G20 & The U.S. Dollar Policy
Dian L. Chu
Economic Forecasts & Opinions
Nov. 14, 2010
Highlights
2
 Events Leading to G20 – Dagong, Greenspan & Geithner
 G20 – A ColossalWaste of Time
 Post G20 - TradeWar ...
China’s Dagong Downgrades The U.S.
3
 Nov. 9 - China’s Dagong Credit Rating Agency reduced U.S.
credit rating to A+, from...
Greenspan & Geithner Spar Over
Dollar
 Nov. 10 - “America is also pursuing a policy of currency
weakening.” ~ Alan Greens...
Highlights
5
 Events Leading to G20 – Dagong, Greenspan & Geithner
 G20 – A ColossalWaste ofTime
 Post G20 - TradeWar &...
The Great American Expectation Of G20
 China to be condemned by the world for “Currency
Manipulation”
6
G19 – Are You $600-Billion Serious?!
7
G19 – Look Who’s Devalue To Prosperity?
8
G19 – More Hot Money Thanks To QE2
9
G19 – We Need Quantitative Tightening !
10
G20 on Currency & Protectionism
 “Countries commit to moving toward more
market-determined exchange rate system… and
refr...
G20 On Trade Imbalances
 “The G20 will develop "indicative guidelines“..” to help identify
large trade imbalances…"
 (Tr...
G20 on Capital Control
 “Advanced economies…will be vigilant against excess
volatility and disorderly movements in exchan...
Highlights
14
 Events Leading to G20 – Dagong, Greenspan & Geithner
 G20 – A ColossalWaste of Time
 Post G20 -TradeWar ...
Trade War & China Yuan Policy
 G20 outcome reflects a diminished leadership role of the U.S.
 Yuan-Dollar peg will likel...
Highlights
16
 Events Leading to G20 – Dagong, Greenspan & Geithner
 G20 – A ColossalWaste of Time
 Post G20 - TradeWar...
#1 - Spending & Debt
U.S. Gov. Debt to GDP Ratio
Ranks #3 Among G20,
Trailing Italy & Japan
17
#2 - Structural Unemployment
 Labor Force Skill Mismatch andTransition
18
#3 - Rebuilding Wealth & The Middle Class
 The inflation-adjusted income
of the median household fell
4.8% between 2000 a...
#4 – Credit Not Reaching Private Sectors
20
 Fed’s trillions from QE1 & QE2, and the perpetual near
zero interest rate is...
FACT - Banks DO NOT Make Money From
Lending to Private Sectors
21
 Banks realize lending to private sectors is not as pro...
Highlights
22
 Events Prior to G20 – Dagong & Greenspan v. Geithner
 G20 – A ColossalWaste of Time
 Post G20 - TradeWar...
Profiling the U.S. Dollar Policy
 A classic “closet case” of Weak Dollar
 Misplaced concern of a Japanese Style
Deflatio...
Consequence of a Dollar Devaluation
24
 Markets likely to remain pessimistic on the dollar
 But dollar could strengthen,...
Investing Strategy
25
 Wealth Preservation – Stay away from the dollar, and the
U.S. Bond
 Hard assets, emerging market ...
Thank You
Dian L. Chu
Economic Forecasts & Opinions
Nov. 14, 2010
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G20 & The U.S. Dollar Policy - A Presentation

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The Group of 20 ended on Nov. 12, 2010 in South Korea culminated in a watered down statement without any meaningful agreement on rising global tensions over trade and currency issues.

This presentation outlines some of my observations regarding G20, U.S. dollar policy and investing strategy in this environment

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G20 & The U.S. Dollar Policy - A Presentation

