China’s Threat, Stocks Soar, A Housing Solution and More!

by Addison Wiggin & Ian Mathias

  • China calls dollar into question… why the red nation wants a new “international reserve currency”
  • Stocks boom… what happened the last time the Dow jumped 18% in 10 days
  • A smart way to solve the housing crisis… that will never survive Washington
  • Plus, signs of the times: UAE buys chunk of Mercedes-Benz, and a quiet change at AIG


So… here’s something interesting. The two biggest countries to have been left out of the "stimulus" spending due to the “Buy American” provision have come out in support of an IMF-controlled reserve currency in the last week.


  “What kind of international reserve currency,” asked Zhou Xiaochaun, head of the People’s Bank of China “do we need to secure global financial stability and facilitate world economic growth?”

With those words, Zhou added Beijing’s voice to the chorus begun by the Kremlin last week . “Beijing to Pitch New Global Currency; Dump Dollar” wrote Matt Drudge, for better or worse a master headline craftsman. While China made no such announcement, the governor of its central bank did author this rather poignant thought:

“An international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country.”

Hmmmn… really.

“Along come the Chinese,” notes our Byron King with a bit of a nationalist’s admiration of China’s stance, “who have morphed out of Communism, except where it suits their leadership cadre to maintain power and further the supreme geostrategic goals of the state. Even THEY understand the value of a stable unit of currency. They understand the need to preserve wealth over time, over generations. Very Chinese, no?

“I understand the Chinese argument that maintaining a stable currency should be a matter of national honor. It’s a very appealing point. It reflects the Asian concept of maintaining face, versus losing face.


“Of course, the U.S. lack of concern over the stability of its currency IS an issue of national honor, of which the current crowd of leadership has no concept. The roots of the Blame-America-First gang go back to the prep school progressivism, schoolboy socialism, college-kid communism and master’s degree Marxism of the 1960s and 1970s.

“Decades later, cultural Marxism has infected the entire society.” (And at least a few readers believe there’s more where that came from, below.)

  In a small act of defiance, the dollar index rose a skosh, to 84. That’s about 5 points below its recent high, and still 13 points above the inflation-addled low it reached in April 2008.

  In the stock market, the buying fervor of this bear trap has reached historic proportions:

You’re looking at the best 10 days for the Dow since 1938.

After yesterday’s 6.8% shot, the index is up 18.8% in the last two weeks of trading. If history does in fact rhyme, the Dow might be sitting pretty for a while:

In fact, the Dow at 110 in 1938 ended up being a long-term level of resistance. The market traded flatly for the next four years, briefly dipped below during the worst of WWII, and then staged a sure and steady rally for the next 30 years.

So all we have to do is fight and win another global war, pay down our debts and ignite another phase of industrial production… and then we’ll be fervently buying too.

  Oil rose to a four-month high of $54 a barrel yesterday. The oil trade is a phantom of its former self. Last’s year’s counterdollar scarcity trade has given way to short bursts on glimmers of hope for the global economy — the “reflation” trade, if you insist on a buzzword.


  Gold sat idly on its hands during yesterday’s stock spree. The spot price stayed flat around $950 and is under some pressure as we write. An ounce now goes for $920.

   “Immigrants can help fix the housing bubble,” wrote Daily Reckoning contributors Gary Shilling and Richard LeFrak in a WSJ editorial over the weekend. What a radical idea… revive housing by enticing other people to spend money, instead of just printing it ourselves


“The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country. This makes more sense than the president’s $275 billion housing bailout plan, which Americans greeted with a Bronx cheer…


“A better idea is to offer permanent residence status to the many foreigners who are clamoring to get into the U.S. — if they buy houses of minimal values (not shacks). They wouldn’t need to live in those houses, but in order to remove the unit from the total housing market, they couldn’t rent them. Their temporary resident status granted upon purchase would become permanent after, perhaps, five years, if they still owned the houses and maintained clean records. The mere announcement of this program might well stop the ongoing collapse in house prices, especially in cities such as Las Vegas, Miami, Phoenix and San Francisco, where prices are down 40% — but where many foreigners like to live.


“Each year, 85,000 H-1B visas are granted for foreigners with advanced skills and education, and last year, 163,000 petitions were filed in the first five days after applications were accepted. The Ewing Marion Kauffman Foundation estimates that as of Sept. 30, 2006, 500,040 residents of the U.S. and 59,915 individuals living abroad were waiting for employment-based visas. Many would buy homes if their immigration conditions were settled.”


Somehow, we suspect this suggestion has and will run headlong into the nation’s renewed flirtation with xenophobia.

