Tuesday, 8 February 2011

The Currency War Resumes.

Baltic Dry Index. 1045 +02

LIR Gold Target by 2019: $30,000. Revised due to QE.

“What me worry?”

Bernoccio, with apologies to Mad Magazine.

Last Friday the US issued its long delayed report on currency manipulation. Unsurprisingly this wasn’t focused on the ongoing dollar currency manipulation of the US Treasury aided and abetted by the Fed, this is the report that targets China for its manipulation of the Yuan through its loosely rigged link to the US dollar. Oh what a tangled web we weave, when first we practice to deceive. The world’s biggest debtor didn’t dare come out and call creditor China a currency manipulator, so it used weasel diplomatic words to say that no country was a currency manipulator, in the sense of how it’s defined by Congress, but that the Yuan was substantially undervalued and China was taking too long to address the issue. Below, how the US and China reported the non event.

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."

Henry Hazlitt

U.S. Calls China’s Progress on Currency Gains ‘Insufficient’

By Rebecca Christie and Ian Katz - Feb 4, 2011 11:56 PM GMT

The U.S. declined to brand China a currency manipulator while saying its No. 2 trading partner has made “insufficient” progress on allowing the yuan to rise.

China should follow through on President Hu Jintao’s commitments to allow more exchange-rate flexibility and boost domestic demand, the Treasury Department said in a report to Congress yesterday on foreign-exchange markets.

The yuan “remains substantially undervalued,” according to the report, which was originally due in October and says no major trading partner meets the legal standard of improperly manipulating its currency. “It is in China’s interest to allow the nominal exchange rate to appreciate more rapidly.”

The Obama administration and U.S. lawmakers say China’s currency policy gives the nation’s exporters an unfair competitive advantage. U.S. concerns have grown as China’s rising economic power put the economic relationship off balance. China had a $252 billion trade surplus with the U.S. in the first 11 months of 2010, according to Commerce Department data.



China did not manipulate currency in 2010: U.S. report

February 05, 2011

Major trading partners of the United States, including China, did not manipulate their currencies to gain an unfair advantage in international trade in 2010, according to a report released by the U.S Treasury Department on Friday.
"Based on the resumption of exchange rate flexibility last June and the acceleration of the pace of real bilateral appreciation over the past few months," China's behavior did not qualify under the official definition of manipulation, the Treasury said in its long-delayed semiannual report to the Congress on International Economic and Exchange Rate Policies.
With respect to exchange rate policies, ten economies were reviewed in this report, accounting for nearly three-fourths of U. S. trade. Many of the economies have fully flexible exchange rates. A few have more tightly managed exchanges rates, with varying degrees of management.
"No major trading partners of the United States" met the standards identified by the Congress as currency manipulator, concluded the report.



The US Treasury Secretary then scuttled off to Brazil to enlist allies in taking on China in a currency war. Stay long gold and silver, nothing good comes from the end of the dollar reserve standard, which if pushed is what China will demand. Left leaning, oil and metals rich Brazil makes for an unlikely ally for Uncle Sam. Brazil’s ethanol made from left over sugar cane, is duty discriminated against in the USA, which can’t compete using subsidized corn to make ethanol. Brazil has a substantial and rising, mostly one way trade with China. Brazil is more likely to join China in wanting the end of the inflationary dollar reserve standard.

US backs Brazil in currency war with China

Timothy Geithner, the US Treasury Secretary, has voiced tacit support for Brazil in its "currency war" with China in a sign that the two giants of the Americas will work together to tackle the issue.
By Robin Yapp, in Sao Paulo 5:18PM GMT 07 Feb 2011

Speaking during his first official visit to South America's biggest country, Mr Geithner said "undervalued currencies" elsewhere meant Brazil has received a disproportionate share of global capital inflows.

Foreign investment has driven a 38pc appreciation of Brazil's real against the dollar in two years and a flood of cheap Chinese imports has damaged the country's manufacturing base.

But Mr Geithner said that when "countries with large surpluses" allow their currencies to "reflect fundamentals" the upward pressure on the real will fall, aiding Brazilian exports.

He did not name China but his comments come days after a Treasury Department report said the yuan remains "substantially undervalued" and that China had made "insufficient" progress in allowing it to rise.

