Another Chinese Call For Change seems to be working

This is like a bad dream that won’t go away from the US - another jab at the Dollar from China or Russia or someone else that has peeked its head into nearly every week of trading since the G20 meeting in February. However, this time around China was being more direct.

Instead of calling for a blatant ban on the Dollar, the Chinese are hurting the US currency by openly calling for an international sovereign alternative – alternative being the operative word. They never mentioned the Dollar, but that is what makes it so harsh. It is as if the Dollar is a non-factor, and at this point it might very well be.

While there has been no firm evidence of a massive selling of US money assets as of yet, the rate at which China, Russia, India and Brazil (known as the BRIC) have been buying precious metals and other permanent commodities is unprecedented. The US bond markets are yielding their highest in close to 20 years, a sign that bond holders are demanding more return for the risk involved.

The pattern seems to be the same as well, the countries blasting the Dollar seem to wait for the weekends to push their agenda and I have figured out why. Not too long ago I wrote about how the US was safe in this area, because it would take an act of the IMF and the World Bank to establish a global sovereign reserve, and these two agencies are essentially in the US’s control.

So the plan that they have is to start a viral campaign in which they put immense pressure on the Dollar through the Forex marketplace – by inciting and scaring investors to unload – by making the issues appear in the face of Forex online traders every single day so that it sinks in, “The Dollar is bad, the Dollar is evil”, and in my opinion, it’s been working to an extent.

The US needs to show the world that they have their spending and money management in control. I know that the last minute vote on fuel emission standards is not going to do much to build that confidence, considering that it will tax the states and consumers heavily – and hurt industry, and the fact that it narrowly passed after a 3am vote in which most of the dissenters left thinking the issue would be tabled for another time. This is not going to do it – and I know you will see the dollar suffer because of it.

I would also keep my eyes out for the US unemployment numbers towards the end of this week – I am sure they will be of much interest to those feeling like the end of the rocky road is near.

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China Worried about US Debt - The making of a Powerhouse

Richard Fisher, head of the Federal Reserve Bank in Dallas, Texas – one of the US’s largest states – told a British Newspaper yesterday that the Chinese are incredibly concerned over the US governments handling of the financial crisis, specifically, the printing of money by way of the Federal Reserve buying US government bonds, treasury bills and notes. For those of you that don’t know this, when a government wants to increase its cash position, it “lends: itself money by buying up its own debt. I know most of wish we could do that, but if this were the case we would be bankrupt with houses stripped and cars repossessed and the rights to our firstborn taken as well.

This is yet another example of China showing they are worried. Did they come out and tell Ben Bernanke or Tim Geithner, the US Fed Chairman and Treasury Secretary? No. Did they send a letter to Vice President Biden or talk with Secretary of State Clinton? No, and Clinton was just there. Did they address the congressional delegation who came to visit them this week – a delegation that included the speaker of the US House of representatives Nancy Pelosi, AKA the third most powerful person in the US? No. What they did do was take a round about way to let people know they are unhappy with the status of their investment and the way in which the CEO is handling the company. By Company I mean, The US and by CEO I mean Obama.

The Chinese are in a difficult spot, and I have written along these lines before in my Online Forex Blog, you see if they cause a widespread panic in the markets by making such a fuss over this, the value of their investments go down even further. Widespread panic regarding a rating decrease last week showed what it could do, the Dollar fell hard. What would happen if the Chinese leadership addressed the US leadership on this issue directly – it would take away the air of hearsay that exists now through these drips and drabs of media reports.

The Chinese are able to get their message out this way, but not in a way that would cause so much of a stir. Who reads these little interviews aside fro ma few of us boring people with nothing more to do? Wen Jiao Bing calling Obama on the phone to say “yo, what ARE you doing?” will get front page attention on every major newspaper. This way the Chinese get to have their cake without it collapsing on them. The US gets the message. And, I am sure, the US does not care.

Culturally the US and Chinese mindset are worlds apart. The Chinese are savers and conservative by nature fiscally (they also are superstitious), the Americans are care free, “it’ll all work out” type of thinkers – there is no long term.. Hell, the Chinese emperors buried thousands of ceramic soldiers and preserved aspects of their legacy. In May of 2009 they are thinking of 2030, whereas the Americans in May of 2009 are thinking of June.

