-friendly companies should benefit from policy support in China.
• Passenger vehicle sales in the first two weeks of March rose 21 percent year-over-year and fell 6 percent month-over-month after the working day adjustment, which is higher than the market expectation. European and U.S. brands grew 43 percent.
• The Asia/GEMs Strategy group of Morgan Stanley predicts a new long-run bull scenario that the Hang Seng Index achieves the 50,000 level (+121 percent gain from current level) before the end of calendar year 2015. The research group argues for a historical precedent of a six- to eight-year peak-to-peak cycle, which will be from a 2007 peak to a peak in 2015. The group also believes its theory is well supported by the current market valuation. Demark Studies, a research firm, recently predicted the Shanghai stock market will rise 48 percent in six months from now based on its technical studies.
• China February foreign direct investment was up 6.3 percent to $8.2 billion versus a drop of 7.3 percent in January.
• The Chilean economy expanded at a rate of 5.7 percent in the fourth quarter of 2012, beating analyst expectations of a 5.6 percent increase. The main drivers of growth were domestic consumption and fixed asset investment. These drivers relieve some of the fears of a slowdown in the commodity-export Chilean economy, following weaker commodity prices in recent weeks. Similarly, the Colombian GDP grew by 4.0 percent in fiscal year 2012 beating the Central Bank’s mid-point forecast of 3.6 percent. The country currently boasts its lowest inflation in 60 years and is lowering rates to drive economic growth up to 4.8 percent this year. Colombia also cut its benchmark interest rate today by 50 basis points while the market was looking for only 25 basis points.
• At the tenth anniversary of the Iraqi war, the world has realized Turkey is the biggest beneficiary in spite of refusing to participate at the time. After the war, Turkey has become a supplier to Iraq in its reconstruction of its oil business and economic growth.

Weaknesses

• The Bangkok SET Index was down 7.5 percent this week. According to Michael Frost, CLSA head of sales trading in Bangkok, it is due to forced selling by some aggressive margin clerks. Stocks that had been recent retail favorites saw the worst of the selling as they are the most likely to be pledged on margin. The index dropped 3.3 percent on Friday, which seems to be the culmination for margin restrictions rumored to be set in place by some local brokers on Monday. The Thai baht had appreciated 4.3 percent year-to-date, which might be another reason for financial regulators to want to restrict capital inflow.
• On Thursday, the PBOC sold Rmb48 billion of 28-day repurchase operations, a fifth consecutive week to withdraw liquidity from the market since the Chinese New Year holiday.
• A PBOC survey shows that most Chinese residents (68 percent) find property prices too high and “hard to accept.”
• Premier Li Keqiang is pledging to slash the central government’s payroll and freeze spending on new vehicles and other perks. The effect of the new leadership’s anticorruption directive was seen in premium restaurant and luxury sales falling significantly during the Chinese New Year because government officials reduced spending. Every new government in China in the last 30 years had its own anti-corruption declaration at the time of leadership transition, but failed miserably due to a lack of supervision.
• As inflation in Brazil struggles to stabilize around analysts’ forecasts, some of its other economic readings have started to turn negative after a few positive weeks. The analysts’ consensus GDP forecast declined to 3.0 percent this week, a trade deficit of $448 million drove March’s month-to-date trade into a deficit, and business confidence fell 2.3 percent from a month ago. The Bovespa Index was down this week led by commodity exporters amid concerns that weakening PMI in Germany will further dampen raw material demand from Europe.

Opportunities

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• Shown in the graph above, the HSBC China flash PMI for March rose 1.3 from February’s final reading to 51.7, the second highest since April 2011, with the production index rising the most among the subindices, up by 2 to 52.8, making it the main driver of the higher PMI. The new orders index gained 1.9 to 53.3 and was in expansion territory for a seventh straight month, suggesting that aggregate demand continues to recover thanks to stabilizing real estate investment and strong infrastructure investment.
• Argentine corporate and provincial borrowers have been largely unable to take advantage of the rallying emerging market debt space, where rates have hit record lows. Financing for these players has become more and more dependent on bankers’ creativity. Recently, the Province of Neuquen in Argentina, home to the third largest shale deposit in the world as well as much of the country’s energy wealth, is determined to issue new debt as oil and gas royalty backed bonds. The move will allow the province to refinance at much lower rates, while still offering attractive double-digit coupon rates for investors in a sector where most of the upside appears to have been priced in.

Threats

• The supply side has been riding a tailwind of consumption growth in Indonesia since after the 1997 Asian financial crisis. Today, the supply side constraints turn out to be a bottleneck of the economy, primarily due to a shortage of skilled labor and production capacity. For example, only 4,000 doctors are graduating every year, and there are only 0.4 doctors per 1,000 people. This is in addition to a shortage of 150,000 hospital beds. Hospitals and clinics cannot get doctors and nurses to expand their businesses in spite of growing demand for healthcare services, according to CLSA country head Wuddy Warsono.
• Earlier this week, the Argentine government raised taxes from 15 percent to 20 percent on debit and credit card purchases made abroad, together with internet shopping and travel packages to foreign destinations. Critics agree that this movement acts as a stealth devaluation of the pressured Argentine peso, as it now costs 6.1 pesos to buy a dollar of goods abroad, compared to the official exchange rate of 5.1 pesos. Furthermore, the unofficial dollar markets in Argentina are quoting U.S. dollars as high as 8.3 pesos, demonstrating the strong pressure on the government-controlled exchange rate. To sustain this exchange system, the government has spent $2 billion of its foreign reserves year-to-date, taking its total foreign reserves to less than half the $83 billion in foreign government debt. With Parliamentary elections coming in October this year, it is likely the government will continue to ignore the pressures to devalue the currency.

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