| And Then There’s
China…
On announcing
last year that it was forming a new agency to help better manage its foreign
reserves, China took pains to assure the markets that they were not doing
so in order to begin unloading dollars.
But then on
May 18, it announced it was going to invest $3.3 billion in Blackstone,
a private equity group.
Now, you
can be assured that Blackstone is going to go all out to impress their
deep-pocketed new partner. And it won't impress them very much if they
only buy U.S. stocks that have to then fight against the tide of a depreciating
dollar.
In our view,
this is just the beginning of a much larger strategy, the core of which
will be trading out of U.S. treasury bills and into all manner of other
investments… an international basket of stocks, natural resource deposits
around the globe… pretty much anywhere and anything offers the prospect
for a higher return with lower currency risk.
Or, if the
currency risk is going to be taken, then the potential returns will have
to offset those risks. Earning a 4.5% yield on a Treasury bond while taking
a 10%, 20% or even 30% risk on the dollar doesn’t make a lot of sense to
us. And, we expect, neither does it to the Chinese.
There are
some very interesting implications in all of this. For instance, if
the Chinese slow down their buying of Treasuries in favor of other asset
classes, who is going to step up to take their place?
Of course,
at the right interest rate, far higher than those on offer today, someone
will. But then there’s that whole collapsing housing bubble thing.
The U.S.
continues to be trapped on the horns of a dilemma, wedged squarely
between a rock and a hard place.
Or, simply
continue printing money like there’s no tomorrow, steadily devaluing the
$6 trillion in the hands of foreigners, and hope no one will notice.
There are
times, like today, that any reasonably astute observer can look to
the horizon and see what’s coming. A monetary crisis is headed in our direction,
and the pace of its arrival is, in our view, quickening.
Gold, and for
more pep in your portfolio, gold stocks, are no longer an option but a
prerogative–even for conservative investors.
Meanwhile,
pay close attention to the comments of high government officials about
their intentions on the dollar… |
