China, The Yuan, The Dollar And Gold

First, have a definite, clear practical ideal; a goal, an objective. Second, have the necessary means to achieve your ends; wisdom, money, materials, and methods. Third, adjust all your means to that end

Aristotle BC 384-322, Greek Philosopher

The headlines that China is looking to let the Yuan appreciate 5% and as much as 10% appeared in one of their Local papers. This article went on to state that it is even conceivable that the Chinese might allow the Yuan to float. The officials were fast to come out and state that it was an error. If this was a western country I might be inclined to possibly believe that an error was committed.

However in China where the Government enforces their will with Gestapo style techniques and who control the media with an iron arm. I choose to not only disbelieve them when they state this is an error, but actually am even more inclined to take them 10 times more seriously. China is ready to flex their muscles slowly and this is most likely their first test. What do you think will happen when they allow the Yuan to appreciate, the classic easy non-thought invoking answer is. They will suffer because their prices will become non competitive. Oh if only that answer was even remotely true, I would be pretty happy.

No the real answer is that American stores have become little Chinese islands that are loaded to the gills with consumer goods that we no longer can produce. And do not forget the Republic of Wal-Mart. What will actually happen is that the American citizen will suddenly notice the price of consumer goods that have been dropping forever in price start to rise and this will be the first true signs of inflation. So what do the Big boys have to do at home, they have to take a pre emptive strike and make sure that the dollar appreciates in line with the Yuan to keep this false premise that there is no inflation. And that inflation is actually described as a situation where the price of goods go up and not the printing of more money. And if you have not noticed like clock work the dollar has started to rise. Yes esoteric cycles caught that move but it is very nice how there might also be another powerful esoteric reason why they dollar must go up, well at least in the short term.

Do you still think the market is all about TA? No its actually more about connecting the Dots, TA can help but it is not everything its part of the solution and not thee solution. Having an open mind enables one to see things that the masses could never see unless it was shoved right under their noses and sometimes one has to shove it right through for them just to be able to even catch a faint whiff.

They have to take this pre-emptive strike because what would happen if China really let the Yuan appreciate. In addition the dollar has dropped just to fast and so the fall has to be arrested to make it look like everything is fine.

This might hurt Gold in the short run but will provide another buying opportunity for those that did not take positions. I would be a bigger buyer of Silver bullion as it is set to bury Gold in terms of % gains and has already done so. These gains will pale in comparison to what lies ahead. Remember that when one undertakes a great journey even though the end might be wonderful, the in between can be painful. So understand the principle no pain no gain. No risk no profit. You could sit tight but then you might weep all night.

Two other previous articles that make interesting reading are The Resurrection of the Dollar Jan 16,2004, Resurrection Of The Dollar Part II - 22 February 2004

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The goal of all inanimate objects is to resist man and ultimately defeat him
Russell (Wayne) Baker 1925-, American Journalist

If you don't know where you are going, you might wind up someplace else.
Yogi Berra 1925-, American Baseball Player