Tags: dollar | china

China Meltdown Could Boost the Dollar

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Thursday, 27 Aug 2009 04:52 PM Current | Bio | Archive

I want to come back for a moment to China because I think it could be important.

Yesterday, the State Council announced that it will restrict lending, licenses and land supply, among other measures, to restrain excessive construction in the steel, cement, plate glass, coal chemical, silicon, wind power equipment and other sectors is. Believe me, that’s serious stuff.

It doesn’t seem, for now at least, to be the straw that breaks the Chinese camels’ backs. The Shanghai Composite was only down by half of a percentage point for yesterday, but it was still down 16.88 percent for August.

So there is now a real risk that a selling wave could start over there. That would show all the technicals rapidly falling into place that would allow a more sustained downtrend to develop, which would cause foreign investors starting pulling back aggressively from the Chinese market.

If this happens, and I think it will, this will have much broader implications for the global financial markets than many think.

I’m convinced that global markets will not move against the developing Chinese trend.

It’s an undisputable fact that the Shanghai Composite has acted as a leading indicator for most markets, including the United States, in 2009. Now, we face a serious probability that a more sustained downtrend in the Chinese markets could develop that would lead investors to start pulling back from all these markets that have moved in sync.

Take care. Such a logically-synchronized downward move would also have a serious negative effect on all these currencies that have profited from the diversification processes out of the dollar that we have witnessed this year.

In my opinion, the most important casualty currencies will be the euro and the British Pound.

I believe that the Chinese market correction will be the catalyst we have been waiting for that will kick off new trends in the broader markets and currency markets.

This will favor the dollar, without any doubt. If, as an investor, you’re underinvested in the dollar, I think you’re taking very little risk when you start accumulating the greenback now.

Aggressive players can, in my opinion, certainly start making strong long bets on the dollar. Of course, betting is not investing. Never forget that.

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I want to come back for a moment to China because I think it could be important. Yesterday, the State Council announced that it will restrict lending, licenses and land supply, among other measures, to restrain excessive construction in the steel, cement, plate glass, coal...
dollar,china
383
2009-52-27
Thursday, 27 Aug 2009 04:52 PM
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