China Is Preparing for a Massive Dollar Freefall, Are You?
Source: http://feedproxy.google.com/~r/ContrarianProfits/~3/QxR_GOIJp9g/18439Posted on Monday, June 29th, 2009 | In Market Commentary
China is making preparations for the ultimate demise of the dollar … and so should you. Stories knocking the dollar never get much exposure in the mainstream media (many outlets wrongly consider it unpatriotic to bash the buck).
But here’s the story in a nutshell. Li Lianzhong, a senior economist in the ruling Chinese Communist Party, directly attacked the dollar yesterday. Li’s message is simple: China should buy more gold because the dollar is poised for a fall. Li also said that China should use more of its $1.95 trillion in foreign reserves to buy energy resource assets.
Speaking at a forex and gold forum, Li asked the very valid question, “Should we buy gold or U.S. Treasurys? The U.S. is printing dollars on a massive scale, and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice.”
There is no doubt in our minds that China – the largest holder US Treasurys with $763.5 billion worth of bonds at the end of April – is maneuvering to reduce its exposure to the buck.
China has already said it will buy up to $50 billion worth of bonds denominated in Special Drawing Rights. These are essentially potential claims on freely usable currencies issued by the International Monetary Fund.
And on April 24, China revealed it had increased its holdings of gold to 1,054 tons from 600 tons since 2003.
Charles Delvalle offers another way to protect yourself from a dropping buck. Charles reckons that as the dollar has lost value the stock market has risen. In a recent e-mail to the crew at Notes he said…
“As long as the dollar isn’t dropping catastrophically then a falling dollar may actually be good for the stock market. Since March 9th, while the stock market has increased over 25%, the dollar has lost 10% of its value. What this shows is that as long as the dollar isn’t dropping catastrophically then a falling dollar may actually be good for the stock market. It means that the velocity of money is increasing. In other words, cash is moving out of bank accounts and into the markets.
“So one way to play a falling dollar is by going long the market. My suggestion is to buy into the strongest index right now, the Nasdaq. You can do that by buying shares of the Powershares Exchange Traded Fund (QQQQ) which tracks the Nasdaq.
“Another way to play a weaker dollar is by betting that the currency itself will fall. You can now do that easily thanks to ETF’s. One ETF which increases in value as the dollar drops is the PowerShares DB US Dollar Index Bearish (UDN).
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bank accounts, Charles Delvalle, China, Chinese Communist Party, contrarian profits, energy resource assets, International Monetary Fund, Li Lianzhong, mainstream media, Market Commentary, Nasdaq 100, Powershares Exchange Traded Fund, senior economist, United States, USD
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