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Most Read Posts (64 articles) – Discover which articles Underground Investor™ readers are most interested in. See the full database, including the most recent articles that may not be listed below,  by clicking the link above.

Sept. 27, 2007 – 101 Reasons Why Managing Your Money is the Quickest Way to Build Wealth
Sept. 25, 2007 – 10 Surefire Ways to Make an Investment Fortune
Sept. 15, 2007 – Why the U.S. Feds 0.50% Rate Cut Won’t Save the Markets
Sept. 15, 2007 – U.S. Interest Rate Cut to Have Little Long-Term Positive Effect
Aug. 20, 2007 – How Much Does the Gov’t Really Manipulate Markets
Aug. 9, 2007 – More Gov’t Foolishness (or Lies) Again: Markets are Sound…NOT!
Aug. 9, 2007 – Chinese Tariffs and the Nuclear Option
Jul. 24, 2007 – How to Invest Like the World’s Greatest Investors
Jun. 17, 2007 – Get Out of Dollar-Denominated Bonds While You Still Can!
May 1, 2007 – Uranium Stocks are Finally Getting the Attention They Deserve
Apr. 23, 2007 – The Emperor’s New Clothes Abound in the Investment Industry. Don’t Get Cheated by Your Advisor
Apr. 20, 2007 – Use Intelligent Strategies to Push Risk Back onto Investment Firms
Apr. 19, 2007 – In Risky Markets, Follow the Behavior of the Ultra-Rich, Not the Rich
Apr. 12, 2007 – The Secret to Investing

Gold Investments (37 articles) - Use traditional rules to invest in gold stocks and you’ll lose money hand over fist with this asset class. Learn more about one of the most important components of every portfolio for future years to come. See the full database, including the most recent articles that may not be listed below, by clicking the above link.

April 23, 2008 – Will U.S. Markets Crash Now or Later?
Feb. 4, 2008 – Could Chinese New Year’s Fuel the Next Rally Higher for Gold Stocks?
Jan. 29, 2008 – Even After This Strong Run, Gold Stocks are Still a Bargain Today. Here’s Why.
Jan. 5, 2008 – A Sneak Peak at Our Premium Level Information
Nov. 4, 2007 – Is Hyperinflation Coming to the U.S.? It’s Time to Stock Up on Gold.
Nov. 4. 2007 – Gold is the Best Investment Today, History Tells Us So.
Nov. 2, 3007 – Gold Expensive at $791/oz.? Not by a Longshot
Jun. 5, 2007 – Learn How NOT to Invest in Gold
Mar. 30, 2007 – Navigate the Minefields of the Investment Information Highway
Mar. 7, 2007 – This Bounce in Gold Markets Merits a Cautious Approach
Mar. 6, 2007 – Gold Stocks Correction – What it Means?
Feb. 28, 2007 – How to Profit from a Weakening Market, Gold Stocks, & More, Part II
Feb. 28, 2007 – Buying Opportunity in Gold Stocks
Feb. 28, 2007 – How to Profit from a Weakening Market, Gold Stocks, & More, Part I
Feb. 23, 2007 – Uncover the Ignored Asset Classes
Feb. 12, 2007 – How Do I Know that Institutional Money is Still Not on Board with Gold?
Jan. 25, 2007 – If You Don’t Own Gold Stocks, You Need To
Jan. 23, 2007 – Building Wealth Requires More than Just Contrarian Investing
Jan. 14, 2007 – Use the Long Tail of Investing to Accurately Predict the Price of Gold
Jan. 11, 2007 – The REAL DEAL about Gold and Energy
Dec. 13, 2007 – Commodities and Asians: Apparently We All Look Alike
Nov. 6, 2006 – Sometimes Silence is Golden
Oct. 10, 2006 – Shock and Awe Awaits Global Markets
Oct. 4, 2006 – Is Gold’s Correction Over Yet?
Oct. 2, 2006 – Fiat Currency Concerns Give Rise to a Gold & Silver Backed Currency System
Oct. 1, 2006 – The Gold Timeline – A History of Gold Prices
Sept. 16, 2006 – Has the Commodities Bubble Burst? No, No, No!
Sept. 13, 2006 – Sell the Rumor, Buy the News
Sept. 11, 2006 – Gold’s Speculative Stigma is Unwarranted
Sept. 3, 2006 – Gold’s Glitter is Genuine
Aug. 14, 2006- Knowing Your History is More Important to Creating Wealth than Fundamental Analysis