-----His comments suggest that the US and Brazilian governments are ready to forge closer links which could see them jointly pressure China on the value of the yuan.

President Barack Obama is due to visit Brazil in March, with Dilma Rousseff, his Brazilian counterpart, making an official visit to China the following month.

The term "currency war" was coined last year by Guido Mantega, Brazil's Finance Minister.


While the tax challenged US Treasury Secretary was probably hoping his speech in Brazil would only draw local attention, my guess is that this will have been noted in Beijing. No party wins from a clash between America and China, all too likely to bring on the next Lehman. With a new fired up, more combative Congress, just getting down to work, a clash is now all too likely. Stay long precious metals. Below, the US opens another front in the currency war. When elephants fight it’s best to get out of the way. Time for a few more synthetic double options on US stocks. Why doubles rather than puts? The Fed has a printing press, or today its electronic equivalent, and might seek to flood dollars into the system to drive the value of the dollar down. QE2 is already driving the extra cash into stock and commodity speculation. Higher prices beget still higher prices, until one day unexpectedly they don’t. The high frequency trading programs then go into flash crash mode. Synthetic doubles are the only relatively safe outsider play.

U.S. says Chinese drill pipe, collars threaten U.S. industry

10:54, February 08, 2011 

The U.S. International Trade Commission (USITC) determined Monday that imports of drill pipe and drill collars from China threatened the U.S. industry with material injury.
As a result of the USITC's affirmative threat determinations, the U.S. Commerce Department will issue anti-dumping and countervailing duty orders on imports of these products from China.
On January 4, the U.S. Commerce Department announced its affirmative final determinations in the anti-dumping duty and countervailing duty investigations on imports of drill pipe from China. The department determined that Chinese producers and exporters had sold drill pipe in the United States at margins ranging between 0.00 and 69.32 percent, while they have received countervailable subsidies of 18.18 percent ad valorem.
In the anti-dumping investigation, mandatory respondent China's DP Master Manufacturing Co., Ltd. and Jiangyin Liangda Drill Pipe Co., Ltd. received a dumping rate of 69.32 percent. Baoshan Iron and Steel Co., Ltd. as well as Shanxi Yida Special Steel Imp. and Exp. Co., Ltd. each received a dumping rate of 0.00 percent, according to the department.
The USITC did not specify the combined value of imported drill pipe and drill collars from China in the statement. A determination will be considered as affirmative if there is a 3-3 voting result within the USITC Commissioners.



"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."

Shi Jianxun. China People’s Daily. September 16, 2008

At the Comex silver depositories Monday, final figures were: Registered 43.19 Moz, Eligible 60.11 Moz, Total 103.30 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

We end for today staying with China. Below, how China covered the latest Egyptian news. It was all Google’s fault that America, Israel and the west’s man nearly lost power. What was Google thinking, really! China doesn’t want anyone in China getting ideas.

The death of one man is a tragedy. The death of millions is a statistic.

Josef Stalin.

Google executive behind organization of Egypt's protests

10:48, February 08, 2011 

A Google Inc. executive was behind the Facebook page which has helped spark the mass protests in Egypt.
Wael Ghonim, 30, a marketing manager said in a television interview broadcast on Monday after he was released from days of detention that he was behind the organization of the anti- government protesters.
Internet services such as Facebook and Twitter were believed to have played a key role for the organization of the mass protests in Egypt.
Internet service was cut off on Jan. 28 in Egypt, apparently in a bid to stop protesters from using it to spread information. The service resumed on Feb. 2.


Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity.


The monthly Coppock Indicators finished January:

DJIA: +161 Down 10. NASDAQ: +228 Down 10. SP500: +161 Down 4.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

Help the LIR fight Banksterism, the EU, and for sound money.

If you can, help the LIR stay around and make a difference. Please make a donation at the PayPal link on the website or better still become a sponsor for what looks like a troublesome 2011. Capitalism not banksterism. Many thanks to all who have helped.


Sunspots – A 22 year colder world? (From 2004?)

Spotless Days Feb 07, 2011
Current Stretch:0 days

2011 total: 0 days (3%)

2010 total: 51days (14%)
2009 total: 260 days (71%)
Since 2004: 820 days
Typical Solar Min: 485 days


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