With the visit of Chinese President Hu to the White House, let’s diffuse the actual visit, and the rhetoric around the visit so you can more fully understand what is really going on.

The headlines say “The Dollar should not be the world’s currency any longer.” – That’s what I’m reading into those headlines.

This makes for good headline grabbing, but who cares?  The US doesn’t really have the will or ability today to fix the problems that are being created by the Dollar around the world.  Many nations are already dumping the Dollar for trade purposes.  The FED is printing Dollars to buy Treasuries as part of Quantitative Easing 2, and FED Chairman Bernanke has no intention of changing that any time soon – as he is trying to “rescue” the US slow economy from slipping into a deflationary depression (are at least that’s what he says).  One of the side effects of that Dollar printing is that a bunch of Dollars are going to the faster growing nations where they are pushing those currencies UP – like Brazil, and the Far East.  Higher other currencies is another way of saying “lower Dollars.”

So, having President Hu say anything about the Dollar is just a camouflage for what is actually going on.  The Dollar headlines around the Hu visit should just be ignored by you.

The truth of the situation is that China is a creditor nation (of Dollars) and the US is a debtor nation.  That means China is the big dog in these discussions, and we are just a puppy in any economic discussions.  We want China to continue buying US Treasuries and other Dollar denominated bonds, and China has already moved to buy other nation’s currency denominated bonds.

China, on the other hand, wants to buy US assets.  Assets like oil companies in the US, and they want to drill for more oil using those purchased assets.  Will President Obama yield to that demand?  President Bush blocked the purchase of major oil producing land by China (between San Antonio to the Mexican border which is full of oil).  You can bet that will be on the agenda as China doesn’t give up easily – it only waits for the right time to strike.  Obama has a big dilemma as he stopped drilling in the Gulf and no new oil has been drilled in the US for 3 years – so why would he allow China to drill in the US?  That would be bad politics on the surface.  If he gives in, or even considers giving in, then look deeply for what Obama is getting out the deal.

President Hu doesn’t come to the US without his own baggage.  He is the “weakest” President in recent Chinese history.  When Defense Secretary Gates visited China a week ago, President Hu didn’t even know that his military was test flying their latest stealth fighter jet.  Kind of embarrassing?  No, I think it was a big political move by the military to exert its political muscle.  The young officers in China are tired of being low on the totem pole, and not having the weapons that exist around the world.  They want their fair share of the money that China is receiving to be put into military weapons – and they are winning that argument.

The fight for Chinese leadership is probably more important for the US to watch than anything else.  China has been the big military power in the world – only second to the US – for the past decade.  If the military’s authority in the country grows, China will become more belligerent and will become a greater threat to the peace of the world.  The US is fairly good at negotiating with civilian run governments, but not so good at negotiating with military dominated governments – other than having a military stand off.  We live in a fairly dangerous world today with North Korea and Iran and Pakistan, and secondarily Mexico and North Africa including Sudan being flash points. Naturally, we would have to include the Iranian influenced Hezbollah in Lebanon and the rebels in Gaza as Iran wants to surround Israel and cause another Middle East War.  Now we must add an increasingly military China to the list – and they have a REAL army with massive weapons.

Hope this helps you more fully understand the importance of President Hu’s visit.

The Dollar gained a 1/2 cent, and gold and gasoline moved sideways.  Oil, on the other hand, moved up again today, and is starting to look a little stronger.

In the news today…..

Greece – who will bail Greece out?  All the bodies of the EU have backed away, and also forbid use of the IMF to bail out Greece.  That leaves bilateral loans from the strongest European nations – probably Germany and France (although Italy has been tapped too).  If anyone comes to Greece’s rescue, it will be the first rescue ever to occur since the Euro was created.

Goldman Sachs and Greece – were intertwined in a phony swap deal worth about $1B, that didn’t turn out well for Greece.  Interesting how Goldman Sachs turns up around the charred remains of their investors.

Cap and Trade – is alive and well in Russia and China.  Citibank is brokering cap and trade credits between the two countries right now.  I view this as a very dangerous development, as the pressure for credits in the US will build and build.  If the US joins, the big winner will be Goldman Sachs – so beware whenever you hear about cap and trade.

Retail sales – rose 1.4% week to week, and 1.8% year over year.  This is hilarious.   Think about those numbers.  That means retail sales were flat for the entire year, and jumped up in one week.  At the very least, the volatility of this statistic is very high.

Tonight’s Dinner conversation…..

China – that’s right China.  A big topic.  But, let’s talk about their ownership of America, and their natural rivalry and animosity with the US – in our selling weapons to Taiwan.

China has put out the word to SELL its non-US government bonds.  Yes, China is selling bonds.  Not the US Treasuries that it owns, but all the other stuff it owns.  It has put out it orders to sell, and we should see the effect of this over the next couple of months.  

They were triggered by Bernanke’s statement that he was going to stop buying mortgage securities.  This will probably result in higher mortgage interest rates – and that in turn could lead to higher interest rates in general.

So, the Chinese are being very intelligent in their response.  Don’t hold bonds when interest rates are going to go up.  I completely agree with their financial decision.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,0538 (down 20)
10 Year Treasury Bond – 3.69% (up 0.06%)
Euro – $1.3729
Gold – $1076 (down $1)
Oil – $74.47 (up $0.72)
Gasoline – $1.93  (no change)

The Dollar strengthened another cent against the Euro.  This had the effect of reducing the price of gold, and reducing the price of oil/gasoline.

Gold is now approaching my first buy position of $1100/ounce.  However, I am hoping it continues its fall much further and faster.

