U.S. Dollar Woes Boost China’s Global Muscle
Washington continues to believe that the U.S. dollar is a weapon and most of the G8 is playing along. They simply can’t see – or won’t acknowledge – where the dollar is actually headed, even though the evidence is right before their eyes.
On the other side of the world, however, China is refusing to drink the U.S. Kool-Aid. It sees what’s really happening with the greenback, and understands the implications for its own finances and economic growth.
That’s why Beijing has taken matters into its own hands.
As Beijing breaks with the West, Western investors need to take notice – China is now a serious player on the global financial stage. It’s only going to grow in power and stature. And it has a powerful hand to play.
Wheeling and Dealing
Not only does the Red Dragon have a $2.3 trillion cache of reserves to work with, it also has the world’s most powerful growth engine: An economy that’s advancing at an 8% clip, 1.3 billion consumers who save an average of 35% of their incomes, and a government that’s spending money in an effort to propel them into the 21st century.
What makes this especially poignant is that China understands its role – past, present and future. Most of its leaders are exceptionally well versed in Western history, meaning there’s a profound understanding of the problems and potential obstacles the West faces as it attempts to bounce back from the worst financial crisis since the Great Depression. There’s an irony here, since China may understand our problems even better than we do.
China’s outlook and economic fate is no longer totally dependent on the United States and other Western counterparts. China knows that it has to take matters into its own hands if it is to avoid being dragged down and smothered by Western has-beens. Beijing is doing just that.
What’s more, China’s leaders are taking a whole host of steps that will affect basically every asset class on the planet for years to come.
Some of these moves are subtle on their face, but will have a broad and lasting impact that investors need to see and understand. Others are as shrewd as they are aggressive. For instance, China is actively diversifying its dollar risk by buying up hard assets – including oil, gold and all sorts of other commodities – as part of a global shopping spree that’s unparalleled in recent memory.
As part of his global game of let’s make a deal, China is reaching pacts with resource-rich despots around the world – not because Beijing likes dealing with these people, but rather because China has little choice given is massive population, zooming growth and the neutered status of the Western financial system.
Sheer size isn’t China’s only objective: It also wants to join the “adults’ table” that seats the current global financial leaders. To achieve this status, however, Beijing knows it needs to have a credible currency. Instead of waiting for the international currency exchange community (read that to mean the self-centered currency traders in New York and London) to integrate the yuan into major trading pairs, China’s leadership has been establishing yuan-based swap agreements with nations around the world. In doing so, Beijing has completely bypassed the international system now in place.
China has simultaneously been working – albeit quietly – with other groups having similar vested interests to ensure alternative financing methods, whether the U.S. cottons to Beijing or not. I’ve been predicting this for years, which is why I wasn’t entirely surprised when reports surfaced earlier this month about the Organization of Petroleum Exporting Countries (OPEC) and the so-called “BRIC” nations (Brazil, Russia, India and China) shifting to an international currency basket and gold to replace the use of U.S. dollars in pricing of oil contracts. While this was quickly denied by some of the OPEC nations, their comments made it clear that they were talking about “convenience.”
I could go on but I think you get the picture: The global guard is changing. Whether we like it or not is irrelevant. It’s going to happen, so as investors we need to look for the profit opportunities that will assuredly come our way.
As history demonstrates, these guard-changing shifts are major profit opportunities – and are not to be missed.
Profit Lessons of the Past
As was the case when France’s hegemony was usurped by England’s – and then England’s by United States – there are major profits to be had. To be clear, I’m not calling for the total demise of the U.S. way of life, or a complete abandonment of U.S. assets on the global financial stage. Any such notion would be foolish in today’s interconnected world. The real issue for most U.S. investors is that they need to bring their holding into line with what the changing of the guard implies…and increasing proportion of global choices.
Most investors remain dramatically underexposed to the new realities of global investing. They may have only 15% – or less – of their portfolios invested in internationally focused investments. At a time when U.S. equities make up less than 25% of the world’s total stock-market capitalization – and when nearly 75% of global economic activity is place beyond U.S. borders – that’s a serious miscue for an investor to make.
What you really want to do is to go with the flow, and recognize the changing of the guard for what it actually is – a new source of wealth.
Regards,
Keith Fitz-Gerald
November 25, 2009
P.S.: For the last several years I’ve made my insights about the Asian markets and the true nature of the global capital markets available to investors via my daily columns in Money Morning and its monthly affiliate, The Money Map Report. Now I’m making those insights available through my new book, “Fiscal Hangover: How to Profit from the New Global Economy,” which can be purchased here.
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This is one of the best sales pitches and self-touts I have ever read!
His predictions are even coming true, at least the ones he mentions.
I’ve been batting 1,000 myself: less hair, extra pounds, higher dental bills, crank bearing on bike getting louder, and: November was colder than October.
I’m not all that concerned about China. It’s the Americans that get to me. I don’t think he would want me for a client. I’m all tied up with PM’s and extra food.
I think Washington CAN see and acknowledge where the $ is actually headed. They can’t reflate with anything else, can they? They just don’t talk the talk in public, as they walk the liquidity walk.
I don’t give China quite the high probability of unbridled success, either. The numbers don’t lie, but they may be somewhat inscrutable, and not tell all.
I don’t think I’m as optimistic as Mr. Fitz-Gerald about either country, even with the “interconnected world” to support the “US way of life” and “US assets”.