Financial Crisis, Dollar Crisis & Recession Proof Investing (30 articles) – Foolish investors’ eyes lit up as New Century Financial dropped from $30 to $20 a share during the recent subprime mortgage fiasco. Their hearts thumped with excitement as shares dropped from $20 to $10 and they doubled down. When shares dropped to $5 they thought it had to be the bottom and put their last remaining money into New Century. A month later, they lost everything. There is similar optimism surrounding the dollar today from self-declared currency experts. Discover why the dollar is much more likely to go the way of New Century than experience a comeback like Muhammad Ali’s Rumble in the Jungle. For the most recent articles, perhaps not listed below, click the above category link.

June 26, 2008 – The One Question That Will Have the Greatest Impact on Your Financial Future
May 14, 2008 – What’s Driving the Price of Oil Higher? It’s the Dollar, Stupid!
April 30, 2008 - How Low Will the Feds Go?
April 17, 2008 – Monetary Inflation. How Increased Paper Wealth Can Translate into a Lower Standard of Living
March 3, 2008 – Why Investors Will Never Make Money in this Bear Market
Feb. 20, 2008 – The Secret to Building Wealth in Volatile Markets
Feb. 6, 2008 – Is Recession in the U.S. Coming? We’re Already in One.
Jan. 28, 2008 – The Outcome of the Fed’s Interest Rate Cuts? History is the Best Oracle.
Jan. 24, 2008 – The Fed’s 0.75% Interest Rate Cut – A Recipe for Future Disaster
Dec. 7, 2007 – The Dollar Panic. Is it Real?
Sept. 19, 2007 – Signs of a Peak Investment Crisis Keep Coming
June 18, 2007 – Alan Greenspan’s Call of Checkmate on China is Premature
June 17, 2007 – PIMCO’s Bill Gross and the Economist Agree with SmartKnowledgeU 6 Months After the Fact!
May 28, 2007 – The Politics of Higher Oil Prices
May 26, 2007 – Asian Countries Pooling Reserves to Protect Themselves from the Incredible Shrinking Dollar, Part II
May 25, 2007 – Asian Countries Pooling Reserves, Part I
May 3, 2007 – The Death of the 3-Year Treasury Note
Apr. 1, 2007 – The Next Cold War Will be an Economic One
Jan. 25, 2007 – Dollar-Denominated Bonds Faltering
Jan. 9, 2007 – Use the Longtail of Investing to Accurately Predict Dollar Behavior
Jan 7, 2007 – 10 Reasons Why Dollar-Denominate Bonds Aren’t Safe
Dec. 21, 2006 – Iran Presents More Trouble for the U.S. Dollar
Dec. 7, 2006 – The U.S. has Perfected the Incredible Shrinking Dollar

Free Stock Picks (24 articles) – While our top-shelf stock picks and ideas that have since returned 100% to 200% returns are reserved for our members only, here read articles about some mid-shelf stock picks and ideas that have already returned 30% returns in less than a year. Access the full database, including the most recent articles that may not be listed below,  by clicking the topic link above.

Jun. 4, 2007 – To Prove the Effectiveness of Our SmartKnowledgeU™ Investment System, Even Our Weakest Picks that We’ve Given Away for FREE Have Soared
Apr. 29, 2007 – After BAIDU, Possibly Focus Media
Apr. 2, 2007 – Profit, Don’t Lose From Market Corrections
Apr. 2, 2007 – Global Warming Presents Easy 30% Gains for Underground Investor Readers
Mar. 13, 2007 – Beware the Perpetual Bulls, Part II
Feb. 18, 2007 – Banking Sector FY 2008 – Positive for Japan & India, Negative for China
Jan. 4, 2007 – Chinese Technology Companies to Watch in 2007
Dec. 19, 2007 – MSFT and Internet Protocol Version 6
Dec. 12, 2006 – It’s Time to Keep a Close Eye on Indian Stocks ICICI & HDFC
Dec. 7, 2006 – The Ocean Becomes a New Growth Point in the World Economy
Oct. 30, 2006 – What’s the Safest Place to Invest in the Oil Industry Now?
Oct. 30, 2006 – You’ll Find Ignored Investment Opportunities in the DRC & Libya
Oct. 23, 2006 – Indian Banks Anyone? Four Letters: HDFC
Oct. 9, 2006 – Don’t Believe the Hype – Avoid Chinese Bank Stocks

