dtblount

Will China Dump the Dollar?

HaavBline, very true about eurozone trading more with China...also, the eurozone has a higher trade imbalance with China. ...however, the eurozone is still a group of sovereign nations that have obvious issues with collectivism. The US, on the other hand, has been a single sovereign unit for quite some time.

I think China will, of course, continue to buy Treasuries with their dollars because they have a positive yield and are basically as liquid as USD...and still risk free...but they will also continue to purchase a growing percentage of hard assets for reserve - and even future use - purposes. This just makes sense in terms of general portfolio and risk management practices.

Invest in BIC, Not BRIC

I agree with everyone's criticism on your views regarding Russia.

While the RUB has taken a beating and the government has closed trading several times lately, it still provides amazing opportunity. With respect to your own argument, how is it any better than China??? China's currency is pegged/manipulated (depending on who is analyzing it), and the gov't has an even tighter grip on the economy and market than does Russia's. Granted, the Chinese have not exhibited such control lately, but the risk is still very much there. You could argue that Brazil is the weakest because Lula doesn't really have a formal education...or that India is the weakest because they suffer from a plethora of red tape from the British Colonial era. Your one line argument seeking to discount Russia is hardly sufficient. I am incredibly bullish of China...as well as India, Brazil, Russia, and a host of other EMs and FMs.

A country as rich in natural resources as Russia (crude, natty, platinum, palladium, gold, fresh water, grains, etc, etc) - not to mention a pretty decent military with regional diplomatic influence and FX reserves should absolutely be considered for investment. They could be self-sufficient if need be - plus, they have an energy stranglehold on Europe. Yes, there are risks...but I feel the rewards far outweigh these.

Instead of removing any one of the BRICs, I'd focus my time and efforts on figuring out who should be added.

My Q1 Report Card

Great piece and I agree with all of your recommendations. The one thing about TBT is that it can be quite tricky (to say the least) betting against the Fed/Treasury right now (for shorter-term trades). I'm watching it and want to jump in around 40 or so.

Something else to add to your recommendations - along the lines of commodities - is to take a look at smaller commodity-producing emerging markets, as a marginal recovery in developed nations should really boost these ETFs and currencies.

Emerging Markets: The Return of Decoupling?

AndrewBaker, great comment (and a bit late for me to reply, ha...), but I do not think it will take much to get some of the emerging and frontier markets going again simply due to the size of their GDPs. I agree that eventual decoupling will take hold once organic consumption and demand amongst emerging/frontier nations picks up, but I don't think it all hinges on FULL recovery of the US or any other more-developed economy.

I haven't worked out any of the figures, but I am sure that the marginal demand from various stimulus packages around the world (US, China, etc) will work to magnify economic stability and possibly growth in some smaller raw materials-exporting nations. Of course, any "buy American/British/Chinese" stimulus package cuts down on this effect, but raw materials are another story. For example, if the Chinese gov't decides to build more apartment buildings, they will need copper. Domestically, China is already using up all the copper they produce, so they will get it from elsewhere...Chile, Peru, Zambia, etc. Regardless of China's economic recovery, massive purchases of copper from these nations will definitely have a magnified impact on their respective economies and GDP.

Much of the more-developed world relies on emerging/frontier nations for metals, minerals, ags, etc...and this will only grow stronger with time.


On Apr 01 03:15 PM AndrewBaker wrote:

> Decoupling will happen in time ... but not so much just yet. The
> emerging markets still need to export to us and the west to get the
> growth they want and need. As they improve internally, then their
> own populations will want nicer and better things, and that will
> cause the decoupling effect to happen and show due to their own thriving
> internal economies. It will come, but I'd wait for our recovery to
> show first, then back the emerging economies to shoot ahead.

Emerging Markets: The Return of Decoupling?

Great piece and I really like your optimism. I'm of the same mentality as you...it does appear to be that some decoupling has taken effect.

I'm very bullish on China (of course...but I don't think breakneck growth will last much longer - time for some stability), Chile (copper and fiscal responsibility...not many people seem to know what that is anymore!), Brazil (solid currency prospect, ags, oil/energy), South Africa (gold/platinum, I expect elections to go well, Zuma could be another Lula da Silva, Manuel is likely to stay), Russia (excellent nat'l resources, appears to be bottoming-out), Turkey (solid currency prospect, promising future in global trade and diplomacy due to military strength, geographic location, and population)...and Emerging/Frontier Markets on the aggregate (I like FRN and EEM, the basic ETFs).

I think China will lead the recovery, followed by smaller fiscally-conservative, resource-rich EMs/FMs, and the US (first of the developed nations).

Thoughts/responses?

Chinese Are Likely to Halt Purchases of U.S. Treasury Debt

I see Wen's comments as mostly just political rhetoric in response to Geithner, Schumer, et al going on and on about China manipulating the cny. The comments hold some truth, but one thing is always true...politicians tend to speak like politicians.

China could slow or stop buying Treasuries, but eventually, all of their surplus usd has to come back to the US. China could buy oil from Saudi Arabia, copper from Chile, etc, etc...but the Saudis, Chileans, and everyone else then holding usd will have to do something with it. Since hard cash earns 0%, Treasuries make sense due to their liquidity and risk profile.

Something else that I see as completely ridiculous is the idea that the US could default on its external debt in "a few years." This is simply not true. As long as the usd is the world's reserve currency, with no ensuing threat of replacement (eur is more flawed than usd, gbp has nothing behind it anymore...), US debt can be monetized. My views on c/a deficits are the same as global warming, the effects of debt and pollution are difficult to measure and rationalize...but too much of either will always result in disaster. The only way I could see the US defaulting on its debt is to make enough terrible policy decisions (anti-business, protectionist), which could lead to Zimbabwe-esque inflation, making the usd absolutely useless aside from fire tinder...which isn't too realistic of a scenario in my view.

China does, however, have a genuine concern regarding usd inflation, as it would affect the yields on the Treasuries they hold...but I strongly feel that Wen's recent statements were political rhetoric more than viable threats. ...but if inflation does pick up or for some other reason China does carry through and reduces their Treasury exposure/purchases, the news alone would affect the markets.

It is funny/ironic/depressin... though, to see a world in which it seems that recent policy moves of the US are more socialist, while recent policy moves of China are more capitalist...

WHITEHAWK, great comments and I like the political translation...great contribution!

One thing I see through all of this... China is going to require massive amounts of essentially every traded and untraded commodity over the next decade or so. On top of that, if the recent threats are real and China does begin to purchase commodities with their usd for more than just consumption...especial... if they do so as an investment or hedge from a fear of usd inflation...commoditie... will absolutely take off.

The usd is a very flawed currency, as Jim Rogers tends to point out every time he gets in front of a camera (I share nearly every one of his views), but - for now - it is the best of the worst possible options as the world's reserve currency.

Thoughts???


Cheers

Russia's Too Risky - Barron's

I think we are all forgetting that Russia is an EMERGING MARKET. It is not a developed market and simply cannot be compared to the US or the Eurozone on any real level. Of course there is risk and the threat of geopolitical instability. People don't invest in Russia because of stability and low volatility. They invest because the perceived gains in individual investments are believed to outweigh perceived risks. There are great companies in every country on earth...some are easier to find and invest in than others. Even Zimbabwe has great companies...

In a broad, macro context, I'm extremely bearish on Russia in general...but some individual companies look great to me. However, if commodity prices slow down, I think the Russian economy will see the current problems magnify, as well as the emergence of new issues. I don't think the economy is diversified enough and a lot of new wealth is leveraged on the commodity boom...


Cheers