The Move Into Hard Assets
28th May
2009
Hypocrisy in
anything whatever may deceive the cleverest and most
penetrating man, but the least wide-awake of children
recognizes it, and is revolted by it, however ingeniously it
may be disguised. - Count Leo Tolstoy
1828-1910, Russian Novelist, Philosopher
China is
aggressively jumping to hard assets again, they are seeking
to unwind their position in the US dollar or at the very
least hedge themselves against the upcoming
hyperinflationary phase that is going to hit the entire
world in the not to very distant future. Their move into
copper and sugar clearly illustrates that this is the
beginning of trend and that many cash rich nations (Japan,
Russia, several countries in the Middle East, etc) will soon
follow China’s lead.
One of the
reasons for the rise in the price of copper is all but
obvious; this reason is known as the China factor. Now that
prices are so low, they are busy stock piling this red
metal, in addition they know that hyper inflation is about
to hit the United States and the rest of the world, for the
most part, and so they are busy buying up hard assets in an
attempt to at least redeploy part of their vast foreign
currency reserves. In the first two months of 2009, Chinas
copper imports were up 71% in comparison to those of last
year. Most of this buying is to add to the stock pile of
the State Reserve Bureau (SRB) which is now in the process
of securing 2% of the worlds copper output or 300,000 tonnes.
Our target on
copper is still in the 220-240 ranges (so far it has traded
as high as 223.15), and it is possible it could spike as
high as 260 before mounting a correction. Once the threat
of hyper inflation becomes real, expect all nations with
huge reserves to start deploying their Dollars into hard
assets.
China’s sugar
reserves surged to 2.8 million metric tons, up 75% from 1.6
million; they grew for the first time since 1991; another
clear cut sign that China is aggressively looking for new
ways to get out of its dollar holdings. It is also
aggressively investing in uranium projects In Africa and in
central Asian countries such as Kazakhstan.
China and
Argentina have come to an agreement that has very serious
long term implications for the dollar. China has agreed to a
10.2 billion dollar swap with Argentina that would allow it
to receive Renminbi (Yuan) instead of dollars for its
exports. This clearly could mark the beginning of a new
world currency reserve one that will replace or compete with
the dollar.
Adding even
more fire to the picture China Wants SDRs to replace the
Dollar as the Global Reserve Currency
Actions
speak louder than words. Less than a week after he wrote an
article proposing that the dollar be replaced as the world's
international reserve currency, Zhou Xiaochuan, China's
central bank governor, signed off on a $10.2 billion
currency swap with Argentina. Under the terms of the deal,
China will receive renminbi instead of dollars for its
exports to Latin America. An Associated Press report notes
that Beijing has signed "similar deals to bypass the U.S.
currency with South Korea, Malaysia, Belarus and Indonesia."
Such swaps -- all signed since December -- add up to more
than $95 billion
China's
views are starting to gain support. Russian President Dmitry
Medvedev has called upon the G-20 leaders to explore
alternatives to the dollar as a reserve currency. Not to be
outdone by the Chinese, Venezuelan President Hugo Chavez has
called for the creation of a "new oil-backed currency to
challenge the U.S. dollar." Chavez sought support for his
proposal this week from among the Arab states at a
conference of Arab and Latin American countries in Doha,
Qatar.
Full story
Conclusion
Investors
would be wise to hedge themselves by deploying some of their
money into hard assets such as oil, Gold, Silver, Timber,
natural gas etc.
Relevant
ETF’s
Gold = GLD
Silver = SLV
Natural Gas = UNG
Oil = USO
Imagine
believing in the control of inflation by curbing the money
supply! That is like deciding to stop your dog fouling the
sidewalk by plugging up its rear end. It is highly unlikely
to succeed, but if it does it kills the hound. -
Michael D. Stephens
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