Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing


Article Index

We Want to Hear From You: Are You Worried About China's Currency Rise Sparking Inflation?

After months of intense political pressure, China announced Saturday that it would allow its currency to gradually appreciate against the U.S. dollar. China's currency - the yuan - has been pegged to the American greenback since 2008.

"This is going to lead to a transition from export-lead, investment-lead to more of a consumption-lead economy going forward," Jing Ulrich, chair of China equities and commodities at JPMorgan Chase & Co. (NYSE: JPM), told CNBC. "I think the ramifications are profound not just for the next few months but actually for the coming years."

Not surprisingly, U.S. exporters embraced the news as an opportunity to compete against Chinese companies and to reduce the U.S. trade deficit. Foreign nations, including the Untied States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.

Read More…

Why China's Foxconn Will Hurt the Global Economy More Than the BP Oil Spill

Before this month, chances are pretty good that you'd never even heard of Taiwan's Foxconn International Holdings (PINK ADR: FXCNY). And yet, Foxconn is one of the world's most important manufacturers.

Given that the formerly anonymous giant is now at the forefront of the zooming escalation in labor costs that's currently taking place in Mainland China - and given the enormous implications of the inflationary pressures that will result - chances are excellent that Foxconn will have a bigger effect on the world economy this year than even BP PLC (NYSE ADR: BP).

If that weren't enough, China's decision to let the yuan appreciate against the U.S. dollar will actually magnify this impact: If the Chinese currency strengthens, then the yuan-denominated wage increases will have an even-more-inflationary effect on the cost of China-made goods selling at your local Wal-Mart (NYSE: WMT).

To understand the "Foxconn Effect" - and to see how to position your investments - please read on...

Read More…

China's Plan For Yuan Appreciation Likely to Boost Inflation in U.S. & Lift Chinese Consumer Stocks

China's plan to let the yuan appreciate against the U.S. dollar is likely to hit U.S. shoppers in the pocketbook, while also making the stocks of companies with goods aimed at Chinese consumers more attractive.
But because of wage pressures, the effects of China's move to introduce more flexibility to its currency policy won't fundamentally change its inflation problems, according to Money Morning Contributing Editor Martin Hutchinson.

"With workers in China demanding huge wage increases to keep up with prices, there's really no economic case for letting the yuan appreciate," Hutchinson said in an interview yesterday (Monday).
But a rising yuan and wage increases in China may gradually spell bad news for U.S. consumers.

"Eventually, the guy shopping at WalMart Stores Inc. (NYSE: WMT) won't like it when he sees prices go up 15% or more...prices of Chinese goods - everything from video games to sweatshirts - are likely to rise in dollar terms," Hutchinson said.

Read More…

China's CNOOC Will Ramp Up Deepwater Oil Drilling as BP's Oil Spill Kills U.S. Exploration

China's CNOOC. Ltd. (NYSE ADR: CEO) will step up its long-term deepwater oil exploration plans with a close eye on safety measures in the wake of the BP PLC (NYSE ADR: BP) Gulf oil spill that has halted U.S. deepwater drilling. The state-controlled oil company has exclusive rights to develop China's offshore resources and has […]

Read More…

We Want to Hear From You: Is Afghanistan's Mineral Wealth a Blessing or a Curse?

The news that there is $1 trillion of Afghanistan mineral wealth hiding in the country's scarred and deserted landscape has global investors calculating how likely it would be for this incredibly poor country to transform itself into a major global exporter.

It has also spawned debates about which nations should be given a piece of this potential fortune.

At $1 trillion, the estimated value of the mineral reserves is 100 times the size of Afghanistan's $12 billion economy. And it's not just the dollar figures that could bring about change. Much of Afghanistan's economic activities involve drug trafficking and terrorism. About 40% of the country's population lives below the poverty line, and 70% lives on $2 a day.

Read More…

Will Afghanistan's Mineral Wealth Bring the Nation's Rebirth or a Commodities Curse?