In the end the Chinese will emerge stronger – this is certain. It happened the same way for the US in 1914 when it was purchasing all the gold it could. China is now doing the same. And where the US became a global leader in the 40’s because of it, China will dominate later on in this Century. Hold on to your Yuan’s, they might be worth something some day.

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China has already Canceled America's Credit Card

The Chinese are making moves to dismantle the Dollars standing, in an article in the Wall Street Journal this weekend, it was revealed that “China has already canceled America's credit card” as a US senator put it.

As China is the leader in US debt holdings, 800 Billion Dollars worth of bonds and another 2 Trillion in Treasury Notes and Bills, it seems as if China’s concern over rampant US spending has taken its toll on the way China conducts business. Last month I told you in Forex Online land that China was beginning to amass large reserves of Copper and Aluminum. With a building sector down to near zero production right now, I am sure they are not stockpiling these metals for the future. They are converting their cold hard American debt to tangible assets.

The problem has gotten so bad that the US Federal Reserve has been compensating for the lack of interest in Treasury Bonds, Bills and Notes, by buying it themselves. It’s not even paying your MasterCard with your Visa, its paying one MasterCard with another MasterCard and it is going to get the US in trouble.

Anyway, for the week ahead my Forex trading friends, look for the European Central Bank meeting – nothing exciting will come of it as nothing ever does, but it has been hyped for some time. Also, look for Thursday when the US Treasury releases the results of the over talked about stress tests on banks . Tomorrow I will talk about why the US messed up by having them in the first place. Also, watch the markets flip flop as President Obama announces his new plan for Wall Street – I guarantee you they won’t like it.

Trade well people.

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Unstable Forex Market... Hoping for some corrections soon

Market Speculation

Today is central bank day for Europe, with the ECB, BOE and Riksbank all on tap for rate decisions. The Riksbank brought their meeting forward by two weeks in order to chop rates at today's meeting, and for good reason: our models show that Sweden is one of the most rapidly decelerating economies in the developed world right now. Its exports are plummeting and its banking system is under siege from ill advised loans to especially Baltic countries. Baseline expectations are looking for a 100-bp cut to the rate.

Speculation is mounting that the BOE will chop by 150 basis points rather than the 100 bps baseline consensus. The ECB baseline is moving to 75, but if the ECB can surprise, then today would be the day to do it, considering the rapidly mounting horrors taking place in the economy. As a side note, it seems more than a touch silly to fret about the size of the cuts here. All major central banks are moving towards zero to 0.50% by mid next year anyway...

The setup for the US job report on Friday looks increasingly bleak, and we have a hard time understanding the apparent attempts to find optimism on equity markets, despite the old-fashioned wisdom that stocks like to climb a wall of worry. Yesterday's Non-manufacturing ISM was a record low for the 11 year history of the survey and far worse than expected. The news headlines are showing layoffs from every corner and the ADP number out yesterday was far worse than expected. Employment is a lagging indicator, but increasing unemployment also dangerously reinforces the power of the negative cycle, especially now that central banks efforts are geared toward damage control from deleveraging, as the game of economic stimulus by interest rate manipulation was over a long time ago. The employment fall out in the services sector after a weak Christmas shopping will yet another problem for the incoming Obama administration to tackle in the new year.

Upset China Economy

The US' Paulson is in China over the next couple of days for talks. PBOC chief Zhou was out trying to tell the world that US overconsumption was to blame for the crisis, but this is an absurd statement, as US overconsumption was simply a product of the global imbalances that were developing for years and were to a great degree enabled by China's suppression of its currency and buying of US treasuries which kept US interest rates artificially low. The trajectory of the Yuan in the short term will be very interesting for the USD: will the Chinese attempt to maintain a steady course or will they look to keep their currency weaker in the coming time frame to boost exports now that commodity pricing pressures have eased so sharply?

Get latest update at: http://www.finexo.com/marketReview

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