Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

China Is Through Screwing Around, Seeks to Deploy Reserves to Buy Real Assets

Stock-Markets / China Economy Aug 07, 2009 - 06:51 AM GMT

By: Graham_Summers

Stock-Markets

Best Financial Markets Analysis ArticleStarting with the re-opening of formal trade arrangements in 1971, China has undergone a near unprecedented level of economic transformations. The country’s per-capita income doubled from 1978 to 1987 and again from 1987 to 1996.

In those 20 years, more than 300 million Chinese ascended out of poverty with accompanying dramatic changes in lifestyle, professions, and diet: between 1985 and 2008, average Chinese meat consumption more than doubled from 44 pounds to 110 per annum.


However, most Americans (including the Government) have been blind to this economic reality, choosing to focus instead on China’s social qualities. Indeed, it was not until the Chinese Dragon was literally breathing down Uncle Sam’s neck ¾ China overtook the US as the world’s largest consumer of coal, meat, grains, and steel in 2004¾ that the latter became aware of the former’s economic developments in any real fashion.

Which brings us to today, where the US is trapped in a symbiotic relationship with the very country that will overtake it in the next 15-20 years. The first wave of our symbiosis was based on manufacturing (China producing the goods we bought). That wave, in turn, created the second, more important symbiosis: China is now our largest creditor nation.

China’s Gross National Savings as a percentage of GDP currently stands at or around 53%. The country sits atop $2.0+ trillion in national reserves, some 70% of which is believed to be in US Treasuries and dollar denominated assets… which has created quite a problem because the Chinese, like any investor, want a decent return on their investment.

And our Fed Chairman, Ben Bernanke has been hell bent on devaluing the dollar to recapitalize banks. Whenever you start throwing trillions of dollars around bailing out your cronies ($24 trillion according to Neil Barofsky), running record deficits, and generally trashing your currency so that bankers can collect record pay, you run the risk of pissing off your creditors. For the US, this means China. And China is getting pissed about the US’s bailout frenzy.

Over the last few months, the news headlines between China and the US have been like a game of tennis. Every time Ben serves up another bailout or lending program, China fires back with a “drop the dollar as reserve currency” headline. Bernanke then curtails the money spending temporarily.

However, a few weeks ago things started getting serious: China’s Premiere stated, "We should hasten the implementation of our 'going out' strategy and combine the utilization of foreign exchange reserves with the 'going out' of our enterprises.”  This is a full-blown warning shot: China is flat out saying, “we’re going to start buying real assets instead of Treasuries with our reserves.

Politicians are master of spin. They usually mince their words, talk a lot, and say very little. For China’s Premiere to openly say, “we’re going to speed up our process of buying real assets instead of US debt,” is a very, VERY meaningful statement.

It takes on even more meaning when you consider that China then flew over its Vice Premiere to meet with Bernanke and the White House the VERY NEXT week… which just so happens to be a week in which the Federal Reserve needs to sell $236 billion Treasuries (in desperate need of China’s support).

If anyone could get the Fed to fess up as to when the Quantitative Easing (QE) will end, it’s got to be our #1 creditor, the folks holding $1 trillion+ in dollar denominated assets. What I would give to be a fly on the wall of those meetings.

I’m guessing China didn’t like what the Fed had to saw.

Chris Martenson recently uncovered that it was the Fed, NOT China who bought most of the 7 years Treasury Notes issued last week. As you probably know, last week the Treasury issued a record $260 billion in debt. Of this, $109 billion were Treasury Notes: shorter-term debt. The issues were as follows:

  • 2 year:  $42 billion (Tuesday)
  • 5 year:  $39 billion (Wednesday)
  • 7 year:  $28 billion (Thursday)

The two year and five year issues were weak and bordered on failure. In fact, if it weren’t for the fact that Primary Dealers (one of the parties involved in buying Treasuries) are REQUIRED to buy, the 5’s would have actually failed (meaning not all of them would have been bought).

In spite of the weak 5-year auction, the 7 year auction offered the next day went extremely well. I, and quite a few others, were baffled by this. But we’re not anymore. Turns out the Federal Reserve got some Primary Dealers to load up on the 7’s by promising that it would buy $14 billion worth of them the next week!!!

All told, the Fed bought $14 billion of the $28 billion 7’s that were issued. They only waited a week to buy them from the Primary Dealers. Forget the fact that this is sneaky way of trying to hide the fact China and other countries don’t want our debt anymore… this is MORE of the Quantitatie Easing that Bernanke said he was going to phase out. The story was broken to the public by Brian Benton and Financial Sense University.

http://financialsense.com/fsu/editorials/2009/0804.html

Folks, China is through screwing around. They’ve made it clear that don’t HAVE to buy our debt and are quite comfortable putting their money to use elsewhere. The fact that the Fed is now buying Debt from the Treasury in this sneaky fashion makes it clear that without the Fed, we might have seen failed auctions.

And the dollar and Treasuries are on borrowed time. Indeed, the dollar may very well start the next wave of this financial crisis. If that happens, gold could very well explode through the roof.

I’ve put together a FREE Special Report detailing an unusual means of playing the gold explosion. While most investors blindly pile into the gold ETF or buy gold bullion, this backdoor play allows you to buy the precious metal at an incredible $188 an ounce. If gold breaks above $1,000, the opportunity for triple digits gains is huge.

Swing by www.gainspainscapital.com/gold.html to pick up your FREE copy!!

Good Investing!

Graham Summers

http://gainspainscapital.com

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

    © 2009 Copyright Graham Summers - 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.

    Graham Summers Archive

© 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