Russia dumps the dollar, commodities surge
Today's Financial News - Posted June 10, 2009
The figures are in and America’s trade deficit is soaring, even in the face of a nasty recession. The news is making Russia and China even more nervous than before. It has created a fantastic opportunity for commodity traders.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It appears to be the world’s quietest emergency. The backbone of the American financial system, its rock-solid currency, is quickly eroding yet the only folks that seem to acknowledge the problem are bankers in Russia and China.
While Obama is working overtime to make video appearances with Conan and Colbert, Beijing and Moscow are making moves that seriously undermine the health of the American Treasury. I have written about China’s threats ad nauseam… read it here and here.
Today, it is Russia that is making waves and rocking the overloaded Treasury barge.
Pulling the plug and sinking fast
As I write, Russia holds about $404 billion in its foreign exchange reserves. As a major exporter, the stability of those funds is direly important. If the value of the dollar moves by just a few percentage points, billions of dollars in buying power will be erased.
Russia cannot afford to take any chances. That is why it is unloading a chunk of its dollars and exchanging them for IMF bonds, which are diverse enough to eliminate most of the political risk. In other words, the American dollar is no longer as safe as it once was.
The move is bad news for fans of the greenback.
While the Dollar Index is barely moved today, you can be assured the recent weakening trend will continue. As more and more countries sell their debt in the secondary market, the greenback’s value will drop lower and lower. The interest rate Uncle Sam has to promise investors will climb higher and higher.
Today’s trade deficit figures show that relief is nowhere in sight. Overall, the nation imported $29.2 billion more than it exported in April, up 2.2% from the previous month. The country is on pace to record an annual deficit of some $361 billion.
More importantly, our deficit with China grew by 7.3% in the last month to reach $16.8 billion.
While Japan has not made too many currency headlines, its deficit figures are well worth noting. In April, America’s imbalance surged by 23.5% to $3.2 billion as the country demanded fewer American-made goods. As another one of the largest owners of American debt, Japan’s trade balance is one worth watching.
For investors, this is scary stuff, even if the mainstream media doesn’t get it.
Up 200% and only getting started
There are numerous ways to play the situation. While I could go over the tactics again, the easiest way to see what is worth your money is to look at the markets over the past few weeks. Commodities are on fire.
As one of the few assets not dependent on some government-derived currency, commodities are one of the safest investments in a growing global economy.
TFN Strategic Traders that took my advice and made one simple investment are sitting on profits of over 230%. It is all thanks to China’s reluctance to buy more American debt.
Now that Russia is getting in on the action, prices are only going to go higher.
Next Article: It’s official, divergence is the new norm
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