I get it!
raging inflation-fueled bull market of 2003, my portfolio consisted of
many gold, commodity and resource stocks. Among them were China
Petroleum (Sinopec) and Noranda, Canada's largest miner of "industrial"
metals. So of course I found it interesting when I read that
China's state-owned Minmetals planned a takeover of Noranda for "about
$5.7B", and fellow state-owned entity Sinopec "is in talks to acquire a
large lease of oil bearing land" in Canada.
we are getting some answers to the question "why would China take such
a debased currency in such hideous volume in return for its exported
goods?" (according to Stephen Roach's latest, and highly
recommended report "Collision Course", Asian central banks
currently hold about $2.2 trillion in foreign exchange
reserves). As long as the USD remains functional as a medium of
exchange, China's hundreds of billions will obviously come in handy as
it seeks to secure the natural resources it needs to continue to phase
two of it's rise to industrial powerhouse. Phase one of course
being its deft use of a hubris-blinded, superpower trading partner
willing to go as deep into debt as necessary to keep up the consumption
habits it has come to think of as divine right.
one, Americans have happily gone along with Roach's "new paradigm",
where China more and more controls the means of production, and the US
controls the means of production of a different kind; that of the
world's reserve currency. In essence the game goes like this: "You
stuff (wink wink) and we'll keep printing this paper
(wink wink) and pay you huge amounts of it. Sure, there will be
'economic girlie men' out there saying this can't be done, but LOOK at
us, we're DOING it!". I don't doubt there are legions of
people taking the attitude of "if it ain't broke, don't fix it", but
that's just the point, it is broke. The fallout is just
not obvious to all yet.
something tells me a strong hint of what's to come was just flashed for
all to see with the above acquisition announcements. China's
planners are not so dumb after all. They'll use an advantageous
labor arbitrage and currency peg to gain global industrial production
market share, ship en mass to the largest consumer engine in the world,
receive payment in the heretofore most trusted world currency, and for
the master stroke, turn around and recycle those dollars into the very
commodities, goods and resources that will be necessary for their
continued growth and climb to world power.
great for China. They are a patient, industrious and intelligent
people. Those descriptors and more used to apply to the US.
But with outsourced industries, limited attention spans, and
plenty of credit (debt), the US has lost its edge. If you take a
deep breath, do the math, and really look at this honestly, you will
see the United States, proud former industrial power, is poised to take
a big hit when the time is right, when China decides it has offloaded
enough paper for the resources it needs. We will have nothing to
fall back on but all those dollars sloshing around the global system,
and all the debt that every dollar denominates.
be wise for individuals to think about making like the Chinese and
converting some of those dollars into hard assets. Unfortunately,
most people will first think of housing and the stock market as a
dollar hedge, as each has gone up in value (vs. the dollar) without
fail since the Federal Reserve system was established. But this
is a new America (and a new paradigm), the one that (wink wink)
seemingly doesn't need to hold itself to the traditional laws of
economics. Paper assets such as stocks are denominated in dollar
debt. Housing is subject to the bond market's ability to carry on
inflation/deflation debate rages, in my opinion, only the timing of the
dollar's ultimate demise is in question. Of course, the
unimaginable might happen and we might start taking the bitter medicine
immediately upon the election or re-election of the
next US President, show good faith deficit reduction initiatives in
cutting wild cat money creation and spending, collectively wake up
to new (or old) ideals and values, and go about fixing our country. In
my opinion, what ails us is a simply massive credit and debt binge, and
the sloth that such easy access to anything we desired has
wrought. If we were to somehow break this cycle, the global
economic powers that be might even cut us a break as we pick ourselves
up by the bootstraps, as America has always done before.
can this happen, when ninety percent of Americans would probably say
"What are you talking about you economic girlie man? We
got it good!"?
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