Wednesday, September 29, 2010


The topic of the week in the precious metals market: "What's driving gold and silver prices higher and higher? Should I sell and take profits?"

Today's chart is the driving force behind the hot topic. It's the past 12 months of trading in the U.S. dollar.

Last week, Ben Bernanke told America he's ready to do anything in his power to keep the U.S. economy inching along. This means he'll do anything to support asset prices like stocks and housing… even print up fresh money.

The market is reacting to Ben's idea by flushing the dollar. As you can see from today's chart, the dollar has been clobbered to its lowest low in more than seven months. Real "hard money" assets like gold and silver are soaring to their highest levels in decades as a result.

That covers the first part of our topic. And the second? Sure… gold and silver are overbought in the short term. They're due for a "relief" correction. But our view is, take a page from China's playbook and use any weakness in the precious metals to buy more.

Tuesday, September 28, 2010

The U.S. takes another step towards an all-out trade war with China

Legislation pressing China to raise the value of its currency is set for a vote in the U.S. House next week, as Republicans joined Democrats in expressing frustration that the yuan is appreciating too slowly.

"We cannot wait any longer to level the playing field for U.S. businesses and protect American manufacturing jobs," Democratic Leader Steny Hoyer of Maryland said yesterday after the Ways and Means Committee sent the bill to the full House.

The committee adopted the measure by voice vote after the panel's top Republican, Dave Camp of Michigan, voted with Democrats to back the bill. The full House will vote Sept. 29, said committee Chairman Sander Levin of Michigan, a Democrat.

The measure would let companies petition for higher duties on imports from China to compensate for the effect of a weak currency. President Barack Obama's administration hasn't taken a position on the bill, said Natalie Wyeth, a Treasury Department spokeswoman. A Chinese central bank press official, who prefers not to be identified in accordance with the agency's rule, declined to comment in Beijing today.

The U.S. trade deficit with China widened to $145 billion in the first seven months of this year, from $123 billion for the same period in 2009. The expanding deficit, unemployment lingering at almost 10 percent and polls showing Democrats' seats at risk heading into the election added support for the bill, which has been discussed since 2005.

Flexible Rate

The yuan has strengthened about 2 percent against the dollar since June 19, when China's central bank said it would pursue a more flexible exchange rate. That rate of gain is "inadequate," Treasury Secretary Timothy F. Geithner told the panel last week. Pressure from lawmakers is helping the administration make the case to China to raise the value of the yuan, he said.

Lawmakers such as Camp say they are also frustrated with barriers China has raised to American imports and the piracy of copyrighted American movies, music, and software.

The currency dispute "is a proxy for the state of the overall U.S.-China commercial relationship," William Reinsch, president of the Washington-based National Foreign Trade Council, said Sept. 23 on Bloomberg Television. "I don't think it will have that big of an impact on the American economy."

China Operations

Lawmakers fended off warnings from lobbyists representing companies such as Caterpillar Inc., Wal-Mart Stores Inc., and Citigroup Inc., who said the measure may lead to retaliation against U.S. companies operating in China and curb exports to the country. China may retaliate if the House passes the legislation, said Reinsch, who represents multinational companies such as Caterpillar.

"This could damage our efforts to 'sell American' and compete successfully in the growing China market," Representative Kevin Brady, a Texas Republican who heads the Ways and Means Committee trade panel, said before the vote.

Forcing China to raise the value of its currency may create 500,000 jobs in the U.S., most in manufacturing at above-average wages, according to C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington. China's currency, which is undervalued by as much as 25 percent, is the most important trade issue facing the U.S., he said in testimony last week.

Obama Meeting

Obama pressed China's Premier Wen Jiabao in a two-hour meeting at the United Nations Sept. 23 to increase the yuan's value. Wen said this week that a 20 percent increase in the currency would cause severe job losses and trigger social instability in China.

"We cannot imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs," he said in New York on Sept. 22.

"We want to see that any legislation is consistent with our international obligations and consistent with the World Trade Organization and is in our interests," Jeff Bader, Obama's director for Asian affairs, said Sept. 23. He didn't say if this bill meets those tests.

Levin said yesterday the measure was redrawn to be consistent with WTO rules. It would let U.S. makers of products petition the Commerce Department for countervailing duties on Chinese products to compensate for the "subsidy" of a weak currency, according to documents released by the committee.

WTO Rules

The Commerce Department rejected such an argument in cases filed by paper and aluminum makers last month, saying that a weak currency isn't a subsidy to a specific industry, as required under WTO rules. The legislation when introduced by Representative Tim Ryan, an Ohio Democrat, would have required that the Commerce Department find that a weak currency is a subsidy. Revisions crafted by Levin removed that language and instead set out provisions intended to make such a finding more likely.