The Peak Investment Crisis & Stock Market Crash (57 articles) – Bubbling underneath the surface, there lies a peak investment crisis. When it hits, savvy investors will build a fortune. Unfortunately, most investors will be blindsided and lose great fortunes instead. Access the entire database, including the most recent articles that may not be listed below,  by clicking on the above category link.

Nov. 4, 2007 – Is Hyperinflation Coming to the U.S.? It’s Time to Stock Up on Gold.
Nov. 4. 2007 – Gold is the Best Investment Today, Part II
Oct. 15, 2007 – Our New Forum on Facebook: Crisis Investing
Oct. 9, 2007 – Beware the Turbulence that Lies Beneath the Surface, Part I
Sept. 20, 2007 -The Signs of a Peak Investment Crisis Keep Coming
Sept. 19, 2007 -Why the U.S. Fed’s 0.50% Rate Cut Won’t Save the Markets
Aug. 9, 2007 – More Gov’t Foolishness Again
Jun. 29, 2007 – Don’t Let the Strength of the U.S. Markets in the First Half of 2007 Fool You
Mar. 11, 2007 – It’s the Difference Between Chasing & Building Wealth
Mar. 6, 2007 – What this Correction Means for Gold Stocks
Feb. 28, 2007 – How to Profit From a Weakening Market & Gold Stocks
Sept. 9, 2006 – The Peak Investment Crisis
Aug. 11, 2006 – How to Protect Your Portfolio During Turbulent Markets

A New Investment Paradigm for the 21st Century (11 articles) – Fundamental and Value investing may take years of patience to pay off (i.e. Apple Computers was a huge value stock at $13 a share and took more than four years of waiting to pay off huge), Growth investing often leads to chasing hot sectors that correct rapidly. Discover why changing conditions in today’s global market has created a new investment paradigm that is hands down the best way to invest today. Click the link above to see all articles, including the most recent articles that may not be listed below,  in this category.

Jul. 24, 2007 – How to Invest Like the World’s Greatest Investors
Feb. 25, 2007 – Frontrunning Can Make You a Fortune
Jan. 30, 2007 – The New Paradigm of Successful Investment Strategies
Jan. 21, 2007 – 10 Reasons the Longtail of Investing is the Only Way to Build Wealth
Jan. 16, 2007 – Use the Longtail of Investing to Predict Major Market Events with High Accuracy
Jan. 9, 2007 – Accurately Predict U.S. Dollar Behavior
Sept. 1, 2006 – What Mark Cuban Failed to Realize About Investing

The Biggest Investment Myths (62 articles) – All investment professionals, from investment firms to financial consultants to the financial journal purposely spread tales of lies and deception. Jim Cramer, an investment professional that amassed a fortune as a hedge fund manager, recently stated that the last thing he ever wanted to do is to tell the truth. Find out why deception is part of the game in the investment industry.  Click the category link above to access the full database, including the most recent articles that may not be listed below.

Oct. 25, 2007 – New Home Sales Went Up. So What?
Oct. 15, 2007 – Beware the Turbulence that Lies Beneath the Surface, II
May 6, 2007 – Economic Reports Drive Short-Term Behavior, but Hardly Represent the Truth
Mar. 21, 2007 – The Short-Term May be Rosy, but Beware the Financial Crisis that is Building Steam
Mar. 4, 2007 – Foreign Markets aren’t as Risky as the Pundits Say
Feb. 23, 3007 – Evolve Your Investment Strategies with Evolving Technology
Feb. 6, 2007 – My Problem with Investment Newsletters (except ours, of course!)
Feb. 4, 2007 – 10 Questions to Help You Find a Superior Financial Consultant
Jan. 30, 2007 – A New Paradigm of Successful Investment Strategies
Jan. 25, 2007 – Despite Evidence to the Contrary, Millions of Investors Will Believe Whatever they Want to Believe
Jan. 7, 2007 – 10 Reasons Why Dollar Denominated Bonds Aren’t as Safe as You Think
Jan. 5, 2007 – How Understanding MMA Champions will Make You a Better Investor
Dec. 18, 2006 – The True Determinants of Wealth Have Nothing to do with Asset Allocation
Nov. 12, 2006 – The Greatest Investment Myth Exposed: Why Modern Portfolio Theory WILL NEVER Make You Rich.

