The Continuous Game of Chicken with China – or Kung Pow Chicken!

China owns tons of US Treasuries. They need to diversify their portfolio, and will soon begin selling some of these treasuries. They have also been accused (rightfully so) of manipulating their currency to keep the Yuan at falsely low levels. What this does to help China is to keep their exports at artificially low levels. This also helps US consumers afford their goods, but makes it difficult for American manufactures to compete.

Hank Paulson – the former Secretary of Treasury – was instrumental in fostering good relations with China. The hope was that Hank could help persuade China to free-float the Yuan. Although that didn’t happen, China did allow it to fluctuate a little higher heading into the Olympics. Now we have a new Treasury Secretary, Timothy Geithner, who has already expressed to senators his views that China is manipulating their currency.

So, what is the game of chicken? The game of chicken is that China gets irritated enough to dump all their US treasuries at once, immediately hurting the value of the US dollar. Some economists believe this could be a severe blow to our economy; others believe that as China sells, other countries will buy. Either way, selling all the treasuries at once would undoubtedly also hurt China’s ability to export to the US. The goal is to get China to free-float the Yuan, something that would ultimately be in China’s best interest, without irritating them enough to sell off all the treasuries in one fell-swoop.

Within the last two weeks, this game of chicken has escalated rapidly. Last week, the Premier of China for the first time publically criticized our debt holdings, and the Chinese are now vocal that they are concerned. "We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets. To speak truthfully, I do indeed have some worries," and he wants the US to "keep their promise and guarantee the safety of Chinese assets."

This was followed up immediately by the Fed’s statement this week that it is purchasing mortgage-related securities and government bonds, thereby pushing down the yields on the treasuries and slightly devaluing our currency. Obviously the Chinese were not happy with what transpired, and this morning China called for the creation of a new currency to replace the dollar as the world's standard. Russia made a similar proposal earlier this month, and OPEC publically discussed this last fall. Only time will tell if the Greenback will lose its throne or not, but the escalating "cold cash" war with China will continue into the foreseeable future. Although these are my thoughts, Clark’s Thoughts, they are also the thoughts of our entire Allocation Team.

What's made in Mexico - stays in Mexico!

One of President Obama’s campaign promises was to look into NAFTA, and make appropriate changes. It was ironic that on Obama’s first foreign visit, he went to Canada and had a joint appearance with Prime Minister Stephen Harper. During the visit, Obama highlighted the strong partnership we have with Canada. "I expect that four years from now the U.S.-Canadian relationship will be even stronger than it is today," Mr. Obama said. "I love this country and think that we could not have a better friend and ally, and so I'm going to do everything that I can to make sure that our relationship is strengthened." And when talking about strengthening labor and environmental standards in NAFTA, he said that there was a way of accomplishing that that was "not disruptive to the extraordinarily important trade relationships that exist between the United States and Canada."

So, if he runs on an Anti-NAFTA program, yet pledges continued, open trade with Canada, what part of NAFTA does he not like? Obviously the answer lies with Mexico.

According to NAFTA, the US had an agreement to grant Mexican trucks full access to its highways by January 2000, but some US legislators delayed that until 2007. The US ended that program last week, banning Mexican trucks access to US highways. So what did the Mexican’s do? They retaliated they only way they could: by instituting new tariffs that will affect about $2.4 billion in annual trade and 89 products, ranging from fruit to washing machines.

According to www.census.gov, Canada is our leading trade partner, followed by China, and Mexico ranks a close third. Why in times of economic distress would we allow our government to come up with protectionist policies and begin a new form of trade war? In our opinion, the moves made by the US were not in our country’s, or Mexico’s, best interests, and will serve to do nothing but to prolong the economic downturn.

The big question that should be on everyone’s mind is, "Which country is next?"

www.clarksthoughts.com

What is a trillion??

Remember last fall? There was talk of a stimulus package. A $700 Billion stimulus. Notice I said the word "Billion." Back then figures that large scared everyone! Today we are using the word "Trillion." And that word is getting tossed around every other day or so it seems.

But – in plain English – what exactly is a trillion? A trillion is a number that has twelve zero’s (14 if you include the decimals!) - $1,000,000,000,000.00 . It is a bunch of money. It is hard to grasp. In terms of money, it is incredibly hard to really, truly understand how much it is.

Let’s break it down some more. A trillion is:
1,000 Billion
1,000,000 Million
1,000,000,000 Thousand

Or, let’s put it into another perspective. If I gave you $1.00 every second, how many years would you have to live before I had given you a trillion dollars?

Well, let’s see: One minute = 60 seconds
1 hour (60 seconds x 60 mintes) = 3,600 seconds
1 day (3,600 x 24 hours) = 86,400 seconds
1 year (86,400 x 365.25 days) = 31,557,600 seconds
One Trillion/31,557,600 = 31,688years!!!!!!!

(Obviously, neither one of us would live long enough for you to collect the trillion dollars!)
Let’s break it down another way. If you won the largest jackpot in the world, and you won $1 Trillion, how much money would you have to spend daily to spend it all in one year? More than $2.73 Billion. Can you truly immagine spending $2.73 Billion in one day, let alone one year, or even during the rest of your life? It is truly hard to fathom.

Yet, the Congressional Budget Office (CBO) on March 22, 2009 said its latest budget deficit estimate for this fiscal year, which ends on Sept. 30, would amount to US$1.845 trillion, or 13.1 percent of the country’s entire economic output. Notice this is a budget deficit. This is money that we don’t have, and money that will have to be paid back at some point in time. According to the US Census Bureau (www.census.gov), as of July 1, 2008, we had an estimated 304,059,724 citizens. That means we have a deficit of $6068 for every man, woman, and child living in the US today. Or, looking at it from this perspective, a family of four would have ownership of more than $24,000 of debt…..

And, what my greatest concern is, this is just the budget deficit. This does not include the money that is being printed by the Fed, money going into the TARP, the TALF, or any other recent government package. And what is even more harmful to my sleep, is that someone, at some time, is going to have to pay for this…..Do I have any answers? No, but this is just one more reason why we like anything that says "Roth" on it right now. If you are unfamiliar with "roth" style of investing, please send me an email at: jclark@yourlifeafterwork.com, and I’ll be happy to give you some information. Of course, those are just my thoughts. Clark’s Thoughts.