Tags: ashish | advani | g20 | failure

You Can Profit From the G-20’s Failures

By    |   Wednesday, 17 Nov 2010 09:05 AM

I will show you how to profit from failures today.

Last week, the global community waited with baited breath, hoping for a magic wand to be waved in Seoul, South Korea. And boy, were they disappointed.

Let’s see how we can profit in the next few months from this abject failure of the world leaders in reaching an agreement.

In the last few months, you must have heard of the "currency wars." This term was first coined by the Brazilian finance minister a couple of months ago in protest to the U.S. dollar being devalued by the Federal Reserve and the U.S. Congress.

The continual downward spiral of the U.S. dollar was hard for the emerging markets to stomach while they kept the fires of growth stoked in their individual countries.

So they stared competitive acts to devalue their own currencies in response to the continued onslaught by the Federal Reserve. The latest act of QE2 and introducing an additional $600 billion into the U.S. economy was the last straw.

The protests grew louder last week and spilled over into the G-20 meeting in Seoul last weekend.

President Barack Obama, who was on a tour of India, Indonesia and Japan, was tasked with pressuring China to revalue its yuan. He had to put on his stern face and warn China of the serious intention of the U.S. about wanting them to end the unfair trade advantage and let the yuan revalue by 10 percent to 20 percent.

Instead, he was forced to desperately defend the acts of the Federal Reserve. He was attempting to justify their foolish actions and pacify China, India, Brazil and Russia that such acts are critical, necessary and will not materially affect the trade balance in favor of the U.S.

While all these global stage shenanigans are fine and dandy, what the world media is not reporting about are the plans that the other countries are about to enact to counter the U.S. dollar’s decline.

Many of the Asian economies depend heavily on exports. And if their currencies are rising due to the U.S. dollar’s declines, it makes their products more expensive and holds back their exports. And they are not happy about this.

Now they can introduce quantitative easing of their own — but they are too smart for that. After watching the U.S. fail at that, they realize that the effort is a waste of time. They also are fighting inflation in their own countries. India and China have announced inflation numbers much higher than they like.

So, a smarter central bank will impose currency taxes and hike rates internally to control inflows of the surplus U.S. dollars that the Federal Reserve has attempted to unleash on the world.

I believe that South Korea will re-impose the withholding tax again. In the past, the withholding tax had been 25 percent plus surcharge. Reduced and then eliminated in 2009, it may come back into play soon.

I also believe that Thailand will tolerate the strengthening of the baht as long as it is in line with the region. But if others start curtailing inflows of capital, they will once again impose the capital-inflow taxes. Inflation is continuing to rise and this will mean possible interest-rate hikes as well.

Taiwan and Indonesia are in the same boat as Thailand and will allow their currencies to rise but will have to increase rates within the country to control inflation.

With China, India, Thailand, South Korea, Indonesia and Taiwan about to raise interest rates to control inflation, it is not wise to invest in those stock markets for the near term. In the long term, these markets will flourish. In the short term, we will see declines in these markets due to the U.S. policies in conjunction with their own rate increases.

The best way to play this market is to buy short-date currency notes and other investment instruments that allow you to earn higher yields and capitalize on the gains that will be seen in the Asian currencies in the next few months.

So, the failure of the U.S. to convince the world (at the G-20) will see the Asian currencies rise during the next few months. We will also see interest rates rise there. And therein lays our best short-term profit plays.

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Advani
I will show you how to profit from failures today. Last week, the global community waited with baited breath, hoping for a magic wand to be waved in Seoul, South Korea. And boy, were they disappointed. Let s see how we can profit in the next few months from this abject...
ashish,advani,g20,failure
715
2010-05-17
Wednesday, 17 Nov 2010 09:05 AM
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