Dollar

Washington – Not China – Is the Real Manipulator Here

SHANGHAI, People's Republic of China - China just posted its first monthly trade deficit in nearly six years, a $7.24 billion shortfall for March that essentially torpedoes Washington's argument that the Asian giant is a "currency manipulator" of the worst kind.

The Obama administration's assertion that China is artificially keeping the yuan undervalued to gain a global competitive advantage isn't just misguided: It actually demonstrates that Washington lacks even a basic understanding of global economics. Given that the same U.S. leaders who have been pushing to hang this manipulator label on China and impose sanctions are the same ones who tried to end the financial crisis by creating a river of debt that will haunt us for years, I can't say that I'm surprised.

As the U.S. argument goes, pegging its currency to the dollar gives China a distinct advantage when it comes to less-expensive manufacturing and a strong export market. The implication is that somehow this is negatively impacting our economy, or - in a variation of the same logic - holding back our recovery. Washington points to the massive trade deficits we regularly run with that country as evidence of China's currency-market wrongdoing.

In reality, China's pegged currency has done two things. First, it's allowed the United States to keep its inflation rate at a much lower (and more-manageable) level than it should have been in view of the $14 trillion in debt that this country has taken on.

And, second, it's allowed China to fuel its own stimulus package while at the same time assuming a meaningful role in the ongoing global recovery.



Let's take a minute to talk about why this is true.

Geithner's China Jaunt May Signal Easing of Tensions on Yuan

In a surprise move, Treasury Secretary Timothy Geithner will meet with Chinese Vice Premier Wang Qishan in Beijing today (Thursday), as speculation increases that China is considering letting its currency, the yuan, rise against the dollar.

The unexpected meeting was arranged on-the-fly after Geithner's scheduled trip to India, and may be a sign that both countries are seeking to defuse the currency issue ahead of Chinese President Hu Jintao's trip to Washington next week.

The move follows the Treasury Department's decision last weekend to delay a decision on whether to label China a "currency manipulator."

"[China is] becoming more open to the world, and with that, you're going to see the [yuan] take on a broader role internationally," Geithner said in a Bloomberg Television interview in Mumbai as he finished preparations for the previously unscheduled visit to China. "That's a healthy, necessary adjustment."

Read More…

Why the Bulls Can Stand Strong at Home and Overseas

Stocks enjoyed another plus week, closing one of the better Marches of the past 80 years. It seems like ages since volatility has been this low, and there have been many complaints about complacency and listlessness. Yet those concerns may be misplaced if indeed we are enjoying the second leg of a normal bull cycle. Low volatility in a bearish phase does suggest complacency, to be sure, but in a bullish phase it serves more to keep expectations in check. 

Read More…

What's Really Driving Obama's Sudden Interest in Oil

U.S. President Barack Obama generated a lot of hubbub with his decision to open up parts of the Atlantic Ocean and Gulf of Mexico to oil drilling.
We've all heard the criticisms that some of the geological surveys are as much as 30 years old, and the arguments that the ecological impact of drilling off the U.S. East Coast isn't worth the accessible oil, which some critics estimate could play out in as little as six months at current demand levels.

But even after more than a day of debate over the motivations for - and possible results from - President Obama's apparent energy policy about-face, one thing is very clear: This announcement has nothing to do with oil.

It's all about the U.S. dollar.

To find out why President Barack Obama really lifted the moratorium on oil drilling, please read on...

Read More…

Here's What a Veteran Trader Sees for Gold Prices…

Gold has made some dramatic moves in the last 18 months and we expect it will undergo some equally dramatic moves in the future.

But not right now.

While I recognize that gold is one of the few "commodity" markets that people are really passionate about, the purpose of this article is not to take sides either with the gold bugs or those who reject the argument that gold is "forever." Rather, I want to discuss my interpretation of the market's cycle.

After spot gold made an all-time high against the dollar at $1,226.37 on Dec. 2, gold has been in "retreat" mode. For the past several months, gold has been in a broad trading range, seemingly unable to move one way or another. This process has created frustration among bulls and bears alike.

Here is the dirty little secret about the gold market: It can be a horrible investment and here's why...

Read More…

Chinese Premier Wen Rejects U.S. & European Pleas, Says Yuan to Stay Stable

China's Premier Wen Jiabao vigorously defended his country's economic policies on Sunday, rejecting calls to let the yuan appreciate, and ratcheting up trade tensions with the United States where lawmakers and economists insist his stance is hindering a global recovery. "I don't think the renminbi is undervalued," Wen said at a press conference in Beijing, using the Chinese currency's official name. "We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency."

Read More…

China Standing Firm on Currency Policy Despite Mounting Pressure

China's rigid stance to not appreciate its currency continues to cause problems with "hot money" and foreign trade relations.

A report from Yi Gang, China's director of the State Administration of Foreign Exchange (SAFE), today (Tuesday) shrugged off calls for currency appreciation. Yi said China's foreign-exchange reserves - which are the largest in the world at $2.4 trillion - are safe and stable, and the country will strengthen its supervision of speculative cash inflows.

Speculation that China's currency, the yuan, is soon to rise has increased investment, but such speculation is not particularly welcome. "Underground money shops" disguise funds as foreign direct investments and trade accounts in an attempt to profit from the increasing spread on interest and exchange rates, according to Yi.