Wealth Literacy (88 articles) – Wealth Literacy is the new Financial Literacy. Financial Literacy may teach you to be fiscally responsible but you can still be financially literate and remain poor. Wealth Literacy fills in all the holes of Financial Literacy and teaches you how to build wealth today. Click the category link above to see new articles that may not be listed below.

Oct. 15, 2007 – Our New Facebook Investment Group – Crisis Investing
Oct. 9, 2007 – Beware the Turbulence that Lies Beneath the Surface, I
Apr. 23, 2007 – Beware the Emperor’s New Clothes -Don’t Get Cheated by Your Adviser
Apr. 20, 2007 – Intelligent Investment Strategies Push Risk Off of You & Back onto Investment Firms
Apr. 19, 2007 – In Risky Markets, Follow the Behavior of the Ultra-Rich, Not the Rich
Apr. 17, 2007 – Why Wealth Literacy is More Important than Financial Literacy, Part II
Apr. 15, 2007 – Why Wealth Literacy is More Important than Financial Literacy, Part I
Apr. 13, 2007 – Pop Investing is All the Rage, but it’s a Loser’s Game
Apr. 12, 2007 – The Secret to Investing in 3 Easy Rules
Apr. 10, 2007 – Build Wealth by Answering These 5 Questions
Mar. 30, 2007 - How to Navigate the Minefields of the Investment Information Highway
Mar. 12, 2007 – The Short-Term May be Rosy, But Beware the Financial Crisis that is Building Steam
Mar. 11, 2007 – The Difference Between Chasing Wealth and Building Wealth
Feb 23, 2007 – Uncover the Ignored Asset Classes
Feb. 21, 2007 – Why Traditional Education Stifles Your Ability to Build Wealth
Feb. 15, 2007 – 7 Habits of Highly Effective Investors
Feb. 8, 2007 – 10 Reasons Why a Professional Athlete’s Best Friend Needs to be his Financial Adviser

Politics and Stocks (30 articles) – Think you don’t need to understand politics to be a good investor? Think again. If you don’t understand politics, you’ll never fully understand the most likely future direction of global stock markets, oil, gold, and currency markets. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

Apr. 11, 2007 – Building Great Wealth in Stocks Requires Understanding Politics
Apr. 1, 2007 – The Next Cold War will be an Economic One
Apr. 1, 2007 – Possible U.S. Military Intervention in Iran
Mar. 13, 2007 – To Err on the Subject of Chinese Tariffs May Expedite a Shakespearean Tragedy
Dec. 17, 2007 – Do Free Markets and Free Trade Exist?

Oil Crisis (15 articles) – Think oil prices are controlled by supply and demand, futures traders, or Peak Oil Theory? Think again. Discover the true determinants of oil price behavior, primarily dollar devaluation. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

May 14, 2009 – What’s Driving the Price of Oil Higher? It’s the Dollar, Stupid!
May 28, 2007 – The Politics of Higher Oil Prices
Nov. 26, 2006 – Does the end of Mid-Term Elections Mean Higher Gas Prices Again?
Nov. 8, 2006 – The Peak Oil Theory was Created by – You Guessed it – Big Oil!
Oct. 30, 2006 – The Safest Place to Invest in the Oil Industry Now? – Oil Refiners, Pipeline Manufacturers, Deep Sea Platform & Drilling Manufacturers, and 4D Imaging Companies
Oct. 30, 2006 – You’ll Find Ignored Investment Opportunities in the DRC and Libya
Oct. 12, 2006 – How Has Prince Bandar bin Sultan Affected Oil Prices in Years Past?