  1. G20 & The U.S. Dollar Policy Dian L. Chu Economic Forecasts & Opinions Nov. 14, 2010
  2. Highlights 2  Events Leading to G20 – Dagong, Greenspan & Geithner  G20 – A ColossalWaste of Time  Post G20 - TradeWar & ChinaYuan Policy  Bigger Problems at Home  The U.S. Dollar Policy & Investing Strategy
  3. China’s Dagong Downgrades The U.S. 3  Nov. 9 - China’s Dagong Credit Rating Agency reduced U.S. credit rating to A+, from AA, with Negative Outlook  Citing a “deteriorating intent” and ability to repay debt obligations after QE2  Downgrade could be reflecting Beijing’s concern  Dagong’s Debt Progression Chart  With QE2, the U.S. has progressed into Stage 3 - Monetary Crisis . Overall Crisis Monetary Crisis Economic Crisis Debt Crisis (U.S. )
  4. Greenspan & Geithner Spar Over Dollar  Nov. 10 - “America is also pursuing a policy of currency weakening.” ~ Alan Greenspan, Financial Times  Nov. 11 - “We [the U.S.] will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy.” ~ Timothy Geithner, CNBC 4
  5. Highlights 5  Events Leading to G20 – Dagong, Greenspan & Geithner  G20 – A ColossalWaste ofTime  Post G20 - TradeWar & ChinaYuan Policy  Bigger Problems at Home  The U.S. Dollar Policy & Investing Strategy
  6. The Great American Expectation Of G20  China to be condemned by the world for “Currency Manipulation” 6
  7. G19 – Are You $600-Billion Serious?! 7
  8. G19 – Look Who’s Devalue To Prosperity? 8
  9. G19 – More Hot Money Thanks To QE2 9
  10. G19 – We Need Quantitative Tightening ! 10
  11. G20 on Currency & Protectionism  “Countries commit to moving toward more market-determined exchange rate system… and refraining from competitive devaluation of currencies.”  “Countries will resist protectionism in all its forms" and will "roll back” any new protectionist measures.”  (Translation - Protectionism and “Currency Weakening” is ok.) 11
  12. G20 On Trade Imbalances  “The G20 will develop "indicative guidelines“..” to help identify large trade imbalances…"  (Translation –There will be a “new index”, but trade imbalances are ok.) 12
  13. G20 on Capital Control  “Advanced economies…will be vigilant against excess volatility and disorderly movements in exchange rates. These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging countries.“  (Translation - Emerging markets can protect themselves from "hot money" by imposing capital flow controls, true to the free market form.) 13
  14. Highlights 14  Events Leading to G20 – Dagong, Greenspan & Geithner  G20 – A ColossalWaste of Time  Post G20 -TradeWar & ChinaYuan Policy  Bigger Problems at Home  The U.S. Dollar Policy & Investing Strategy
  15. Trade War & China Yuan Policy  G20 outcome reflects a diminished leadership role of the U.S.  Yuan-Dollar peg will likely continue, but with a weak dollar, Beijing will have room to guideYuan higher  China will likely implement more monetary tightening with growth the top priority  TradeWar? The U.S. should not engage, as there are a lot bigger problems at home 15
  16. Highlights 16  Events Leading to G20 – Dagong, Greenspan & Geithner  G20 – A ColossalWaste of Time  Post G20 - TradeWar & ChinaYuan Policy  Bigger Problems at Home  The U.S. Dollar Policy & Investing Strategy
  17. #1 - Spending & Debt U.S. Gov. Debt to GDP Ratio Ranks #3 Among G20, Trailing Italy & Japan 17
  18. #2 - Structural Unemployment  Labor Force Skill Mismatch andTransition 18
  19. #3 - Rebuilding Wealth & The Middle Class  The inflation-adjusted income of the median household fell 4.8% between 2000 and 2009.  80% of population with only 7% of financial wealth  Poverty rose to 14.3% in 2008—the highest since 1994, with 43.6 million Americans living below the official poverty threshold  1 in 8 Americans is on Food Stamps 19
  20. #4 – Credit Not Reaching Private Sectors 20  Fed’s trillions from QE1 & QE2, and the perpetual near zero interest rate is intended for banks to increase lending and loosen credit conditions  However, lending to the private sector still falling off a cliff
  21. FACT - Banks DO NOT Make Money From Lending to Private Sectors 21  Banks realize lending to private sectors is not as profitable as playing equity and commodity markets  Fed’s the “Sugar Daddy” of banks with unlimited free money  Easy money also increases risk appetite  Liquidity trapped in the banking system creating potential asset bubbles  Banks are also hoarding cash preparing for more write-offs from Foreclosure-gate, and Commercial Real Estate, etc.  Conclusion - It’s GoodTo Be A Banker Post-crisis in America!
  22. Highlights 22  Events Prior to G20 – Dagong & Greenspan v. Geithner  G20 – A ColossalWaste of Time  Post G20 - TradeWar & ChinaYuan Policy  Bigger Problems at Home  The U.S. Dollar Policy & Investing Strategy
  23. Profiling the U.S. Dollar Policy  A classic “closet case” of Weak Dollar  Misplaced concern of a Japanese Style Deflation  Whereas low headline inflation is due to the liquidity trapped within the banking system, without the usual circulation  In total denial and refuse to deal with the mounting debt and deficit  Believing a Weak Dollar would bring export & GDP growth, thus creating jobs, etc.  Devalue currency is the easy way out  Talk of “Strong Dollar” to prevent a run on the dollar – the trick is to weaken, but not crash 23
  24. Consequence of a Dollar Devaluation 24  Markets likely to remain pessimistic on the dollar  But dollar could strengthen, amid the even bigger European debt crisis affecting the euro, and austerity measures curbing growth  Expect Inflation to rise, and higher inflation expectation would push up the U.S. bond yield  Export may get a moderate boost; however, jobs are unlikely to return to the U.S. since companies would just move operations from China to e.g.,Vietnam, where wages are still low  That could change if there’s a massive (50%+) dollar devaluation drastically reducing the real domestic wage levels  Such scenario would, of course, reduce the national debt  However, it would also suggest a forever lost middle class and national wealth. And we see that “progress” unraveling in Iceland!
  25. Investing Strategy 25  Wealth Preservation – Stay away from the dollar, and the U.S. Bond  Hard assets, emerging market equities, bonds and commodity-based currencies  Commodities, e.g., through mutual funds and ETFs, more detail here  Real Estate – some remain distressed in the U.S.  U.S. commodity and resource producers and high tech sector should benefit from a weak dollar. Many remain global market leaders  Gold – But expect high volatility, so invest on pullbacks (watch out for silver, which tends to have 2x gold’s volatility)
  26. Thank You Dian L. Chu Economic Forecasts & Opinions Nov. 14, 2010

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