8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 1/26

G20 & The U.S. Dollar Policy

Dian L. Chu

Economic Forecasts & Opinions

Nov. 14, 2010

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 2/26

Highlights

2

Events Leading to G20 – Dagong, Greenspan & Geithner 

G20 – A Colossal Waste of Time

Post G20 - Trade War & China Yuan Policy

Bigger Problems at Home

The U.S. Dollar Policy & Investing Strategy

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 3/26

China’s Dagong Downgrades The U.S.

3

Nov. 9 - China’s Dagong Credit Rating Agency reduced U.S.credit rating to A+, from AA, with Negative Outlook 

Citing a “deteriorating intent” and ability to repay debt

obligations after QE2

Downgrade could be reflecting Beijing’s concern Dagong’s Debt Progression Chart

With QE2, the U.S. has progressed into Stage 3 - Monetary Crisis

. Overall

Crisis Monetary 

Crisis

Economic

CrisisDebt

Crisis(U.S. )

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 4/26

Greenspan & Geithner Spar OverDollar

Nov. 10 - “America is also pursuing a policy of currency 

weakening.”  ~ Alan Greenspan, Financial Times

Nov. 11 - “We [the U.S.] will never seek to weaken our currency 

as a tool to gain competitive advantage or to grow the economy.”  ~

Timothy Geithner, CNBC

4

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 5/26

Highlights

5

Events Leading to G20 – Dagong, Greenspan & Geithner

G20 – A Colossal Waste of Time

Post G20 - Trade War & China Yuan Policy

Bigger Problems at Home

The U.S. Dollar Policy & Investing Strategy

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 6/26

The Great American Expectation Of G20

China to be condemned by the world for “CurrencyManipulation”

6

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 7/26

G19 – Are You $600-Billion Serious?!

7

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 8/26

G19 – Look Who’s Devalue To Prosperity?

8

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 9/26

G19 – More Hot Money Thanks To QE2

9

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 10/26

G19 – We Need Quantitative Tightening !

10

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 11/26

G20 on Currency & Protectionism

“Countries commit to moving toward moremarket-determined exchange rate system… andrefraining from competitive devaluation of currencies.”

“Countries will resist protectionism in all itsforms" and will "roll back” any new protectionistmeasures.”

(Translation - Protectionism and “Currency Weakening” is ok.)

11

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 12/26

G20 On Trade Imbalances

“The G20 will develop "indicative guidelines“..” to help identifylarge trade imbalances…"

(Translation –There will be a “new index”, but trade imbalances are

ok.)

12

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 13/26

G20 on Capital Control

“Advanced economies…will be vigilant against excessvolatility and disorderly movements in exchange rates.

These actions will help mitigate the risk of excessive

volatility in capital flows facing some emerging

countries.“ (Translation - Emerging markets can protect themselves

from "hot money" by imposing capital flow controls, true

to the free market form.)

13

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 14/26

Highlights

14

Events Leading to G20 – Dagong, Greenspan & Geithner

G20 – A Colossal Waste of Time

Post G20 - Trade War & China Yuan Policy 

Bigger Problems at Home The U.S. Dollar Policy & Investing Strategy

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 15/26

Trade War & China Yuan Policy G20 outcome reflects a diminished leadership role of the U.S.

Yuan-Dollar peg will likely continue, but with a weak dollar, Beijing will have

room to guide Yuan higher

China will likely implement more monetary tightening with growth the top

priority

Trade War? The U.S. should not engage, as there are a lot bigger problems athome

15

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 16/26

Highlights

16

Events Leading to G20 – Dagong, Greenspan & Geithner

G20 – A Colossal Waste of Time

Post G20 - Trade War & China Yuan Policy

Bigger Problems at Home The U.S. Dollar Policy & Investing Strategy

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 17/26

#1 - Spending & Debt

U.S. Gov. Debt to GDP Ratio

Ranks #3 Among G20,

Trailing Italy & Japan

17

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 18/26

#2 - Structural Unemployment

Labor Force Skill Mismatch and Transition

18

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 19/26

#3 - Rebuilding Wealth & The Middle Class

The inflation-adjusted incomeof the median household fell

4.8% between 2000 and 2009.

80% of population with only 7%

of financial wealth

Poverty rose to 14.3% in

2008—the highest since 1994,

with 43.6 million Americans

living below the official poverty

threshold

1 in 8 Americans is on Food

Stamps

19

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 20/26

#4 – Credit Not Reaching Private Sectors

20

Fed’s trillions from QE1 & QE2, and the perpetual nearzero interest rate is intended for banks to increase

lending and loosen credit conditions

However, lending to the private sector still falling off a

cliff 

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 21/26

FACT - Banks DO NOT Make Money FromLending to Private Sectors

21

Banks realize lending to private sectors is not as profitable asplaying equity and commodity markets

Fed’s the “Sugar Daddy” of banks with unlimited free money

Easy money also increases risk appetite

Liquidity trapped in the banking system creating potential asset

bubbles

Banks are also hoarding cash preparing for more write-offs

from Foreclosure-gate, and Commercial Real Estate, etc.

Conclusion - It’s Good To Be A Banker Post-crisis in

 America!

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 22/26

Highlights

22

Events Prior to G20 – Dagong & Greenspan v. Geithner

G20 – A Colossal Waste of Time

Post G20 - Trade War & China Yuan Policy

Bigger Problems at Home The U.S. Dollar Policy & Investing Strategy 

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 23/26

Profiling the U.S. Dollar Policy A classic “closet case” of Weak Dollar

Misplaced concern of a Japanese StyleDeflation

Whereas low headline inflation is due tothe liquidity trapped within the bankingsystem, without the usual circulation

In total denial and refuse to deal with themounting debt and deficit

Believing a Weak Dollar would bringexport & GDP growth, thus creating jobs,etc.

Devalue currency is the easy way out Talk of “Strong Dollar” to prevent a run on

the dollar – the trick is to weaken, but notcrash

23

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 24/26

Consequence of a Dollar Devaluation

24

Markets likely to remain pessimistic on the dollar But dollar could strengthen, amid the even bigger European debt

crisis affecting the euro, and austerity measures curbing growth

Expect Inflation to rise, and higher inflation expectation would push

up the U.S. bond yield

Export may get a moderate boost; however, jobs are unlikely to

return to the U.S. since companies would just move operations from

China to e.g., Vietnam, where wages are still low

That could change if there’s a massive (50%+) dollar devaluation

drastically reducing the real domestic wage levels

Such scenario would, of course, reduce the national debt

However, it would also suggest a forever lost middle class and

national wealth. And we see that “progress” unraveling in Iceland!

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 25/26

Investing Strategy

25

Wealth Preservation – Stay away from the dollar, and theU.S. Bond

Hard assets, emerging market equities, bonds andcommodity-based currencies

Commodities, e.g., through mutual funds and ETFs, moredetail here

Real Estate – some remain distressed in the U.S.

U.S. commodity and resource producers and high techsector should benefit from a weak dollar. Many remain

global market leaders Gold – But expect high volatility, so invest on pullbacks

(watch out for silver, which tends to have 2x gold’svolatility)

8/8/2019 G20 & The U.S. Dollar Policy - A Presentation

http://slidepdf.com/reader/full/g20-the-us-dollar-policy-a-presentation 26/26

Thank You

Dian L. Chu

Economic Forecasts & Opinions

Nov. 14, 2010