The Great Revalue of Yuan, and the Great Devalue of Dollar ..

Hi Everyone,


We at another great cross road, where will go from here, recovery or double dip... Alot of bad news start to roll out to the market ...

So are we in correction in the stock market or this is a double dip in the stock market? Only time will have the actual answer.

From my view, I think we are in the proccess of another slow dip in the economy, this dip will not be a fast dip like 2008 but is be a slow and choppy dip and might last until 2012 ... there will be rebound along the waybut the trend will be debt deflation which is quite gloomy when come to consumption in US economy ...

Before going forward, I am not an economist, and my highest education is only high school, so you all in risk in reading my blog , please used your own judgment from here .....

Due to the expansion in credit in government , private sector and the public sector, the current crisis ignite due to over extend of credit expansion and it is coming to end which create asset bubble. The right way to correct this mistake is to wind down credit in all sector, cut spending and repay debt until it come to a sustain level.

Depression is where we fixed problem, that is why we will have deflation during depression. Reducing debt(credit deflation)which will lead to deflation and saving which will automatically make value of money increase in term of value of product.

Anyway, the US government have so far did not fixed any problem in the economy, what they call "remedy" is actually a poison relieve aid which give a false feeling "feel good" but that is not cure it will bring greater problem from time to come ...

The "feel good" pill is waning and look like we might start the double dip sooner then expectation ..


Ok let jump into juice ...

After Trillions of dollar of stimulus , we are on the way back to 2008 but at slow pact. Everyone said the Yuan revalue is the cure the world recovery, how can every economist come this conclusion...what people say is that when yuan gain strength the purchase power for the chinese increase which will result greater consumption... now everyone have to be careful when going forward with this idea.

Yuan revalue, will lead to fast inflation and at the same fast devalue of major currency, the yen,euro and dollar. In this scenario I see the increase purchase of China but at the same time decrease purchase power for major economy.So it is like double edge sword

Inflation together with Higher rate for Bond.

For time to come the Treasury will have to rise and I think the treasury is in it final phrase of it rally cause it is not sustainable cause it just not sustainable for the government to expand deflicit without limit soon all this will have to end.

Starting a Deficit is easy but ending it is like killing you alive it is always a hard choice for government to reduce deficit.

By the year 2011 - 2012, the government will have problem in refinancing the deficit as the treasury will have to raise due to abundant supply treasury and higher risk for accumulating treasury.

It will not be a pretty picture when that time arrive when the government still accumlate deflicit and at the same refinancing their debt which will result more treasury auction.

We will have more and more treasury auction and at rapid pact then 2009. So i am not a bull in treasury no matter what the market say, the higher it go the more i am going short it.

The Dollar will decrease in value at the rapid pact from now on, you can look at dollar when compare to value of Gold and silver, and dollar to oil . IT is getting more expensive to buy gold or oil in dollar or in any currency.

So we have inflation in US in rapid pact from here. The chinese revalue yuan and the raise wages in chinese will have great impact inflation especially the soft commoditites like grain, cotton coffee, etc. They will travel more so the oil consumption will raise.

Why this soft commodities, because the Low wage earner will have more purchasing power, but that does not mean they can effort to buy brand items..this will eventually happen but not at rapid like US would like to see. They will eat better food wear better cloth, drink more expensive drink eat better restaurant.. but that does not mean they can efford to buy house or car with US$200 -250 dollar wages per month, they will from time to come, but the chinese have a habit of saving to buy and not borrow to buy .... so it will alot of frustration to lot of economist.

The Chinese government is trying to control house bubble, I said not it is a bubble, I think the chinese just want to control the speculator so as not to make house unaffordable to raising chinese.. which will be good for the Chjina economy go forward. But for now it will create an hiccup in the economy growth.

At the sametime the consumer in US will have to pay a higher product cost for thing make in china or from other part of the world, but dose not mean it is cheaper to make thing in USA or the jon will start to shift come to USA, it might happen in the distant future but not this year or next years or the next five.. so the consumer in USA will likely to be able to spend lesser and lesser from now on.

The China is changing dollar peg policy to a basket policy,this will not have much impact to Yuan value but it will have greater impact on dollar accumulating pact and they will be more diversify when ome to their reserve.

By buying lesser dollar with Yuan, it will low dollar which in reutn the chinese have less dollar to buy the treasury which will result in raise Treasury yield for time to come.

So it is great likely that this raise yield in treasury, devalue of dollar and faster inflation at the sametime raise tax ... did i say raise tax? YEAH!! raise tax ...Recall bush's tax cut ... yeah this is coming to end, this will have great great impact on consumer althought it will have positive in tax collection and the local government will have to raise tax or collect more fee from US citizen, It will reduce the gobernment pressure and some monthly deflicit but evenrtually the governemnt will find lesser and lesser tax collection as the consumer purchase is greatly reduce from the above event.

which the market in the bullish economist will jump out of all the rabbit to said it is the recovery with the tax collection ... Which I am expecting will have short impact in the market, but I will leave that topic for the future ..

With the dollar devlaue.

I believe every government and central bank around is aware that the dollar is under long term devaluation and I think alot of central bank have and will start to releease more dollar from their collection and this will intensitfy with Yuan win policy ... so I beileve we might witness a fast appreciate of inflation...

Ok, ... will be back for more