September 30, 2010

And So It Begins, Gold/Silver, Marc Faber, Q&A Beta Test

And So It Begins

Articles late yesterday report that by a vote of 348 to 79 (81.5% affirmative) the U.S. Congress passed legislation aimed at penalizing China for its foreign exchange practices. In the view of the U.S. Politicians China artificially maintains policies that result in the undervaluation of the Chinese Yuan measured against the U.S.$. The U.S. contention is that this in part resulting in the monthly net trade deficits continuously incurred by the U.S. (currently running at approximately U.S.$40 billion per month, with net cumulative total trade deficits of U.S.$7.5 trillion at December, 2009 - up from U.S.$ 2.0 trillion at December, 1999). I have little doubt the Yuan/U.S.$ exchange rate does influence the quantum of the U.S. trade deficits, although I suspect not as much as the U.S. Administration would have one believe - which I suspect is a hobbyhorse U.S. politicians ride in part to impress the U.S. populace, and have been doing so lately in a big way in the face of the upcoming November 2 elections. In any event, if the bill passes the Senate, which pundits think is unlikely to happen in 2010 if ever, the U.S. could levy tariffs on countries (read China) that the U.S. Government believes undervalue their currencies.

I think the passing of this legislation yesterday is a very important event that follows from increased commentary and momentum over the past few weeks with respect to the Yuan/U.S.$ exchange rate - see my September 17, September 20, and September 21 e-mails that discuss this issue. I titled this commentary 'And So It Begins' because whatever happens in the Senate, as I see it the 'U.S. Protectionism and Tariffs Threat Gauntlet' - which until now has been talked about but not really acted on - to some degree now has been thrown. I think it virtually certain that the Chinese Administration, which very likely has been expecting and planning for such a move on the part of the U.S. for some time, is actively meeting as I write this. I certainly would be meeting if I were the Chinese Government.

In any event, I strongly recommend you read both articles I have referenced. The first, titled 'House Votes 348-79 To Declare (Trade) War On China' - reading time 1 minute - is a brief summary of the second. The second is titled 'House Lashes Out at China' - reading time 4 minutes. I strongly recommend you read the second article - in my view a 'must read'.

The first article, which I see as less important to read if you read the second one, links to an 11 slide PowerPoint Presentation titled 'The 10 States About To Get Crushed In A US-China Trade War'. The States listed are California, Georgia, Illinois, Louisiana, New York, North Carolina, Ohio, Oregon, Texas, and Washington State. Each slide shows a breakdown in U.S.$ of the types of exports each of those individual States sent to China in 2009. The numbers range from $9.7 billion (#1 - California) to $1.8 billion (#10 - Georgia). One might think California (and presumably the others) currently have enough negative economic pressures on them as it is. That PowerPoint Presentation links to a second 12 slide PowerPoint Presentation titled 'Here's Everything You Need To Know About The Spiraling Conflict Between China and Japan'. That second PowerPoint Presentation in turn links to a third PowerPoint Presentation titled 'China: Here's 10 Ways We're Kicking the World's Ass Right Now'. I found both the second and third PowerPoint Presentations interesting and informative. That said, I strongly recommend you be sure to review and read the slide content of the first one - reading time 4 minutes, and then read and review the slide content of the other two if you are so inclined.

If I am right that China will see yesterday's Congressional vote as an escalation from discussion to real 'gauntlet throwing' I say "hold on to your hat", and watch 'things economic' even more closely than you already have been doing.

Gold & Silver

If you are an investor or trader in gold equities I suggest you read 'Staying the Course in Gold and Silver' a Seeking Alpha article written by contributor Ian Wyatt - reading time 4 minutes. Mr. Wyatt says (among other things) "I believe gold and silver both have room to run from here. But that doesn't mean you run blindly into gold and silver stocks on the assumption that all will rise indefinitely", and that even though there may be pullbacks in the prices of physical gold and silver he currently thinks investors should "stay the course". I made the following brief comment on the article this morning:

Ian: From one Ian to another, excellent article. Your comment "But that doesn't mean you run blindly into gold and silver stocks on the assumption that all will rise indefinitely" strikes a balance that portrays objectivity - something I think is all too often lacking to some degree in what I read across the Internet and in newspapers.

As my Australian friends would say: 'Good on you".

Had I been a little bolder, I would have said that as I see things objectivity and independence is 'more than lacking' in some of what is written these days, and when one finds something that actually smacks of objectivity I consider it worth reading and thinking about.

Marc Faber - Yuan/Gold Price

Here is a link to a video featuring widely quoted commentator Marc Faber's views (publisher of the Doom, Gloom and Boom Blog) with respect to the Yuan and prospective gold prices. He says he thinks the Chinese Government wouldn't mind a 20% increase in the Yuan/U.S. $ exchange rate relationship - but that China doesn't like the U.S. Administration attempting to 'push it around'. With respect to the physical gold price Faber expects the price to go higher from here - listening time, just over 6.5 minutes. I suggest you do it by clicking here.

Q&A Forums Beta Test

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