| Greetings! Dear (Contact First Name),
Last Friday I discussed the issue with the sale of US Treasuries and that there appear to be less buyers with each new offering. Many of you already know that China has been one of the largest, if not the biggest, buyer of US Treasuries for quite some time now.The US sells Treasuries to fund the national debt which has increased drastically over the past few months. The current interest rate environment is low. So the question must be asked, how long will China continue to buy low interest bearing US Bonds?
Until now, China was perfectly happy buying treasuries because it had one primary goal in its economic policy; namely to keep the dollar valued higher than the Yuan (the Chinese currency) in order to keep prices for Chinese goods cheap, in order to continue making large sales to US consumers. But all that is quickly changing in this new world order. China is growing by leaps and bounds through its own government funded industrialization and move to a capitalist market system. China's need for money is vast.
The result of decades of exporting cheap Chinese goods to US consumers is that China has a trade surplus with the US of around 15.6 Billion. This cash reserve of money is what China uses to buy US Treasuries. Think about this for a minute; China is buying our treasuries and in essence loaning us the money so that we can in turn go out and give that money back to China in the form of purchases of cheap Chinese goods. There is something terribly wrong with this equation and has been for some time now, but as long as China is comfortable with this all is well. Which begs the question, what if China changes its policy?
If China is growing it arguably will need to use more of its cash reserves on its own soil. If interests rate continue to be low, China may grow tired of these lean returns if it now feels the money will yield more if used domestically or elsewhere. The US will need to raise interest rates at some future point in time as the Federal Funds Rate cannot remain so low, for much longer. Likely Mr. Bernanke will begin raising rates gradually once the economy shows itself in a full blown turnaround sometime later this year as most are expecting.
How long will this unique economic relationship between China and the US stay on course? Will it be derailed by political issues over our support of Taiwan? Or will it be derailed over issues of the true value of the Yuan vs. the Dollar as China has heretofore maintained a tight lid on not allowing the Yuan to float upwards in relation to the Dollar?
The world is changing and we must stay vigilant as these are unheralded times in our lifetime
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| Changes To The Portfolio |
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On Monday we sold Longtop Financial Technologies Limited (LFT), and lululemon athletica (LULU) after the Market opened with continued selling.
We will include the details of the sale in our portfolio summary on Friday. |
| Breakfast With Bill |
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NOTE: If you arrive early and do not see me, wait 10 minutes as I might be running a little late tomorrow. Thank you.
The coffee and pastries are great at Il Fornaio. I would love the opportunity to buy you breakfast and to discus what is on your mind.
Please join me!
If you have found that mornings are too difficult for you, drop me an email (help@eplanlaw.com) with a suggestion on better times.
Every Wednesday morning
1430 Mt Diablo Blvd, Walnut Creek
(Across from Nordstrom)
9:00 a.m. to 10:00 a.m.
No RSVP necessary
Just show up!
Friends and Family Invited
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