Posts tagged ‘Chinese’

Timothy Geithner, the Eddie Haskell Dollar Czar

Geithner Haskell

Treasury Secretary Timothy Geithner recently stated after a meeting of G-7 financial officials that “it is very important to the United States that we continue to have a strong dollar.”

With comments like this, why does Timothy Geithner remind me so much of Eddie Haskell (played by Ken Osmond) from the 1950s suburban sitcom Leave It to Beaver? Eddie Haskell plays the scheming trouble maker who is extremely polite on the exterior around adults, but reverts to a crafty conniver once the grown-ups leave the room.

I can just picture the conversations between Treasury Secretary Geithner and President Obama before a high powered meeting with Chinese administration officials:

Geithner: “Barack, the skyrocketing debt will be no problem, we can we shovel plenty of this paper on these Chinese.”

Barack: “Uh, oh…Hu is here for our meeting.”

Geithner: “Oh hello Mr. President Jintao – what a lovely trade surplus you have. We look forward to keeping a very fiscally responsible agenda here in the United States, so you can keep buying our valuable debt.”

Where did Timothy Haskell get his crafty dollar oration skills?

According to David Malpass, president of the research firm Encima Global and deputy assistant Treasury Secretary, Geithner training came from “using a code phrase, a carryover from the Bush administration. It means that the U.S. approves of a constantly weakening dollar but doesn’t want a disruptive collapse.”

These tactics and rhetoric can only work for so long. Exploding deficits and skyrocketing debt levels will eventually lead to a dumping of our debt, rising interest rates, crowding-out of private investments, and a damaging decline in the dollar. Sure, the weakening dollar helps us in the short-run with exports but eventually major U.S. debtholders will no longer buy our sweet talking.

With all the “U.S. dollar is going to collapse” talk, one would think a shift to an SDR  (Special Drawing Rights)  global currency structure is an inevitable outcome. Just six months ago the governor of China’s central bank argued the U.S. dollar’s role as the world’s reserve currency should be restructured. The SDR model has already been implemented by the IMF (International Monetary Fund), so if the Chinese wanted to create an SDR proxy, they could easily purchase euros, sterling, and yen in proper proportions. Would the Chinese want to make any sudden changes? Certainly not, because any quick adjustments would destroy the value of the Chinese’s existing dollar denominated portfolio. The logistics surrounding a legitimate SDR program would require the IMF or some other international agency to act as a global central bank, which would not only need to determine the appropriate mix of currencies in the SDR, but also decide future global liquidity actions. In order to legitimately run a new SDR program, countries like China would need to give up sovereignty – not a likely scenario.

Until a new SDR regime is agreed upon, dollar-reliant countries will continue to have barks bigger than their bites and Timothy Geithner Haskell will continue to sweet talk U.S. dollar owners.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

Hear Eddie (or Treasury Secretary) Speak Here:

October 12, 2009 at 2:00 am 2 comments

The China Vacuum, Sucking Up Assets

That's not Hoover making that sucking noise - it's China

That's not Hoover making that sucking noise - it's China

Shhh, if you listen hard enough you can hear a faint sucking sound coming from the other side of the Pacific Ocean. In the midst of the greatest economic collapse since the Great Depression, China is rolling around the globe sucking up international assets as if it were a Hoover vacuum cleaner. As a member of the current account and budget surplus club, China is enjoying the membership privileges. Evidence is apparent in several forms.

Most recently, Chinese state oil and gas company, Sinopec (China Petrochemical Corporation) has bid close to $7 billion for Addax Petroleum, an oil explorer with significant energy assets in the Kurdistan region of northern Iraq.

Another deal, newly announced not too long ago, occurred on our own soil when another Chinese company (Sichuan Tengzhong Heavy Industrial Machinery Co.) made a bid for the ailing Hummer unit of bankrupt General Motors. Just as we have begun exporting our obesity to China through McDonald’s and KFC, now we are sharing our lovely gas guzzling habits.

In May, The Wall Street Journal reported the following:

Chinese companies and banks have also agreed to a string of credit and oil supply deals worth more than US$40 billion with countries such as Brazil, Russia and Kazakhstan, in line with efforts to secure its energy supply.

 

Beyond the oil markets, China is also hungry for other hard assets. The failed $20 billion investment in Chinalco (Aluminum Corporation of China) by Rio Tinto garnered a lot of press. But other deals are making headlines too.  Metallurgical Corp. of China Ltd. (MCC) is planning a $5.15 billion thermal coal project in Queensland state, Australia in conjunction with Waratah Coal Pty Ltd. China has a voracious appetite for coal -its coal imports are estimated to surpass 50 million tons in 2009.

Cash is king, especially in crises like we are experiencing now, however we want to be careful that we don’t give away the farm out of desperation. Making tough decisions to preserve assets, like cutting expenditures and expenses, is a better strategy versus making fire sale disposals of crown jewels.  Becoming energy independent and investing in environmentally sustaining technologies will serve our long term economic interests better as well.

 If we’re not careful, that active Chinese Hoover vacuum cleaner is going to come over to our home turf and suck up more than just our loose change.

Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper.  

www.Sidoxia.com 

*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, RTP and was short MCD, but at the time of publishing SCM had no direct position in YUM, Sinopec (China Petrochemical Corporation), Addax Petroleum, Chinalco (Aluminum Corporation of China), Metallurgical Corp. of China Ltd. (MCC),Waratah Coal Pty Ltd or any security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

July 17, 2009 at 4:05 am 5 comments


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