Read More…

Plummeting British Pound Leads to Worries of Another Currency Market "Black Wednesday"

Outside of the earthquake rescue efforts in Chile and the Greek-rescue efforts in Brussels, the big news in the world economy last week occurred in currencies.

As you can see in the chart below, the plummeting British pound sterling has dropped even more than the beleaguered euro in the past month and a half, while the good old U.S. dollar has been as good as gold. (That last bit was a bit of currency irony; the dollar has actually been much better than gold, which has flat-lined in the past six weeks.)

Read More…

Weak Job Market and Low Inflation Stall Fed's "Exit Strategy"

Any speculation that U.S. Federal Reserve Chairman Ben Bernanke had his finger on the "exit strategy" trigger has been silenced.

Bernanke yesterday (Wednesday) faced the House Financial Services Committee to instill public confidence in the Fed's ability to exercise a smooth exit strategy and quell continued fears of a tightening monetary policy.

The Federal Open Market Committee (FOMC) "continues to anticipate that economic conditions -- including low rates of resource utilization, subdued inflation trends, and stable inflation expectations -- are likely to warrant exceptionally low levels of the Federal Funds rate for an extended period," he said.

Read More…

The Five Factors That Could Rescue U.S. Stocks

When the stock market is enduring as much trouble as it has been lately, it pays to remember that there are still many positive catalysts that are in place and working to buoy securities prices.

Let's take a few moments to consider the top candidates:

  • A Friendly Fed: The current U.S. Federal Reserve under Chairman Ben S. Bernanke is the most accommodative in history and is likely to keep short-term interest rates at or near zero for the remainder of this year. Occasionally there will be rumblings of an increase - as there was in The Wall Street Journal last Monday, but they are likely just smoke screens.
To find out about the other four factors - as well as three possible profit plays - please read on ...

Read More…

Seven Signs of the Fed's Eventual "Exit Strategy"

Looking for an exact date when U.S. Federal Reserve Chairman Ben S. Bernanke and his fellow central bank policymakers will raise interest rates?

Experts refer to this eventuality as Bernanke's "exit strategy" - a financial euphemism for the interest-rate increases that are certain to come ... at some point.

That's just it - those experts can't tell you when that exit strategy will begin. I can't tell you that, either (Sorry, loaned my crystal ball to Miss Cleo for her new infomercial).

But what I can give you that the pundits can't is a "Road Map to Higher Interest Rates," which spells out the specific events that should precede the most-heavily anticipated U.S. central bank interest-rate increase in history. Follow it and you should be perfectly positioned to profit when the time comes.

(Remember, a few months ago, I introduced Senior Secured Floating Interest Rate Bonds, or SSFRs, an investment that you'll want to own when interest rates rise.)

So, without further ado...

Read More…

Buy, Sell or Hold: Buying Into Brazil by Betting on Vale (NYSE: VALE)

On Oct. 27, 2008, I strongly recommended that Money Morning readers invest in the Brazilian stock market through the iShares MSCI Brazil Index Fund (NYSE: EWZ).

It was a momentous decision. The U.S. economy and the global financial system seemed to be coming to a precipitous end.

The day before Money Morning published my lengthy analysis and recommendation, The New York Times published an editorial by the newly anointed economics Nobel laureate Paul Krugman, entitled "The Widening Gyre." Krugman in that editorial criticized those of us who believed emerging economies would decouple from the financial melee that was wrought by the over-leveraged and imbalanced developed economies.

"The really shocking thing, however, is the way the crisis is spreading to emerging markets - countries like Russia, Korea and Brazil," he wrote. And he derided the notion of "the supposed ability of emerging market economies to keep growing even if the United States fell into recession.... Now the emerging markets are in big trouble."

Read More…

Will Copper Become the "New Gold?"

The Statue of Liberty is one of the most recognizable American icons in the world.

And as she towers 305 feet above Ellis Island, what's Lady Liberty wearing? Copper - 60,000 pounds of it.

Clearly, copper's big in art. It's also a key metal that keeps the world economy humming. Copper consumption has grown at an average annual rate of 4% since 1900. China and India - which some analysts describe as the combined market of "Chindia" - where one of every three human beings resides, needs loads of this element to meet its modernization requirements for electricity and infrastructure.

Copper is also used in today's currency, where most U.S. coins are actually 92% copper, and 8% nickel.

But there's no denying that, given the choice, nearly everyone prefers gold. It's valuable, it's seductive and it's mystical.

Ancient kings fought wars to amass it. Yet, for thousands of years, its most enduring role has arguably been in the form of money - as a store of value.

That's because fiat-paper-currency experiments have never lasted, and always ended badly.

Increasingly, followers of the Austrian School of Economics are nostalgic for gold to regain its former glory, perhaps "backing" a new international currency.

But despite gold's much longer history as true money, some believe that copper - the much humbler metal - could be positioning itself to upstage gold.

To find out more about the forces that will transform copper into the "New Gold," read on...

Why Gold Beats the Market Manipulators

There's one investment that Wall Street manipulators can't touch - and neither can the Fed or the U.S. government. Right now, that investment is gold. Taking a stake in a hard asset like gold may well be the surest way to make some money for yourself despite the shenanigans on Wall Street.

Read More…