 Chinese Diversification
Strategy
Jim Willie
CB
Jim Willie CB is the editor of the "Hat Trick
Letter"
Apr 24, 2009
Use this
link to subscribe to the paid research reports, which include
coverage of several smallcap companies positioned to rise during
the ongoing panicky attempt to sustain an unsustainable system
burdened by numerous imbalances aggravated by global village
forces. An historically unprecedented mess has been created by
compromised central bankers and inept economic advisors, whose
interference has irreversibly altered and damaged the world financial
system, urgently pushed after the removed anchor of money to
gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds,
and inter-market dynamics with the US Economy and US Federal
Reserve monetary policy.
In a series of maneuvers, Chinese
officials have revealed their strategy implementation in a very
broad set of steps. Beijing leaders plan to establish the
yuan currency as a global reserve currency. The process will
be made more complete after issuance of a large volume of Chinese
Govt debt securities, soon in coming. The number of policy actions
is impressive. While the USGovt is busy stepping backwards with
FASB rules enabling false bank accounting, gearing up Treasury
programs to direct colossal elite welfare / confiscation to failed
banks responsible for the crisis, covering up Wall Street fraud
and regulatory lapses and debt rating agency collusion, and ordering
pork like the $9 billion high speed train from Disneyland to
Las Vegas, the Chinese are making important meaningful critical
strides. Within a year, the Chinese will have established the
yuan currency as a legitimate alternative to the USDollar for
global trade, and later to some extent for global banking. The
Chinese Govt has ordered monetary policy changes that have boosted
their money supply by 25.5% over the last twelve months, with
a giant stimulus program and relaxed bank credit rules. Since
new maneuvers are being funded by incremental new surplus
funds, they are exhibiting their financial power without
upsetting their vast reserves accounts. The lost in the USCongress
might talk about ‘Pay-Go’ measures to pay for programs
as we go forward, but China does it in actual terms.
The Chinese are finally deploying
alternative strategic plans in heavy volume, in open defiance,
and even finger wagging at USGovt leaders. From their perspective,
Beijing suspects that the US Federal Reserve is engineering a
covert default on America's debt by printing money on a vast
scale. The Beijing leaders have reacted in a very noticeable
profound comprehensive manner that has taken many analysts and
observers off guard.
In my view, the Chinese
will successfully serve as the spearhead for dethroning the USDollar
from its primary global reserve currency position, called by
me the catbird seat.
The US has become a horrible steward, in recent years promoting
massive syndicates that finally are being recognized. Both Bob
Moriarty and Gary Dorsch have put forth articles in the
last couple weeks pointing out Financial Coup d'État
events and forces that reveal Obama in service to his Wall Street
masters. The Wall Street Journal and London-based journals
also have begun to cite endorsed and covered-up failure. This
is unprecedented in journalism. After the Chinese spearhead does
its work, the new partially gold-backed currencies can more easily
be launched. One might say that Beijing leaders and their
cast of economist and banking leaders are tilling the soil for
planting the new currencies. At one time, my perception was
that the yuan would follow the new hard asset launched currencies,
linking to them with basket weightings. Now it is quite clear
that China will lead and others will follow, benefiting from
the heavy spadework, after dealing with geopolitical headwinds
and interference.
SPECIFIC CHINESE STEPS TOWARD GLOBAL
POSITION
The April Hat Trick Letter
report for Gold & Currencies has been posted. Here are some
outlined details on the important maneuvers recently made by
China. They appear to be positioning themselves both to establish
the yuan across the world and to fortify reserves with hard assets.
Their steps are broad and effective upon examination. Their initiatives
display coordination, planning, and research. Next they must
deal with political backlash, unintended consequences, internal
social problems, and hidden retaliation that will not be discussed
(much precedent).
Since last December, China
has signed deals with six countries, including Indonesia, South
Korea, Hong Kong, Malaysia, Belarus, and most recently Argentina,
for currency swaps that would inject Chinese money into foreign
banking systems. That would allow foreign companies to pay for
goods they import from China in yuan, bypassing the USDollar.
This is an international settlement function.
Beijing is taking initiatives
to use the yuan to settle trade accounts between some Chinese
provinces and neighboring states, starting with Hong Kong. Shanghai
and the four cities Guangzhou, Shenzhen, Dongguan and Zhuhai
have been designated to use the yuan in overseas trade settlements,
ordered by a State Council under the auspices of Premier Wen
Jiabao. This Pearl River Delta region is the location of the
biggest concentration of export oriented factories. The motive
is to reduce the risk from exchange rate fluctuations, and to
encourage their overseas trade in decline.
Chinese officials have called
attention to the risks of an international monetary system that
relies on the USDollar, seen as increasingly unstable and subject
to further indirect devaluation. A broad campaign has been underway
for a couple months that seems coordinated, with participation
by many bank and economic leaders.
A plan to set up a $10 billion
cooperation fund to support infrastructure projects in countries
in the Assn of Southeast Asian Nations (ASEAN) has been hatched.
The plan was announced earlier this month by Chinese Foreign
Minister Yang Jiechi. The ASEAN member countries are Thailand,
Malaysia, the Philippines, Singapore, Brunei, Vietnam, and Indonesia.
The fund could morph into a regional development fund.
The Chinese have made gigantic
purchases recently for soybeans, copper, iron, crude oil, and
more. The Chinese companies have begun in earnest to scoop up
raw materials at cheap prices. Also, Chinese companies invested
$16.3 billion in foreign assets during January and February,
a doubled tempo from last year. Target zones include Iran, Brazil,
Russia, Venezuela, and Australia.
Ambrose Evans-Pritchard points
out that Beijing might someday purchase buy gold on a grand scale.
He jests on a copper standard for a global reserve currency,
and overlooks that crude oil will also figure into the Chinese
commodity formulas. Interpret these developments as a major initiative
toward a hard asset currency positioning for the Chinese yuan.
Ambrose said, "The beauty of recycling China's surplus
into metals instead of US bonds is that it kills so many birds
with one stone:
1. it stops the yuan rising,
without provoking complaints of currency manipulation by Washington;
2. metals are easily stored
in warehouses, unlike oil;
3. the holdings are likely
to rise in value over time since the earth's crust is gradually
depleting its accessible ores;
4. Above all, such a policy
safeguards China's industrial revolution, while the West may
one day face a supply crisis."
[Note: The numbering
of Ambrose's points is mine.]
GOLD REFLECTS USDOLLAR INSTABILITY
The gold cartel is gradually
losing control. They can put out a ‘double down’
futures contract short attack. They can reduce gold lease rates
to below zero. They can avert a COMEX default at the eleventh
hour. The consolidation process continues with a carving of the
right side handle to the Cup & Handle reversal pattern in
the gold price chart, as patience is surely tested. Support has
been good at the more stable 50-week moving average, aided by
the May 2008 support, both at the 860-865 level. Today on Thursday,
the gold price finally jumped over the 900 mark, and even silver
enjoyed a big rise of 3%. Currencies are being ruined universally,
as governments debauch their supply fundamentals with what they
regard as impunity and zero cost, very mistakenly. The costs
come later, from price inflation, lost stability in the monetary
foundation itself, and new unforeseen bubbles. The gold price
target remains 1250 to 1300 once the 1000 mark is cleared. Watch
for the potential of a bullish stochastix crossover in the green
oval in the next week, an event that technicians would notice.
It would signal a substantial move up soon.
(Click on image
to enlarge)
Desperate measures like the
EuroCB action (d) and surging COMEX open interest (e) are difficult
to repeat and to sustain. Exposure renders great harm to the
confidence pillar of the major currencies. The extremely promising
bullish factors behind gold are many:
a) negative real interest rates
b) shortage of physical gold,
whether bars or coins
c) advent of price inflation
next year
d) Euro Central Bank rescue
to avert COMEX default by Deutsche Bank
e) Surge in Open Interest since
mid-March in gold futures contracts
f) Howard Ruff loves silver
due to shortages, to restore the gold/silver ratio.
EXPECT THAT THE GOLD PRICE
WILL MAKE NEW HIGHS FAR EARLIER THAN THE USDOLLAR SUFFERS EXCHANGE
RATE DECLINES ON ANY BROAD BASIS. The Competing Currency War
will keep the US$ propped for a while longer, as other currencies
falter. However, the uniform competing currency devaluations
serve to give gold (and silver) strength. Behind the scenes,
some nations are taking stern action to firm their gold positions
before the next crises, like this summer and again this autumn.
In particular the Germans have ordered the return of all gold
bullion home from US shady custodial supervision, while the Arabs
are purchasing every available gold bullion ingot from global
warehouses in private sales. They want the IMF gold next.
HIDDEN CONFLICT AT THE G20 MEETING
It is my firm belief that the
Chinese controlled the G20 Agenda totally, with direct coordination
from the Russians, but made gentlemanly agreements not to reveal
their control. My firm belief is that the Chinese and Russian
leaders at the G20 Meeting in London had contentious private
meetings. Premier Wen Jiabao and Dmitri Medvedev probably informed
President Obama that the USDollar is dead as a uni-polar global
reserve currency, that the Chinese yuan would expand its global
function, that the Special Drawing Rights could fill a void until
more specific new currencies could be launched in the future,
but that the choreographed glitz of the London meeting could
proceed on its carefully planned stage. Several nations, led
by China and Russia, demand both respect and positions on global
banking institutions. China is a major global creditor nation,
funding $10.4 million in USGovt debt per second. What an
incredible factoid.
The G20 Meeting exposed an
important erupting rift with clear divisions having emerged.
Three distinct global camps are clearly at work on the monetary
stage, led by US-UK, Germany, and Russia-China.
- The United States and Britain
are alone in the monetary desperation camp. The US relies upon
unbridled monetary stimulus, fiscal stimulus, employing the familiar
type of failed devices that might push the limits on a potential
USTreasury Bond default, in response to national insolvency on
many fronts. Great Britain stands weakened in the US camp, harmed
by big bank failures, a collapse of housing prices, and recently
the UK Gilt auction failure.
- The Europeans (led
by Germany & France) object to uncontrolled federal spending.