Overnight, Afghanistan has gone from being a political pariah to one of the most significant, and potentially richest, countries on the globe. But can the rocky, war-torn desert - known mostly for harboring terrorists and exporting opium - be reborn as a major commodities exporter?

U.S. geologists have found some $1 trillion of untapped mineral deposits in Afghanistan, The New York Times reported Sunday. Afghanistan's mineral wealth includes large caches of iron, copper, gold and lithium that could turn the country into one of the most important mining centers in the world.

Think of Australia, Canada, and Latin America. That is the league into which these geographical revelations have thrust Afghanistan.

"There is stunning potential here," General David Petraeus, commander of the United States Central Command, told The Times. "There are a lot of ifs, of course, but I think potentially it is hugely significant."

Those "ifs" include ongoing warfare, a lack of infrastructure, and more than a little political corruption. But the upside for the country is enormous.

While U.S. officials estimate the potential value of Afghanistan's mineral wealth at $1 trillion, President Hamid Karzai said last month during a visit to Washington that his country's deposits could be worth three times as much.

So why did it take so long for this information to surface?

Read More…

Taiwan Outlines Export Deal With China To Boost Its Economy and Open Door for Global Trade

Taiwan on Sunday announced a monumental trade deal with China that will boost the island's exports and shift its economy toward China-centric policies.

The Economic Cooperation Framework Agreement (ECFA) will reduce tariffs on 500 products exported from Taiwan to China and 200 products shipped from China to Taiwan including car parts and machinery. It will also open the door for Taiwan to be included in future free trade agreements that China previously prevented because it viewed Taiwan as a rebellious province.

"Signing the ECFA is a route that Taiwan must take and it is a milestone, " Liu Bih-rong, a political science professor at Soochow University in Taipei, told Bloomberg. "It signifies how the relationship between the two sides has recovered and, more importantly, it will pave the way for more free-trade agreements and benefits. "

The agreement's details still need to be ironed out and should be finalized by early July at the latest.

Read More…

Buy, Sell or Hold: A Copper-Price Rebound Could Mean a 50% Gain For Freeport McMoRan Copper & Gold Inc. (NYSE: FCX)

It's time to play "the metal of the economists"- copper. And that brings us to one stock: The publicly traded king of copper - Freeport McMoRan Copper & Gold Inc. (NYSE: FCX).

Let me explain ...

Last week, I provided a solid "defensive-investing" pick for readers who wanted to balance their portfolios - and wait for the latest global-financial storm to pass.

During the past week, we got very strong indications that strong hands see value in the market:

Read More…

Stock Market Stuck as Investors Demand Risk Premium for Buying

Stocks rose worldwide over the past week by 2% to 5%, swelling with sudden courage after positive economic reports from China and shaking off some worsening news in the United States about retail sales and jobs.

Yet results in the past month are still heavily negative, ranging from -5.5% for U.S. stocks and -8.5% for Europe. China has suddenly become the most buoyant region, up 1.5% in the past month.

The variation in one-week and one-month results illustrate perfectly how investors are showing that they are hopeful but unconvinced that recent strength in GDP growth and corporate income advances are sustainable, and therefore won't buy stocks heavily until prices are so cheap that they discount worst-case scenarios. They want a high risk premium, in other words, before buying -- sort of like demanding a 72-month warranty before buying an expensive car.

Click Here to Find Out How the Risk Premium is Holding Back Stocks...

China's Inflation Higher Than Target Rate, Could Be a Sign It's Time to Tame Rapid Growth

China's inflation rate rose 3.1% in May from a year earlier, exceeding the government's 3% target rate for 2010 and stirring speculation on whether or not Beijing will attempt to slow the nation's rapid growth pace.

The consumer price index climb was the fastest in 19 months and was higher than the 2.8% rate in April. The National Bureau of Statistics also posted increases in industrial production, retail sales, and property prices, which contributed to analysts wondering whether or not China will make moves to tame growth to avoid higher inflation.

