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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (48192)12/26/2005 11:44:28 PM
From: bond_bubble  Read Replies (1) of 110194
 
The hot potatoes will be passed around and it will cause USD to fall further against commodities!! If USD falls, the demand in US will fall. As all the US demand will be directed towards oil and away from Asian goods. If FCBs depreciate their currency as well, then, the inflation flares in Asian countries as well - causing Asian demand to fall. However, FCBs will need to prop up local demand if US demand falls (if there is no net demand fall - employment should be fine)!! At this time, they are suppressing local demand by not allowing prices to fall. Instead they are spending all their citizens saving and more (by printing) in frivolous projects/capacity expansions.
For example, China has 30% local demand and 30% export demand. If 30% export demand falls to 15%, then they need to increase the local demand to 45%!! Which means they have to lower the PPI/CPI, so that local demand is pushed up. This they can do, if they stop printing and instead spend USD. This will cause yuan to appreciate. If yuan appreciates 40% against USD, then all their import prices falls that much!! I believe that, once the recession hits, everyone will be trying to appreciate their currency to import at a lower price. In other words, interest rates will be rising every where. And turmoil begins when US trade deficit starts adjusting!!

But that does not mean you will be safe buying Yuan. You might lose it in bank closures!! I believe the only decent option is to buy physical gold - not for appreciation but wealth preservation!! Riskier opportunities will be shorting long term bonds (there could be a turmoil short term), shorting stocks (internet and financial). I dont think gold stocks will do well.
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