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Jim Trippon is an Amazon.com bestselling business and finance author, a practicing CPA, and a fee based investment advisor. His portfolio of companies includes J.M. Trippon & Company CPA, Trippon Wealth Management & Trippon Financial Publishing. Jim has dedicated his business career to... More
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Global Profit$ Alert
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Stay Rich Forever: Retirement Planning Secrets of Millionaires and How They Can Work For You!
  • Markets Verdict on Currency Wars: Protect Your Portfolio 1 comment
    Oct 26, 2010 6:43 AM | about stocks: ACH
    What a relief! Typhoon Megi is losing strength and wheeling into the Chinese heartland, just as stock markets in China's coastal cities enjoy a new burst of sunshine.

    Here in China there is a sense of renewed optimism and calm, after the G-20 finance ministers failed to put up a united front against China's currency policies. As U.S. Treasury Secretary Tim Geithner flew home from China stock markets here hit new highs.

    The benchmark Shanghai Composite Index rose 2.57 percent to close at 3,051, its highest close in six months.

    The Shenzhen Component Index, which tracks the smaller stock market in southern China, bounced to a nine-month high by rising 3.8 percent. Smaller companies surged after the government pledged to boost development of innovative technologies.

    Commentators here say that stock market sentiment received a boost after finance ministers from the G-20 nations vowed to avoid "competitive devaluation" of their currencies.

    But there's much more to the market surge here. Many of the gains are in commodities and commodity producers. That reflects the belief the United States will continue its role in the currency wars by printing money, a measure that Washington calls Quantitative Easing or QE2.

    Since most commodities are priced in dollars, that means a weaker dollar will result in more expensive gold, silver, oil and other basic materials.

    On the Shanghai Exchange, the big movers reflected that fact. Shandong Gold Mining climbed 6 percent. Zhongjin Gold jumped 5.9 percent. Zijin Mining Group similarly jumped 5.9 percent.

    Jiangxi Copper surged by the daily limit of 10 percent. Yunnan Copper also rose by the maximum 10 percent.

    Even Aluminum Corp of China (NYSE:ACH), which just reported an unprofitable quarter, gained 4.4 percent. The company, known as Chalco, is now predicting profitability by year's end.

    Despite the G-20 finance ministers' pledge to end currency wars, I still expect ongoing volatility which will spread confusion and undermine confidence in paper currencies.

    THE DISTORTED VIEW FROM AMERICA

    Most average American investors are so caught up in their daily lives that they may not see global trends happening all around them. The devaluation of the dollar is rarely felt. It hasn't even shown up as a real price rise at the gas pumps, but it will.

    Because the dollar and the Chinese yuan are closely linked, it can be difficult to see how dramatic the currency wars have already become. But look at the chart below. The greenback has now dropped to a 15-year low against the yen. A dollar now buys only a bit more than 80 yen.

    Dollar Value in Yen, Year-to-Date

    Markets Verdict on Currency Wars: Protect Your Portfolio

    The dollar's performance against the euro has not been as dramatic, due to the fiscal crisis that swept Greece and other heavily indebted countries earlier this year. The Swiss franc has been devalued but the dollar is also declining against that currency.

    Dollar Value in Swiss Francs, Year-to-Date

    Markets Verdict on Currency Wars: Protect Your Portfolio

    What about the yuan? Although the Chinese yuan may appear to have gained two percent in value, that measure is true only in relation to the dollar. As the U.S. dollar plunges, so does the yuan. That's why the Chinese currency is estimated to be off about 14 percent against the euro since June!

    The effective decline in the yuan makes Chinese companies more competitive against their counterparts in Asia. Already, South Korea is considering measures such as special taxes or assessments to keep the value of the won competitive.

    America Profits

    For American investors, the good news is that companies which earn more than 50 percent of their income abroad can expect a substantial earnings boost. The reason is simple enough. As the dollar falls, external revenues become that much more valuable.

    We can expect currency-driven volatility to continue until the full meeting of G-20 leaders in Seoul, scheduled for November 11-12.

    But, for investors in China, there's another factor at work. Meetings of the Communist Party here have set new priorities for structural reforms to the economy. The nation's single-minded drive for massive growth at any cost is being refocused.

    After a major Party meeting, "real estate" was dropped from the list of so-called pillar industries. That means that Beijing will not support relentless growth in the property market as a mandatory goal. Instead, the new "pillar industries" will focus on innovation and new technologies, especially those that create energy efficiency and reduce pollution. That's what drove the Shenzhen market up so sharply.

    When Beijing gets serious about supporting "pillar industries" there seems to be no limit to the outcome. We've have all seen the proof with our own eyes during my latest China Investors Field Trip. The "Chinese Economic Miracle" continues despite continuing weakness in the west.

    Committed to your Global Profits,

    Jim Trippon

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    Disclosure: No positions
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Comments (1)
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  • Dhanraj Bn
    , contributor
    Comments (4) | Send Message
     
    American policies are not having any kind of strength and doesn't shows any signs of recovery. They must put some effort in stopping the useless spending and must encourage savings schemes. Otherwise America is not going to survive.
    26 Oct 2010, 09:20 AM Reply Like
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