Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Jim Rogers on Chinese Currency and Trade War: My Thoughts

Currencies / China Currency Yuan Mar 21, 2010 - 04:37 AM GMT

By: Dian_L_Chu

Currencies

Best Financial Markets Analysis ArticleIn a Business News Network interview on Mar. 18, Jim Rogers, famous investor and creator of the Rogers International Commodities Index (RICI) speaks about the recent currency and trade confrontation between the US and China:


"If [you] slap somebody in the face, they are going to take a defensive attitude to save the face…I do not know why the United States is doing this in public, ..that never worked, especially with Asians."

Rogers – Float to Grow

Rogers thinks the U.S. should try to explain to the Chinese that it is to their benefits to allow some flexibility in their currency. For instance, yuan's appreciation will in turn lower the cost of China’s imports and its supply chain.

He acknowledges that the Chinese understand that their currency policy will need to change eventually in order to become a major player on the world stage.  Although the yuan has appreciated some in the past few years, but it is just not up to the expectation of the U.S.

Rogers estimates Chinese renminbi (yuan) could replace the dollar as the next reserve currency of the world in the next 10 to 20 years.

My Take - Yuan Appreciation Could Increase U.S. Deficit

It is consensus that the United States has strong economic fundamentals attracting high rates of capital investment. On the other hand, the U.S. has a chronically low household saving rate, and recently a negative government saving rate as a result of the budget deficit.

As long as Americans save relatively little, foreigners will use their savings to finance profitable investment opportunities in the United States; the trade deficit is the inevitable end result.

As pointed out in my previous article, renminbi appreciation will unlikely achieve the intended effect of reducing the bilateral trade deficit, and could instead have a negative impact.  Unless there is a significant shift in the domestic consumption/demand levels, the U.S. will need to procure either still from China, or from some other sources, but now at higher prices due to the yuan revaluation.

Rogers – A Non-American Style China Real Estate Bubble 

Currently, the excessive liquidity trapped in the reserves is essentially causing various bubbles developing in many Chinese coastal and urban real estate sectors. Rogers sees the real restate bubble in China is one of price instead of credit. As such, a bubble burst will likely have a much more muted effect in China than the housing crisis in the U.S.

Rogers – Long Loonie, Short U.S. Bond

Rogers believes the Canadian dollar (loonie) is "one of the soundest currencies in the world on a fundamental basis.” He has owned the Canadian loonie “for years” as a long-term play, with his recent dollar positions as a short-term momentum play.

He also says the only other bubble in the world he sees right now is in the U.S. long bond market, and he expects to short that market in the "foreseeable future."

"The concept of how anybody would lend money to the United States government for 30 years, in U.S dollars, is just incomprehensible to me...even at 6%, it's just staggering."

My Take – Many Bubble Candidates Ahead of China

I've dismissed the so-called "Chinese real estate bubble crash" catastrophic scenario in several of my articles.  Admittedly, China's real estate sector is currently in the overheating zone; however, a U.S.-style bubble is less likely primarily due to a much lower buyer leverage as compared with the U.S. and a market structure null of debt securitization.

As for a bubble burst, there is currently no shortage of highly qualified candidates in the Western Hemisphere, with more up-and-comers waiting in the wing.  For instance, Europe's PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain), the U.S. and the Great Britain, based on recent rating agencies' warnings, just to name a few.

Rogers – Protectionism = End Game

"Nobody has ever wanted a trade war, as it is the end of the whole game and disastrous for everybody's concerns."

Rogers thinks current protectionism originated in the U.S. has a contagion effect, which will likely exacerbate global geopolitical and trade tensions. He cautions that just as the U.S. protectionism in the 30's did not help with the Great Depression, the current protectionist measures will unlikely have that much positive effect on the economy. 

My Take - Serious Trade War Brewing

A synchronized recovery in China and the U.S., as we are presently witnessing, will undoubtedly heighten the competitive currency devaluation. It appears Washington will argue in perpetuity that the renminbi is undervalued as long as U.S. imports from China exceed our exports to China.

Meanwhile, Paul Krugman’s call of labeling China as a “currency manipulator” is being increasingly speculated to be included in the Treasury Department’s semi-annual report on foreign-exchange-rate practices, due to be released in April.

Tensions and trade feuds are bound to persist since the U.S. places more emphasis on the short-term "fixes" through price and the yuan exchange rate; whereas the Chinese put more emphasis on medium and long-term structural and institutional change.

眼中有敵,天下皆敵;眼中無敵,天下無敵 (One's attitude determines how one sees things) ~ Chinese proverb

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at Economic Forecasts & Opinions.

© 2010 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules