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-- Posted Friday, 6 January 2006 | Digg This Article
Don’t expect Tout-TV (CNBC-TV) to give it much coverage if any (only the bond pit guy could appreciate it to begin with anyway. The rest of the “lost without the teleprompter readers” won’t have a clue to begin with), but we have big, no make that, “huge” news this morning. In fact, I think it will have as much impact in the real world as the “rolling over the dollars” move in the fictional movie “Rollover” did. What has been surprising so far this morning is how little I’ve heard of it outside of the Financial Times. China’s government foreign exchange regulator issued a statement that I think is going to have a profound affect on most financial markets and the U.S. economy especially going forward. A brief statement on its website said one of its targets for 2006 was to “improve the operation and management of foreign exchange reserves and to actively explore more effective ways to utilize reserve assets”. It went on: “The objective is to improve the currency structure and asset structure of our foreign exchange reserves, and to continue to expand the investment area of reserves. We want to ensure that the use of foreign exchange reserves supports a national strategy, an open economy and the macro-economic adjustment." Put this statement somewhere and look back in a few years and you will have in your hands a part of history. What this statement says, IMHO, is that China’s rapidly-growing foreign exchange reserve, of which an estimated 70 percent is invested in U.S. dollar assets, is going to move away from the U.S. dollar and government bonds and into other areas (one of which, I believe, is gold and why gold has been rallying so strongly). While Tout-TV’s “follow-me-over-the-cliff” Larry Kudlow tells you, “Don’t Worry, Be Happy”, this news in my mind can be one of the single most influential financial decisions in the modern era (by the time Kudlow and the “Mad Man” Kramer are covering it, any actions to protect one self will have been long gone). For a while now, a growing debate in China has been on going regarding what their reserves should be invested in. Some have called for Beijing to use the funds to finance infrastructure investment and clean up state-owned companies. Others said China should be using anything other than financing the massive U.S. borrowing needs. The Financial Times quoted an economist who said this was the first time China had publicly indicated a shift away from dollar assets. He went on to speculate on something I found very interesting:
“It is a subtle but clear signal that they are interested in moving away from the U.S. dollar into other currencies, and are interested in setting up some kind of strategic commodity fund, maybe just for oil, but maybe for other commodities.” Mark my words, this is extremely important news that is not likely to get much coverage but will impact those who are not prepared for it. Please note – We appear to have a major double-top in the U.S. Dollar at 92.5. A break below 85 has tremendous bearish implications. Grandich Publications, LLC. P.O. Box 243 • Perrineville, NJ 08535 www.Grandich.com phone • 732-642-3992 email • Peter@Grandich.com
-- Posted Friday, 6 January 2006 | Digg This Article
Peter Grandich is the Managing Member of Grandich Publications, LLC (www.grandich.com).
The company publishes The Grandich Letter (first published in 1984) which covers the metals and mining industry, follows world markets and economies, and covers the Canadian markets from an American prospective.
Grandich also provides a variety of corporate finance and development services to publicly-held companies.
Peter Grandich is also the Managing Member of Trinity Financial, Sports & Entertainment Management Company, LLC (www.trinityfsem.com), a Registered Investment Advisor in the State of New Jersey. Trinity provides investment advisory services to individuals, small to mid-size businesses, professional athletes and entertainers.
Peter is a long-standing member of The New York Society of Security Analysts and The Society of Quantitative Analysts.
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