NEW$ TO U(SE)

That would be China’s first trade deficit since May 2004.

China will probably see a "record trade deficit" in March thanks to surging imports, Minister of Commerce Chen Deming said on Sunday (…).

"China’s trade surplus with the US has been turned into a key excuse by American economists to pressurize the Chinese government to revalue the yuan," but, ironically, the calls have been growing stronger even as the "surplus keeps falling", Chen said.

"It’s not rational (for China) to revalue the yuan, as it would hurt both Chinese exporters and American consumers."(…)

Full China Daily article

Related post: CHINESE CONSUMPTION NEAR TAKE-OFF

Source: You Tube

(…) But the yuan is unquestionably undervalued. Our Big Mac index, based on the theory of purchasing-power parity, in which exchange rates should equalise the price of a basket of goods across countries, suggests that the yuan is 49% below its fair-value benchmark with the dollar.

 The Economist

The Canadian narrative is beautifully arranged and elegantly expressed by media and it is with little suspicion that the march toward US parity is on the horizon. The CDN dollar ended significantly higher at 98.38 us cents on Friday hitting its highest point in 19 months.

While the Loonie, a pro-cyclical and commodity-linked currency, may be vulnerable to 1) periods of risk aversion stemming from concerns of Chinese monetary tightness to double-dip recession in the US, 2) bouts of profit taking resulting from overbought situation, 3) eruption of verbal intervention by politicians and 4) pleas of moral suasion by the central bank, it remains that economic, financial and market conditions have so importantly and relatively improved for Canadians over the past year that one on one with the USD is probably sustainable.

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Moody’s sees ratings challenges for U.S., U.K., France, Germany

(…) The credit-rating company repeated that there was no immediate risk of a downgrade of the big triple-A-rated countries, although the slight risk they could fail to get their finances under control, and thus be downgraded, has increased. Moody’s concluded that "on balance, we believe that the ratings of all large triple-A governments remain well positioned—although their ‘distance-to-downgrade’ has in all cases substantially diminished." (…)

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My friend Don Coxe, manager of The Coxe Commodity Strategy Fund, is going high beta stocks while advising caution on equities! Viva Chindia!

• This is assuredly an inopportune time to increase equity exposure—and an opportune time for profit-taking.
• Maintain a strong overweighting in commodity stocks within equity portfolios.
• Maintain high exposure to gold bullion and the gold miners whose
  production comes from politically-secure areas.
• Investors should overweight base metal miners within the cyclical component of their equity portfolios.
• Canadian bonds and stocks should be heavily overweighted in global portfolios.

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• There is a rising chorus of sceptics who argue that the recovery is hollow and that the miraculous growth rates China has achieved over the last 15 years will soon be over.
• At its most basic level, the bear argument is derived from the fact that China has had what is probably the biggest, longest economic boom in history. The logic applied is that the bigger the boom, the bigger the bust.
• A reckoning may well come to pass at some future point but it won’t be soon. Over the time horizon of most investors, it has a low enough probability of occurrence that people should not pay much attention to it.
• We remain positive on risk assets—equities, commodities and corporate bonds—for the short term, a time frame of roughly six to twelve months. The basic backdrop continues to be one of plentiful liquidity, very low interest rates, gradual healing in the financial system, virtually non‐existent inflation, recovering economies and a stable dollar.
• Fundamentally, the U.S. dollar is a weak currency. Its main attribute is that it doesn’t smell as bad as the euro and the yen and, as we have said many times, no one, apart from hedge
  funds, has any interest in a dollar crisis.
• Stay long risk, stay worried and don’t forget to keep your focus on long‐term wealth preservation. Enjoy the better times because they won’t last.

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(…) Yi Gang, head of the State Administration of Foreign Exchange (SAFE), dampened hopes of gold bugs that China might be itching to add to the 1,054 tons of the metal in its reserves.

On a 30-year horizon gold was not a great investment, he said, and China would simply drive up prices if it piled into the market.

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It is not credible, if not indeed impossible, for countries to engage in competitive devaluation or currency debasement and, at the same time, make good on promises to defend their credit rating. In order to successfully erode debt, nominal interest rates on public debt must be and stay below the rate of growth in nominal GDP. Canada does not appear to have either of these aforementioned diseases.
Accordingly, one should not expect Canada to end-up with accelerating inflation rates. On the contrary, the central bank should be able to keep interest rates on debt lower than the anticipated 5% rate of growth in nominal GDP for years to come.

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Tony Boeckh:

• The bull market is intact, but it does depend on continuing government intervention to compensate for weak consumption and deleveraging. However, gains in 2010 will be much harder to come by than last year.
• Government bond yields have nowhere to go but up, and a sharp rise later in 2010 is possible if the Fed is determined to shrink its balance sheet. At present that is not in the cards but conditions could change in the 2nd half of the year. The compression of corporate yield spreads has been played out. The juicy returns seen in this sector in 2009 won’t be repeated until the next cycle.
• We believe that gold has reached its peak in this cycle, even considering the sovereign debt drama now playing out.
• We must continue to urge investors to focus on wealth preservation. There are plenty of things that could go wrong on a very short notice.

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