The International Monetary Fund just wagged its collective index finger at the Chinese, hectoring them to put “greater flexibility” into their exchange rate policy.
Yeah, we know. Boring.
Sit tight. We’ll explain why there’s far more here than meets the eye. Or you can wait till this fall… figure it out after the fact… and maybe miss out on a huge profit opportunity.
“China’s currency is widely seen as undervalued,” explains the BBC by way of background, “and the country was accused for years of suppressing the yuan in order to boost exports.”
Those were the days. Demagogues like Sen. Chuck Schumer never missed an opportunity to slam those dastardly Chinese for “currency manipulation”
Those days haven’t gone away completely, even as the yuan has appreciated by 30% against the dollar over the last 10 years. Only last month the Treasury Department issued a report saying China needed to let the yuan rise further “to bring about the necessary internal rebalancing toward household consumption.”
Yes, those stingy Chinese consumers. How dare they save so much of what they earn. Why can’t they be more like Americans and buy Chinese-made junk on credit?
Anyway this morning the IMF issued its regional economic outlook for Asia and the Pacific. Its sentiment is much the same: The Chinese government needs to stop intervening in the foreign exchange market so much, and “reorient the economy away from excessive reliance on real estate, heavy industry, and external demand.” Yada, yada.
In reality, today’s report is part of a good cop-bad cop routine the IMF is using with China these days.
“IMF to Brighten View of China’s Yuan,” said a front-page headline in The Wall Street Journal only three days ago. “The International Monetary Fund is close to declaring China’s yuan fairly valued for the first time in more than a decade,” the paper reported.
Not that it would use those terms: “The IMF is expected to use its typically cautious and diplomatic style in characterizing the currency’s latest position, likely avoiding the term ‘fairly valued’ in its official statements.”
The report issued today bears out that assessment.
So what’s going on? The Journal sheds little light, other than to hint at how “fund officials have signaled IMF reserve-currency status for the yuan is only a matter of time.”
Which is true… but it’s hardly the whole story.
The Journal can’t bring itself to say so, but the IMF is nudging along the process of “de-dollarization.”
We’ve been telling you about “de-dollarization” for nearly a year now, ever since the first hints that China and Russia would sign energy deals denominated in yuan and rubles instead of dollars.
Back in March, we raised an eyebrow when a top IMF official suggested Asian economies should likewise break away from the dollar — even using the word “de-dollarization.”
Also in March, we noted the Chinese were in advanced talks with the IMF about adding the yuan to the IMF’s “super currency,” the special drawing right, or SDR.
Every now and then when financial crises bubble up, the IMF issues SDRs to be circulated among central banks and governments. Our own Jim Rickards anticipates SDRs will supplant the dollar as the world’s premier currency after the next crisis. Here’s the current makeup of SDRs…
Here’s the thing: Every five years, the IMF decides whether to shake up the SDR’s composition.
And the next decision is due this coming autumn.
The outcome isn’t a sure thing… but we draw your attention to a point Jim made last year in his book The Death of Money. The three most powerful figures at the IMF represent the three major economic power blocs of the world…
- Europe: Managing director Christine Lagarde
- United States: First deputy managing director David Lipton
- China: Deputy managing director Min Zhu.
“Min Zhu,” Jim wrote, “holds the highest-ranking position ever held by a Chinese citizen at the IMF, the World Bank or the Bank for International Settlements, the international monetary system’s three multilateral pillars. His career personifies China’s financial rise in nuce.”
Jim’s convinced the next step in that rise will be the yuan added to the SDR this fall. That development “may cause a weakening of the dollar in the years ahead,” he says. “A weaker dollar means more inflation is the U.S. This is an important development for investors to watch.”
[Ed. note: Long before the IMF’s decision this fall, governments and central banks will fire their own shots in the currency wars. It’s the purpose of Jim’s new premium advisory to detect who will move next… and make tactical trades accordingly.
Key to these trades is Jim’s proprietary IMPACT system. Extensive back-testing has revealed the potential for gains of 530%… 848%… even 2,196… in a matter of months or even weeks.
Intrigued? Let Jim show you how the system works. Heck, we won’t even make you watch one of those “boring, long-winded presentations.” See for yourself right now.]
Stocks are generally in the green today, the S&P 500 up about a third of a percent as we write, at 2,088.
Bonds are likewise rallying, sending yields down. Yesterday the yield on a 10-year note nearly touched 2.25%, equaling its high for the year. As we write this morning, it’s settled back to 2.21%.
But it’s grim in the commodity complex. Gold’s slid back down to $1,183. Crude is down more than a buck, at $59.69. A bit of dollar strength is at work here — the dollar index is up about a half percent, at 94.6.
The current slump in biotech “reminds me of another spring biotech sell-off that took place early last year,” says our Ray Blanco.
“The Nasdaq Biotech Index dropped some 20% between its February peak and April bottom, and it didn’t make new highs again for another six months. However, an investor who held a fund tracking the NBI would be up some 30% today.”
Still, the key to making real money in the sector is picking the right stocks, Ray tells us. “Good biotech plays with value-creating events in their future can resist the gravity of a down market and deliver triple-digit gains for their investors.”