Oil has fallen below $70/barrel in spite of the growth engine happening in China, and is looking like it could help support the grow of the US economy as gasoline might just fall in price.

In the news today……

Retail Sales – rose 1.3% in November, and up from the 1.1% in October.  This is great news for the economy, as these sales will push through the entire economy and help wholesale sales, and manufacturing.  Some day it might even cause more jobs to be created.

Auto Sales – did you know that the number of cars sold in China is GREATER than the number of cars sold in the US?  That says a lot about the economy of China, as their economy is way smaller than our economy.  The standard of living is increasing by leaps and bounds in China.  It must be like living in the US in the 50’s and 60’s.  I wonder when there will be a Chinese rock and roll.

Tonight’s Dinner Conversation…..

The House passed legislation to regulate the financial industry.  The Senate will consider this subject some time next year.  I don’t know the details; do you?  I doubt that many people really know the details.  In fact, I doubt the legislators (scumbags) even read the regulations.

The one thing I do know is that whatever is in this bill, it isn’t for my good, or your good.  Why do I believe that?  Because Congress works with special interests to draft these new laws, and someone (we’ll find out later) will be benefiting from these new laws.  There appears to always be a payoff to someone.  Also, I strongly suspect that some freedoms will be lost – certainly by the financial industry, but also by yourselves – somewhere hidden in the details.  Look for it.

I can give you one example that came from my banker who went to DC to lobby against this legislation.  The US Treasury weenies were acting like this legislation was already law, and were demanding certain actions from the banks.  Oh, by the way, it means all banks – big and small.  Don’t think this is aimed at just the Wall St giants who are too big to fail.  No, it also will hit your corner bank.  Back to the example,  When you want a HELOC loan, your local bank will not only be presenting its normal HELOC loan package, it will also be presenting the US Government HELOC loan package.  It is presumed that eventually, the local bank’s package will be eased out by the government – and you will only be able to consider a Federal Government package.  

What do you think about that?

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,472 (up 66 points)
10 Year Treasury Bond – 3.54% (up 0.06%)
Euro – $1.4622
Gold – $1116 (down $16)
Oil – $69.73 (down $0.81)
Gasoline – $1.84  (up $0.01)

Gold recovered its recent downdraft of profit taking.

In the news today…..

Europe’s GDP – rose to PLUS 0.4% this past quarter.  This means that Europe is growing right now, but at a very slow pace.  Good news on the surface.

Consumer Confidence – fell in October back to the level in August.  This is very bad news if consumers spend according to their sentiment about the economy.  This could be another sign of a not so good 2010.

Airline Merger – for those of you interested in Europe.  BA and Iberia (of Spain) are merging sometime in 2010, and will become the world’s number 3 airline.   The business idea is to merge BA’s American routes with Iberia’s South American routes, to provide a very wide business base.

China’s Banker – told people that the Yuan would be allowed to increase in value “slowly”, and that the link between it and the US Dollar is very important and special and needs to be maintained, and changed only slowly.  He said he would not bow to pressure from anyone outside of China on this issue.  Tim Geithner, who was there, did not ask him to bow, or even hint at a stronger Yuan – what a chicken.

Tonight’s Dinner Conversation…..

Should Congress pass the $1 to 1.5 TRILLION increase in the maximum deficit that President Obama is asking for?  Well, given the composition of Congress, of course they’ll pass it.

In 1995, Congress defied the President, and the US Government came to a screeching halt.  But, probably not this time.  This is one of the few powerful weapons that Congress has against the President.

What would you do?

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,270 (up 73 points)
10 Year Treasury Bond – 3.43% (down 0.02%)
Euro – $1.4903
Gold – $1116 (up $10)
Oil – $76.50 (down $0.44)
Gasoline – $1.92  (down $0.02)

Bonds bounced on the same data with increased interest rates.

Gold fell a little today.  Oil and gasoline went sideways.

The Dollar is falling, and falling fast right now.  Why???  It’s simple.  The FED is printing money to keep our economy out of deflation, but they don’t know how much to print – so they will print until things really turn around.  They haven’t turned anywhere so far.  But, there are a LOT of new dollars floating around, and that is just causing the Dollar to drop.  In effect, the Dollar is being diluted compared to all the other nations of the world.  Who cares, you might ask???  You should care.  That will mean higher prices on everything in the future as the weaker Dollar will mean higher energy prices (oil, natural gas, etc) and higher import costs.  When prices go up, people scream inflation – but it’s happening right now – just watch the Dollar exchange rates.

In the news today….

Just the fact the Obama is going to tax Chinese tires by 30% when they enter the US because China broke the WTO rules.  China is crying foul, but they are guilty as sin – they just don’t like being called guilty – it’s all about saving face, (and money, of course.)

Here are the last numbers for today (about 40 min before closing):
Dow Jones 30 Industrial – 9627 (up 21 points)
10 Year Treasury Bond – 3.41% (up 0.05%)
Euro – $1.4609
Gold – $1000 (down $5)
Oil – $68.82 (down $0.47)
Gasoline – $1.74 (down $0.02)

In the news today…..

The FED granted GMAC the status of being a “bank.”  That means that GMAC has been saved from the auto downdraft, and will probably be receiving some of your generous bailout dollars.

Talking about International Happenings…..

Japanese factory output fell the biggest amount EVER last month – down 8.1%.  Just to put that into perspective – a drop of 8% is the same ballpark as what happened in the Great Depression.  These statistics are very significant.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8515 (up 47 points)
10 Year Treasury Bond – 2.14% (down 0.04%)
Euro – $1.4062
Gold – $871 (up $23)
Oil – $37.71 (up $2.36)
Gasoline – $0.84 (up $0.05)