It's that change that won Camp's backing. "It does not presuppose an outcome," he said.

Forty-four Republicans had already signed on as sponsors of the original bill, and with Camp's support, lobbyists said they expect additional Republicans to vote with Democrats next week. That could help spur the Senate to take it up before lawmakers leave Washington to campaign for election, said Lloyd Wood, spokesman for the group of unions and manufacturers fighting for the bill.

"The bigger the vote in the House, the more pressure it puts on the Senate," Wood said.

Lobbyists for groups representing Wal-Mart and Citigroup faulted the panel for approving the measure.

"Provoking tension with our trading partners doesn't come without costs, and we should choose our battles carefully," Stephanie Lester, vice president of the Retail Industry Leaders Association, which represents Wal-Mart, said in a statement. "It makes little sense to enact harmful policies that will spark a bilateral conflict over currency with one of our largest trading partners and fastest growing markets for American exports."

Friday, September 24, 2010


The message from today's chart is, "We're back in bull mode."

Longtime DailyWealth readers know we check in from time to time with the S&P 500's 200-day moving average to gauge which way the "tide" is flowing for the stock market. A moving average is an indicator that computes the average price of an index over a given time period… In this case, it's the blue line overlaid on the chart below.

There's nothing magical about the 200-day moving average. It's simply the most widely used "marking point" traders use to say if a market is in a bull trend or a bear trend. It's popular because it's popular.

As you can see from today's chart, the S&P spent much of 2009 and 2010 above the 200-day moving average. It then dipped below the average in May and has muddled along ever since. The big rally of the past few weeks, however, has taken the S&P above the average… and back into a bullish trend. Folks are taking Ben Bernanke at his word when he says he'll do anything to support asset prices.


Today, we offer up one more "China confounds the skeptics" chart – one near and dear to our hearts. The chart displays the past five years of trading in one of China's largest airline companies, China Southern Airlines (ZNH).

The Chinese stock market is one of our favorite markets to trade. Since China is the world's greatest growth story, it attracts an enormous amount of speculative trading capital. This makes stocks there boom and bust like crazy. You can ride 'em up, and you can ride 'em down.

In mid-2007, China stocks were in the middle of a historic boom. When this boom turned to bust, we picked on China Southern as a stock that would get crushed. The stock went on to fall from $35 per share to just $6 per share as our prediction came true.

But as we've recently noted, high-profile "China plays" are surging right now… including our old friend China Southern. The stock is up 62% this year and sits at a 52-week high. We're sure this big boom will end brutally – just as the one in 2007 did. But for now, it's "game on" in Chinese stocks.

Wednesday, September 22, 2010


Everywhere we look these days, we see pictures of how China is confounding the skeptics…

Like most assets, Chinese stocks enjoyed a huge rally off their panic lows of late 2008 and early 2009. China's benchmark stock index nearly doubled in just six months. Then, the overbought market began drawing big-name skeptics – like legendary trader James Chanos – who think China is a huge bubble ready to burst.

Most Chinese stocks did correct early this year… but have since displayed impressive price strength to resume their bull trends. For example, consider New Oriental Education (EDU)…

New Oriental is the largest private education company in China. The bullish case says, as China grows wealthier, it's going to pay up for more educational services. This makes EDU one of the highest-profile "China plays" on the market. As you can see from today's chart, the bull case is intact and the stock is soaring to new highs.

You can be a China skeptic all you like. But make sure to "mind the market." Right now, it's voting the China story higher and higher.

Wednesday, September 15, 2010


Today's message from the market: It's a bull market in Thailand.

Thailand is a small country to the south of China, rich in resources and tourist destinations. It is just one of a handful of countries that Europeans never conquered.

We're solid Thailand traders at DailyWealth. Back in 2008, Tom Dyson and I met with Thailand's brilliant pro-market minister of finance, Korn Chatikavanij in the Parliament House of Thailand. And Steve recommended the thinly traded Thai Fund (TTF) to listeners of our exclusive Off the Record conference call service just months ago. As you can see from today's chart, the fund has soared since then… up 35%.

The story behind the Thailand rally comes down to a huge trend we've been highlighting for several years: the trend of the "work hard, save money" Asian economies growing in prosperity while the "vote for handouts and taxes, pile up debt" economies of Europe and the U.S. muddle along. This is the most important economic trend in the world… and will remain so for decades.