When I’m looking at a Chinese Fire Drill on one hand, and the Keystone Kops on the other, I might as well call a spade a spade.
[...] here for the rest of Mr. Fitz-Gerald’s article at Whiskey & [...]
Another excellent article, thanks, Keith, and your work I pounce on happily. Just one thought…what if the analysis that others and I have done indicating that the demise of the dollar–or even crippling it–will result in very unhappy times for emerging nations is correct? Where will China be when we are so battered that we can’t buy their sleazy items with our new currency? Those of you who e-Bay (sure, that can be a verb) are aware that China has been raping Tibet viciously; you can buy Han Dynasty (200 BC to 200 AD) carved jade, complete with genuine, professional authentication certificates for comparative pittances. You know that China can–and has–cut the price of “real” pearls so that once again flawless Mikimoto cultured pearls are on top of the market. Japan may even have thanked them. China’s supply of amber with inclusions has destroyed a virtual monopoly of the Baltic state, and is going for a sweet song. China has done the “loss leader” bit of all times. What if the customers stop coming or buy only what is on sale? China is the world’s largest importer of something we throw away: chicken feet. I hope VERY much that five years from now the world of finance can laugh heartily at my expense. In the meantime…pick up a bit of Georgian silver (grossly underpriced at present and a classic store of value), and take advantage of the tremendous bargains to be had from those attempting to capture market share. BRIC and OPEC and the EU hope to benefit by killing the dollar, but in THIS analyst’s opinion, they are far off the mark. If the dollar is destroyed or devalued, the other currencies will adjust briefly in triumph…but then I expect to see that water will level itself, as usual. No, that does NOT mean that the fiscal policies of Obama, Harry, Nancy, and even Dubya are not insanity. It means that the parvenus would only be ahead in currency. If we stop the game right now the USA will win because we have the most toys. Regards, LBT
MR. FRITES Sayah member busness major international Oxfordclu USA.
SUITE SUR LES INFORMATIONS SUR LES DONNEES CONCERNANT
Washington continues to believe that the U.S. dollar is a weapon and most of the G8 is playing along. They simply can’t see – or won’t acknowledge – where the dollar is actually headed, even though the evidence is right before their eyes.
On the other side of the world, however, China is refusing to drink the U.S. Kool-Aid. It sees what’s really happening with the greenback, and understands the implications for its own finances and economic growth.
That’s why Beijing has taken matters into its own hands.
As Beijing breaks with the West, Western investors need to take notice – China is now a serious player on the global financial stage. It’s only going to grow in power and stature. And it has a powerful hand to play.
1 – MON PROBLEME JE VOUS FAIRE SAVOIR DE REGULIER MON MA SITUATION FAMILLIALE DE TRAITER MON DOSSIER DE PAYEMENT SUR MES COMPTE PERSONAL DE PREPARER LE PAYEMENT CHAQUE MOI UN CHEQUE DE PAYEMENT VIENNE CHAQUE MOI LE MONTANT RESPECTABLE COMME VOUS.
signe FRITES Sayah.
Dear M. Frites:
Or…we could consider that if BRIC, OPEC, and the EU, possibly with strong collusion from the US government, manage to knock off the dollar, the pandemonium will spread and EVERYBODY will be in far more trouble than the current sufficiency they are in. If we all have to start over even, with reneged on debts and no currency much anyone takes seriously…who has the most toys?
Dear Mr. Fitz-Gerald:
Thanks for another article I enjoyed. You proved a point accidentally: sometimes timing is everything! The audience was distracted by the streaker who ran through the crowd yelling insults it found offensive, and everyone pelted off after him rather than paying attention to business.
For a compromise position, how about your point that it will not be safe or sensible to ignore what China will become capable of–eventually–is well taken, but we don’t have to take all their press releases as entirely candid and veracious, either. I’m more inclined to keep a watchful eye on what the new Japanese government is up to. Japan’s shortage of arable land and growing population are more significant than ever, they still aren’t out of their two-decade depression, and (this could be mere prejudice on the part of someone who was a tot living on base when Pearl Harbor was attacked), but I tend to be a little wary when the new anti-USA government starts talking about kicking us off airbases there and confiscating ship yards. “Oh, that’s not what they said. They said it was too much trouble to refuel us.” Um-hmmm. In my lifetime, at least, Japan has had vast armies of “enthusiastic” and rambunctious soldiers, and a navy that, ah, was seen around places like the Coral Sea. Not to be suspicious, or anything, but if I were worried about a very large neighbor flexing his muscles–well, no, I wouldn’t but Japan might very well see the wisdom of an alliance with China for more than mercantile purposes…and a great start on a new deep water Navy would be taking over all the great things Americans have built there. Such useful things, air fields, storage facilities, and dry docks. Well, yes, there was some piddly little treaty that I think forbade taking up arms again, but hey, these old documents, treaties, the Constitution…nobody takes those seriously. Emperor Akihito has only to smile blandly and say that he’s very sorry, but like Elizabeth the Second, his hands are tied because power is vested elsewhere, possibly with those not bound by the treaty. (Aren’t we the ones who foisted a representative democracy on Japan a little over sixty years ago?!) And then the USA will do WHAT? Sue him? Bomb the air fields and ports? Right. I’ll bet we’ll defend Taiwan, too!