-- Posted Sunday, 4 November 2012 | | Disqus

Next week is a watershed for global politics with the US presidential election and the change of leadership in China at the Party Congress. There may not be a change of leadership in the US but the new faces in the Chinese politburo will want to make their mark.

If you want to know what they are going to do then you only have to look across the ocean to Japan. On Friday the yen fell against all but one of its 16 most-traded counterparts as the Bank of Japan added $137 billion to its monetary stimulus program. The Federal Reserve already has a commitment to $40 billion of quantitive easing a month.

No alternative policy

China has no alternative but to do the same unless it wants to lose its competitive edge. You can brand this monetary manipulation if you are a US presidential candidate but it also happens to be what the central banks do for a living.

Now as an investment forum ArabianMoney has to ask what this means for investors. We have the view from Jim Sinclair’s gold bugs (click here). We can only concur and the latest issue of the ArabianMoney investment newsletter takes a wider view on exactly what to buy to best capitalize on the coming boom in precious metal prices (subscribe here).

Will a rising global money supply lift all ships? We wonder. The unintended consequences are inflation and social unrest. China knows that only too well but like the West its leaders will most likely choose that over a deflationary economic slump.

Oil prices

We can also see that being positive for oil prices which is a negative for the rest of the economy. Rising input costs will put a pressure on profit margins and therefore equity prices. Interest rates are already on the way up for many borrowers around the world and there will come a point when even the Fed cannot hold them down.

After all the Fed money printing program flies directly in the face of its commitment to keep interest rates low. Inflate the money supply and the pressure on interest rates is upwards, not downwards.

The Chinese leadership is a grand committee and pumping more money into its slowing economy is the sort of thing committees can and will decide quite quickly. And given the scale of the world’s second largest economy this is bound to be a major market mover.

-- Posted Sunday, 4 November 2012 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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