  Another sign of the times: A public fund in Abu Dhabi just picked up a 9% share of Daimler AG, owners of Mercedes-Benz. Heh, its fitting, giving that there’s practically a Benz for every man, woman and child in the UAE. Aabar Investments spent $2.6 billion to pick up the largest single stake in Daimler. Ironically, the previous largest shareholders was Kuwait’s SWF, with a 7% chunk. 


The WSJ asked the fund’s chairman, Khadem Al Qubaisi, if he was considering a similar purchase in a U.S. automaker: “I’m not interested,” he said.

  This ought to assuage the populist rancor against executive bonuses:

AIG then

One year ago, pretty good.

Yesterday, much better.

AIG, the lightning rod for the public’s anxiety over the economy, dropped its logo and nameplate from its New York headquarters yesterday. The corporation announced it would undergo a massive campaign of global rebranding. Its property casualty branch, one of the company’s solvent branches, has already changed its name to… drumroll, please: AIU Holdings.

That ought to fool ’em.

  “Hey guys, give Judd Gregg a break,” writes a reader in response to yesterday’s issue. “Gentle Ben and Paulson came to Congress with their ‘the sky is falling’ scenario and said this is all we need to fix it. They operated on that premise and approved the money. What Gregg is referring to now is what ADDITIONAL funds have been approved by the bozos in power. This administration is brilliant at steamrolling through the legislation it wants at warp speed before the general population even begins to realize what has happened. Its goal is obvious — all must rely on the state. Seems a guy named Marx talked about that some time ago.”

The 5: Of course, the last administration encouraged debate and sought many different perspectives before steamrolling its own legislation through. Why you continue to see a difference between these parties is beyond us. These will all be moot points if the Russian, Chinese and U.N. proposals for an international reserve currency gain traction.

“I know you are trolling with your story of debris in the alley,” another reader writes. “There’s something beyond incongruous in ridiculing government while at the same time relying on government assistance to clean up the mess some evildoer did to public property. Don’t you see any contradiction here?

“Government can’t do anything right, but when there’s an act that impacts the common good, you call government tout de suite. And then insult the poor sod that comes to check out the complaint. Kudos to you for loading the taxpayer-supplied truck. It seems like you did receive some benefit from those taxes after all, even if your own labor was needed as well.”

The 5: Incongruous? Or entertaining. We thought the episode was illustrative of how government actually works… rather than the theory of it. We did anything but insult the guy, by the way. It was more like we were dirt on the bottom of his shoe that he couldn’t be bothered with.

  “The irony of all this,” adds another, “is that you are forever telling people NOT to rely on the government, yet that’s exactly what you’re doing and are pissed that they aren’t bailing you out with your poor little garbage pile left by someone else. Get a pickup and shovel and do it yourself just, as you’re always preaching!”

The 5: You really think we were pissed? There are a group of Mexican laborers being housed down the street by our contractor. Before the city “supervisor” showed up on Sunday, we were considering asking them to help clean up the mess.

“BTW, I love you guys,” the reader continues, “I’m saying this with a big ol’ 5 Min. Forecast smirk on my face. Keep up the good work, guys, and God bless.”

The 5: Cheers.

  “In the past 10 years," writes the last reader, "there has been a significant increase in the productivity of the American worker… yet wages remain stagnant. Meanwhile, there has been an unprecedented rise in executive compensation. Now under the auspices of those selfsame overcompensated executives, the whole thing comes crashing down, hurting the working people in terms of jobs and savings the most.

“I know you probably have little or no contact with the working men and women of this country, but it doesn’t take a rocket scientist to understand that they are really, really pissed off, as they have a right to be, and that they are finally demanding their elected officials do something about it. If you live in proximity to the bloated plutocrats, I suggest that bags of construction waste in your driveway may soon be the least of your problems.

“The working people of America want their money back.”

The 5: Funny you should point that out. We were in Red Emma’s coffeehouse on Friday. An elderly gentleman who could have easily played the part of the academic Byron describes above asked when Red Emma’s radical book fair was being held. Apparently, he was visiting from New York City and wanted to come back to attend and lend support.

“It’s in mid-September,” the barista replied.

“Oh, well, we’ll be in revolution by then,” the aged man shrugged to his bereted friend and walked out.

We’re not convinced American workers have gotten more productive. That’s a claim Greenspan has been making for years, too. We are convinced they’re feeling a lot more entitled, though.


Addison Wiggin

The 5 Min. Forecast

P.S. The city sent a different supervisor out yesterday. We found him poking through some bushes in our backyard. He said he was investigating a sewage leak reported by someone at our address. Heh.




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