I have a treat for my readers: The Atlantic's (December 2008, p. 62) interview with Gao Xiqing, who oversees and invests $200 billion of China's $2 trillion U.S. dollar holdings. This interview is one of the best ones I've ever read because of how open the government official was.
Below are my favorite two parts from the interview, one about the American dollar, and the other about derivatives:
Everyone is saying, “Oh, look, the dollar is getting stronger!” [As it was when we spoke.] I say, that’s really temporary. It’s simply because a lot of people need to cash in, they need U.S. dollars in order to pay back their creditors. But after a short while, the dollar may be going down again. I’d like to bet on that!
I have been converting my dollars into Canadian dollars (NYSEARCA:FXC) recently. I already have euros (NYSEARCA:FXE) and some Swiss francs (NYSEARCA:FXF). We'll see in a year whether my decision was the right one. I felt compelled to diversify my U.S. dollar holdings, because they were earning around 1% in interest, while competing currencies had much higher interest rates and the possibility of greater upside.
As for derivatives, here is what Mr. Gao had to say:
If you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullsh*t. They are crap. They serve to cheat people.
Mr. Gao explains derivatives by comparing them to multiple mirror reflections of one actual product. It's such a perfect analogy, I'm surprised no mainstream American publication has mentioned it until now.
Kudos to The Atlantic and Mr. Fallows for publishing this interview.