German Finance minister Peer Steinbrück accused the
British of ‘Crass Keynesianism.’ The Germans openly
oppose larger, broader, and continued stimulus packages. The
German Govt will not embark on plans that repeat the mistakes
of the past.
- The Russians and Chinese
push hard for a global reserve currency alternative to the USDollar.
They permit the IMF device of Special Drawing Rights to serve
as a Straw Man. Russian leaders boldly suggested in open court
that gold should be included in whatever basket of currencies
and commodities supported the new reserve currency.
CHINESE OFFICIALS REVEAL THEIR PHILOSOPHY
The Peoples Bank of China has
been outspoken in its call for a new reserve currency. A new
figure in international finance must be recognized in Zhou Xiaochuan,
governor of the central bank of China. In future years,
Zhou could become a very prominent person who is at the forefront
to break the USDollar dominance in global finance, with full
support from Russia. In a white paper ambitiously entitled
“Reform the International Monetary System,” Zhou
has called for the creation of an international currency unit
that will require ‘extraordinary political vision and courage.’
He suggests an initial launch as a blend of the USDollar, British
pound, Japanese yen and the Euro, as a super-sovereign currency.
It is essentially the makeup of the so-called Special Drawing
Rights (SDR) created by the IMF in 1969, in my view a Straw Man
device for transitional purposes.
Zhou has shocked many bank
leaders and experts by suggesting that international financial
institutions such as the Intl Monetary Fund should manage some
the currency reserves of some nations. Again, this is possibly another Straw Man, to
take control out of the hands of its current dominant members
in the US and UK. Zhou proposed that the IMF be empowered to
“act as a super-sovereign reserve currency [and to increase
the IMF resources.] The scope of using the SDR should be broadened
so as to enable it to fully satisfy the member countries demand
for a reserve currency.” This is revolution in global
finance.
To date, central banks maintain
control over their reserves and secrecy over monetary policy.
Zhou stressed that "The centralized management of part
of the global reserve by a trustworthy international institution
will be more effective in deterring speculation and stabilizing
financial markets." He surely prefers multi-polar management.
Zhou went further in a separate address. Secondly, he stressed
that "The global financial system relies heavily on the
external credit ratings for investment decisions and risk management.
[Thus is encouraged] a massive herd behavior at the institutional
level. Moreover, the rating models for mortgage related structured
products are fundamentally flawed." Thirdly, Zhou ends
with blame of the American fair-value accounting system
and especially the mark-to-market model, the foundation of phony
valuations. The American style is openly recognized as flawed
at best, and corrupt at worst. Zhou has boasted that China has
taken far more concrete steps toward viable remedy and meaningful
stimulus than the United States.
CREDIT CRISIS AUTOPSY
Here is a fine piece
of analytic work from a friend named Trace Mayer. He comes to
the gold community with a different slant and background. He
is a law scholar with emphasis on the Constitution, especially
how it applies to the gold and currency topics. In his e-book
entitled "The Great Credit Contraction" one
can read about the historical significance of a crisis that will
surely reshape the world. The global economy is built on an illusion
currency that is evaporating before our very eyes. This book
is an autopsy of the current worldwide systems and begins with
financial history, discusses the current great deflationary credit
contraction, projects the future environment, and concludes with
suggestions on how to generate and preserve wealth in this challenging
time. An appendix analyzes important topics. (Click HERE
to buy)
THE HAT TRICK LETTER
PROFITS IN THE CURRENT CRISIS.
From subscribers and readers:
"Thanks
for the quality of the information you put forth in your newsletter.
I read a lot of newsletters, blogs, and financial sites. The accuracy
of your information has been second to none over the past couple
of years."
(MikeP in Missouri)
"You freakin rock! I just wanted to say how much I love
your newsletter. I have subscribed to Russell, Faber, Minyanville,
Richebacher, Mauldin, and a few others, and yours is by far my
all time favorite! You should have taken over for the Richebacher
Letter as you take his analysis just a bit further and with more
of an edge."
(DavidL in Michigan)
"I used to read your public articles, and listen to you,
but never realized until I joined what extra and detailed analysis
you give to subscription clients. You always seem to be far ahead
of everyone else. It is useful to 'see' what is happening, and
you do this far better than the economists! I can think of many
areas in life now where the best exponent is somebody not trained
academically in that area."
(JamesA in England)
"You seem to have it nailed. I used to think you were
paranoid. Now I think you are psychic!"
(ShawnU in Ontario)
Apr 23, 2009
Jim Willie CB
 Jim Willie CB is the editor of the "HAT
TRICK LETTER"
email: jimwilliecb@aol.com
Willie Archives
website:
Golden
Jackass
subscribe: Hat
Trick Letter
Jim Willie CB
is a statistical analyst in marketing research and retail forecasting.
He holds a PhD in Statistics. His career has stretched over 26
years. He aspires to thrive in the financial editor world, unencumbered
by the limitations of economic credentials. Visit his website
at www.GoldenJackass.com. For personal questions
about subscriptions, contact him at JimWillieCB@aol.com.
321gold Ltd
|
