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If everybody dumps the dollar, where does it go?

Today's Financial News - Posted November 5, 2009

iStock_000000577873XSmallThe dollar is as unpopular as ever. Continued low interest rates, massive inflationary threats and never-ending stimulus plans are creating a situation like never before.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): Nobody wants the dollar these days, but yet we all depend on the greenback to keep the business world spinning.

There is an interesting phenomenon taking place in China. As the Fed prints so much money that it is contemplating selling advertising space in place of presidential portraits, Asian investors are making major moves to capitalize on the situation.

Investors are firing up the carry trade like never before, borrowing dollars and buying yuan- or yen-based.

Meanwhile, the Asia banks that end up with a horde of dollars are nervously exchanging them for domestic currencies as they fear holding too many dollars will hurt their bottom line as the currency continues its rapid depreciation.

Normally, the forex markets is the place traders head when they need a good nap or a break from “real” trading, but thanks to the massive changes we have seen lately, the currency markets are anything but boring.

While my commentary has drifted away from the commodities carry trade in recent weeks due to my natural gas industry research efforts, the powerfully profitable trend is as alive as ever.

Think about it.

Reuters is touting an article today that discusses the “shortage” of dollars on the market. As banks dump their holdings, governments with huge trade surpluses are forced to take on the exchange.

With nearly a trillion dollars in its reserves, China already has more than enough greenbacks on hold. But it can’t put the money out to the free-market ravens. It would only make the situation worse.

The only thing it can do, besides letting its currency float (don’t expect that anytime soon) is buy something it needs with the cash… like commodities!

Tangible assets like coal, oil, platinum, silver, gold and iron are the perfect purchase. The trades are done in American dollars and they are actually appreciating in value. The more China buys and stockpiles now, the less it will have to rely on the open markets when its economy really gets cranking.

Even better, China is buying more time until it has to begin depleting its own massive supplies of domestic commodities.

The news from India earlier this week that it bought massive amounts of gold from the IMF surprised the markets, because most folks believed China would do the buying.

But with a massive trade surplus of its own, India needs to take advantage of the commodity carry trade just as badly as its neighbor.

It all adds up to great bullishness for the commodities markets. While crude and gold get most of the attention, buyers are not limiting their purchases to these two kingpins.

The entire complex is on the auction block and prices are going up. It is not too late to get in on the action.


Next Article: Will big oil burst Obama’s economic Bubble?

Posted by Andrew Snyder · Filed Under Featuring..., Gold and Resources 

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