Case in point: Synageva BioPharma, which is developing a treatment for a rare genetic disease. Yesterday it was bought out by Alexion Pharmaceuticals for $8.4 billion. Readers of Ray’s Technology Profits Confidential are up 180%.
“The fact that Alexion was willing to pay more than double the market price sort of puts to the lie some of the talk about biotech being overvalued and in a bubble,” says Ray. “There are many values to be found right now.”
“Either Congress provides funding this year for one particular critical strategic platform,” writes our military-tech maven Byron King, “or the U.S. will fall perilously behind Russia (and soon China) in our ability to deter aggression and maintain peace amongst great powers.”
In yesterday’s 5, Byron opened our eyes to the mindset of Russian leadership. Paranoid as it might sound to us, they’re worried about Western-engineered regime change. Thus, “We are now re-equipping our armed forces at a great pace,” said the man who’s overseen an ambitious Russian military buildup since 2011.
Meanwhile, NATO and Russia carry out maneuvers in each other’s backyards nowadays at a pace unseen since the Cold War.
“Russian bombers recently flew practice attack patterns toward Canada and the U.S. East Coast,” says Byron, “simulating cruise missile attacks on Washington and the Navy base at Norfolk. Out West, Russian bombers have been intercepted near the U.S. border at Alaska and as far south as off the coast of California. To the south, Russia wants to fly bombers in the Gulf of Mexico.”
Such developments have not gone unnoticed in Washington.
“This single new military program could become the largest contract that the American military machine doles out in 2015,” says Byron.
“Most of the U.S. military’s air defense and strategic weapons platforms are way past their fighting trim. Some aircraft — like the venerable B-52 bomber — are past 50 years in service. The ‘newest’ B-52 in the U.S. inventory rolled out of a construction shed in 1963, when John Kennedy was president.”
All those B-52s will be retired by 2040. Newer aircraft like the B-1 and the B-2 won’t last much past midcentury. “The Air Force needs a new bomber,” says Byron, “and to have it in time for the retirement of older platforms, they need to start now. It’s called the Long-Range Strike Bomber (LRSB).”
The big contractor will be either Boeing or Northrop Grumman — they’re the only two with bomber-building experience. But they’re both huge companies with many other projects. It’s among the subcontractors where investors can make the big money… and Byron has identified the one that’s best positioned for readers of his Military-Tech Alert.
We haven’t opened this service to new readers in a while. That changes Monday, when Byron reveals a Pentagon plan for what he calls “self-healing soldiers.” You’ll want to keep an eye on your inbox…
“Your statement yesterday, ‘Americans just can’t relate to the Russian experience in World War II,’ is not correct,” a reader writes. “People near your age and younger should learn and understand history before speaking with authority on historical fact(s).
“Study World War I through World War II. You may recognize America’s 21st-century policies are repeating the German and Russian 20th-century actions. The Russians were not helping or protecting Americans on D-Day, and they definitely did not willingly fight 228 Nazi divisions to help America or its allies. They were only trying to stop Germany’s unprovoked attack on their country.
“Educating yourself of world history of that period and all of 20th-century American history provides the open-minded individual insight to why what is happening now. The learned individual will grasp the reason(s) for all of the political rhetoric and dissention displayed within our state and federal governments, and that provides insight to what may be the demise of our republic.
“Post-World War I Germany (Hitler and his team) could be the template used to dismantle the greatness of this country, the only governed society in the history of all humankind ensuring its governed people the legalized freedoms to excel to their highest pinnacles of success.”
The 5: Uhhh… There’s not much we can argue with there, sir. All we were saying is that we Americans can’t fathom the staggering scope of death Russians experienced during WWII in the same way Russians do.
Just imagine only three out of 100 of your male high school classmates making it past their 23rd birthday. Something to think about if you see TV clips of the victory celebrations in Moscow come Saturday.
And yes, there are uncomfortable parallels between the Weimar Republic and the present-day United States. We’re one Reichstag fire away from God-knows-what.
“While I appreciate the comments from your reader concerning desalination of water at 3:50 yesterday, I must point out an error in his logic.
“I find it hard to do that to an obvious conservative, because I have been one all my life. I have been in the oil and gas business as an engineer and in senior management for over four decades, so I do have some knowledge in this field.
“My disagreement is in the statements concerning the Israelis’ ‘spin flash’ method and that we should use it in the USA because we live ‘in a country that flares huge amounts of natural gas anyway…’
“There are huge amounts of gas flared in resource plays targeting oil such as the Bakken and Eagle Ford. The reason the gas is flared is that there are no pipelines close to the producing wells to get it to market. If there were, the gas would not be flared, because the oil companies can use every nickel of product sales.
“So if you want to use the gas flared in North Dakota or South Texas, neither of which are right on the coast with abundant sources of salt water, you would need to build gas transmission pipelines from the source wells to the sea coast or to existing pipelines.
“Then I suspect that the gas might have higher value being sold for other uses than to convert salt water to potable water. The only way to move large volumes of gas is via pipelines. With oil, you can move it by trucks or trains in addition to pipelines, which makes it easier to capture value in remote producing areas.
“I always enjoy your forecasts and the comments from readers who live and work in the real world and not in Washington, D.C.”
The 5: That’s why they’re an important part of these daily missives…
Best regards,
Dave Gonigam
The 5 Min. Forecast