"Officials seem confident that price pressures will ease later this year, attributing much of the recent positive trend to base effects, but there are plenty of reasons to think that inflation can keep moving higher," Royal Bank of Canada (NYSE: RY) economist Brian Jackson told The Wall Street Journal.

Read More…

From Leader to Laggard: Is it Time to Bet Against the U.S. Dollar?

The U.S. dollar has been one of the world's strongest currencies in the first part of 2010, posting double-digit gains through the end of May.

And little wonder. The Greek debt crisis continues to threaten Europe's overall health, and could unleash an entirely new contagion on the rest of the global economy. Then there's China, - the engine of world growth during much of the financial crisis - which now appears to face the near-term triple threat of slowing growth, accelerating inflation and workplace unrest. Add in concerns about commodity prices and global debt levels and it's easy to see why currency investors have sought the safe haven of the U.S. dollar.

In short, it appears that "everybody" knows the greenback is the best choice for safety, quality and security.

But is that really the case? To me, the dollar is looking more and more like a colossal short that could wind up being one of the biggest moneymakers of the year for traders gutsy enough to take a stand.

To see why the dollar could roll over - and to see how to play it - please read on ...

Read More…

China's Exports Surprise Contradicts the Critics

Chinese exports in May posted a 50% gain over last year, blowing away estimates and suggesting that the risk of a Chinese economic slowdown is overblown, Reuters reported, citing anonymous sources.

China's official export numbers will be reported tomorrow (Thursday) as part of broader trade data, but had been expected to rise 32% year-over-year after recording 30.5% growth in April.

Chinese economic figures are often leaked widely in markets and government circles ahead of their official release, and are sometimes subject to last-minute revisions.

Read More…

Is the Plunge in Commodities a Bear Market Signal for Stocks?

The biggest slump in commodity prices since 2008 is undermining confidence on Wall Street and fueling speculation that a new bear market has been born.

Despite forecasts for accelerating economic growth and higher prices, commodities, with the notable exception of gold, are taking a big hit.

The Journal of Commerce (JOC) Commodity Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunged 57% in May, the most since October 2008 - something that gave analysts a sense of déjà vu.

Read More…

These Five Inflation Plays Will Provide Protection and Profits

Inflation hawks have been warning since 2008 that the spurt of U.S. money creation that began at the end of that year would spark a surge in consumer-price inflation.

And yet the consumer price index (CPI) statistics remain quiet - not giving ammunition to the deflationary camp, but making "inflationists" look silly, as well. Now, however, it is becoming obvious that inflation will soon arrive. But this time it is sneaking in through the back door - courtesy of our emerging-market trading partners.

Fortunately, there are some very clear steps that investors can take to protect themselves from this expected inflationary surge.

To learn about five investments that can battle inflation even as they fatten your portfolio, please read on...

Global Airline Industry Rebounds, Will See Profit in 2010 From Recovering Economy

The International Air Transport Association (IATA) yesterday (Monday) raised its airline industry outlook and now expects airlines to post a $2.5 billion profit in 2010, recovering from two years of ailing business.

The IATA said increasing passenger travel, a climb in cargo trade, and effective cost cutting measures will contribute to accelerating the industry's rebound.

"The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated. Airlines are benefiting from a strong traffic rebound that is pushing the industry into the black," IATA Director General Giovanni Bisignani said.

Previous industry predictions forecast a $2.8 billion loss. However the IATA revised its expectations for passenger traffic and cargo volume. Passenger traffic will grow 7.1% this year, up from the IATA's original prediction of 5.6%, and cargo volume will grow by 18.5%, up from the earlier estimate of 12%. Total revenue for the industry will be about $545 billion, up 13% from $483 billion in 2009, the group said.

Moody's Investors Service upgraded the industry's outlook Monday to stable from negative, saying they "expect profitability in the global airline sector to improve as we gain distance from the 2009 trough of the recession."

Bisignani cautioned that the recovery is fragile and that labor unions must prepare for more budget reductions.

Read More…