Monday, December 31, 2007

Japanese Torpedo Stock Market and Dollar

The Japanese yen carry trade financed the global bull market at the dawn of the 21st-century and the rising yen ─ like Japan’s rising sun on its flag in World War II ─ torpedoed the bull market and U.S. dollar.

Today anyone with access to a global custodian can borrow short-term money in any major country. At Japan’s ultra-cheap interest rates, it made sense to borrow there rather than where interest rates are higher. People did, from all over the world, selling yen and moving the money to higher-yielding countries to invest, picking up the interest rate spread. To do so, they had to also buy that new currency. The process pushes the yen down and other currencies, including the dollar up and is called the yen carry trade. The result is the Bank of Japan was financing the global bull market directly without meaning to. When the bank increased its interest rate materially, it pushed the price of the yen up and killed the yen carry trade ─ and the dollar.

Nevertheless, the power to influence the fate of the dollar lies increasingly with the oil producers ─ not China. China’s dollar reserves are so huge that it will find it hard to reallocate them without causing mayhem in the markets and becoming the biggest loser of all.

It is time U.S. career politicians stop blaming and scapegoating China for all that ails America and start putting the blame where it belongs ─ on Japan and Arab oil producing countries, starting with Saudi Arabia, the leading oil producer that also produced Osama bin-Laden and his fanatical religious suicide bombers.

Monday, December 17, 2007

Blame The Arab Oil Producers Not China

China keeps the currency composition of its $1,430 billion foreign exchange reserves a state secret. It is estimated by some analysts that more than two-thirds are probably held in dollars. China is understandably nervous about its dollar reserves because the dollar isn’t a safe haven because most of the problems facing the world economy are coming from America. Nevertheless, the power to influence the fate of the dollar lies increasingly with the oil producers ─ not China. China’s dollar reserves are so huge that it will find it hard to reallocate them without causing mayhem in the markets and becoming the biggest loser of all. It is not in China’s interest to devalue its dollar reserves. If anything it will revalue the yuan to protect its dollar holdings.

Kuwait, the country rescued from Saddam Hussein’s military conquest and brutality by America during the Gulf War, showed it’s gratitude in May 2007 by becoming the first OPEC country to switch from a dollar peg to a basket of currencies. Saudi Arabia, the United Arab Emirates and Qatar understandably got nervous as a result, worrying that others will follow and sell their U.S. treasuries and revalue first leaving them behind to lose the most. The fate of the dollar is in the hands of the Gulf Co-operation Council which includes Saudi Arabia, the UAE, Qatar, Oman, Bahrain and Kuwait. They are meeting formally and informally to decide the fate of the dollar. GCC countries are using their financial power fueled by oil to advance their political ambitions ─ and America their protector to date be damned.

According to the International Monetary Fund, oil exports from GCC countries reached $400 billion in 2007 and $450 billion in 2008. A study by McKinsey meanwhile estimates that over the period 2005 to 2020, the Gulf is likely to have a three trillion dollar oil surplus. An amount that could dwarf China’s foreign reserves ─ especially if it dumps its dollar holdings!

It is time career politicians in America address the economic mess they have created with their misguided banking and oil industry financial backers. They have been allowed to run U.S. economic and foreign policies amok because of their self interest at the expense of We the Apathetic People. It is time to put the blame where it belongs. China can no longer continue to be blamed for America’s woes. Oil and the Arab oil producers can and must.

Wednesday, December 05, 2007

Yankees and Their Dollar Not Welcome

Picking up where I left off in my author’s note at the end of my book Custom Maid Knowledge, now being reviewed for a January 2008 release where I discuss ─ after the dollar had depreciated 40 percent ─ why the Chinese yuan is in the process of replacing the U.S. dollar as the international currency, I want to share some recent personal enlightening experiences that confirm my concern notwithstanding the vocal political denials voiced in Washington D.C. by career politicians.

I was in Dubai on November 19-21, 2007, and went shopping at the local spice bazaar for dates, figs, apricots, saffron and other spices. When I took my money clip out of my pocket to pay, “Chinese money not dollars” said the salesman when he saw me leafing through the hundred dollar yuan notes to get to the dollars. I had been in Shanghai a couple of days earlier and the Chinese currency was still folded over my Hong Kong and U.S. dollars.

Groups of Chinese tourists were everywhere in the Emirates ─ no different than Europe, Middle East, Africa, Asia and the Americas. In the Dubai museum, on the dhows in the Dubai Creek, souks and restaurants. Their currency dominated at the currency exchanges and cash registers. Tourists are the best ambassadors of their national currency.

Just as the yuan is replacing the dollar, ugly loud mouth American tourists have been replaced by their boisterous Chinese counterparts. American tourists are becoming an endangered species because they are too busy being wage slaves to spare any dollars for overseas travel to get to know foreigners, their country, history, or enjoy the sights, sounds and smells of the world’s bazaars .

The dollar hit a historic low during my Dubai visit as speculation mounted in international financial circles that the Gulf States are ready to either revalue their currencies or do away with their peg to the dollar and switch to a basket of currencies to quell the mounting exchange rate losses and domestic inflation.

During the weekend, OPEC also debated whether it should price oil against a basket of currencies as an alternative to the dollar pricing of oil. The dollar slump has hit export revenues of oil exporters because of oil’s dollar pricing. The dollar’s fall on global markets has fueled the price of oil to a record $98 plus a barrel.

While in Dubai, Venezuela’s President Hugo Chavez was across the Gulf in Iran claiming the “empire of the dollar is crashing.” His host, president Ahmadinejad called the U.S. dollar a “worthless piece of paper.” It is not surprising that the two presidents who share the view of America’s overbearing global influence, capitalized on the dollars’ weakness to denounce America and its currency.

What is surprising is that Steve Forbes, the publisher of Forbes magazine, who was also in Dubai during my visit speaking at the Leaders in Dubai Business Forum, blamed the U.S. Federal Reserve for the ongoing dollar crisis and called on the Gulf states to correct America’s mistakes and protect themselves from any further depreciation of the dollar.

Forbes urged Gulf countries to continue to peg their currencies to the dollar and to revalue rather than devalue their currencies. He urged the attendees not to allow their currencies to float or going for a basket of currencies. Instead, Gulf countries should do a one-time revaluation, whether 8, 10,12 or 15 percent and keep it fixed and re-peg to the dollar.

Why can’t We the Apathetic People protect ourselves and America? Why do we need to rely on any foreign country to fix and clean up our career politicians repeated mistakes?
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