Uranium Investments (3 articles)– The bulk of this information is contained within our members only area, but you’ll find an article or two here. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

May 1, 2007 – Uranium Stocks are Finally Getting Some Attention. Better Late than Never.
May 1, 2007 – What Does Uranium Futures Mean for the Future of Uranium Stocks?

Africa Investments (5 articles) – For the more daring investor willing to place small bets for HUGE returns, Africa awaits.

Canada Investments (4 articles) – Articles about Canada and the Canadian stock market and hands down some of the best opportunities in ANY global stock market.

China Investments (21 articles) – Articles about Chinese stocks and the Chinese stock market.

India Investments (4 articles) – Articles about Indian stocks and the Indian stock market.

Japan Investments (4 articles) – Articles about the Japanese economy and stock market.

Russia Investments (1 articles) – Articles about the Russian economy and stock market

U.S. Stocks (25 articles) – Articles about U.S. stocks and the American stock market.

Vietnam Investments (3 article) – Articles about Vietnam and the explosive yet unregulated Vietnamese market.

Investment Psychology (22 articles) – One of the most important but yet most overlooked and ignored aspects of investing is psychology. Discover how an improper mindset can be the difference between huge losses and huge gains in your portfolio. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

Feb. 7, 2007 – Investors Should Apply the Rule of Shopping 101 to Buying Stocks
Jan. 3, 2007 – Will the 2006 Year End Rally Continue into 2007?
Dec. 21, 2006 - Perception Can Overrule Reality in Driving Behavior but Reality Will Overrule Perceptions in Driving Outcome
Nov. 30, 2006 – The Recency Effect Hurts Investment Decisions
Nov. 2, 2006- Canadian PM Stephen Harper & Hungarian PM Ferenc Gyurcsany – the More Things Change the More They Stay the Same
Nov. 2, 2006 – Irrational, Not Rational, Behavior Often Drives Markets
Oct. 24, 2006 – The Financial Media are Like Bad Weatherman
Oct. 8, 2006 – The SmartKnowledgeU Reader’s List
Oct. 4, 2006 – Hungarian PM Ferenc Gyurcsany: We LIED Morning, Noon, & Night!
Sept. 26, 2007 – Move Over Harry Potter! The Deceptive Wizardry of Fund Managers
Sept. 17, 2006 – When it Comes to Investing, You Get What You Pay For
Sept. 16, 2006 – Why Do People Believe One of the Dumbest, Most Flawed & Deceptive Measures of Economic Conditions?
Sept. 13, 2006 – Why Book Smarts Won’t Help You Build Wealth
Sept. 10, 2006 – Investment Psychology 101
Aug. 24, 2006 – To Become Wealthy, Abandon Widespread Beliefs About Investing
Aug. 18, 2006 – Following Mainstream Media Will Lead You Down a Disastrous Investment Road
Aug. 3, 2006 – Following Short-Term Fluctuations Will Create Poor Investment Decisions

Options Investing (10 articles) – We don’t discuss options much here but occasionally, if there is a compelling play, we’ll write an article or two.

Water Investing (1 article) – Read articles about investing in water as a commodity as the world’s fresh water supply becomes more scarce.

The Zen of Investing (42 posts) – Read articles from our resident martial arts expert regarding how understanding principles of martial arts can make you a much better investor. A combination of “The Art of War” and “The Art of Investing” if you will. Click the above category link to see the full database of articles, including the most recent articles that may not be listed below.

Technorati Tags: investment blog, investment strategies, dollar crisis, financial crisis, oil crisis, stock market crash, howto invest gold, recession proof, best ways to invest, Wall Street bailout

Last week, I wrote an article called “Even After a Strong Run, Gold Stocks Still a Bargain.” In that article, I wrote that gold stocks, both the majors and especially the junior resource stocks, were highly undervalued given historical ratios of gold stocks to the price of their underlying commodity. In fact, as of last week, I wrote that many majors were trading at the same share prices they were at when gold was only $830 an ounce. So I concluded that either the price of gold was going to have to come way down or the shares were going to have to go way up. I concluded that the shares would have to go way up, and I’m still concluding that, but with a slight modification.

Technically, gold futures contracts are showing a bearish rising wedge pattern so there is the imminent risk of a minor correction now. I say minor and not major, because I just can’t see gold retreating all the way back to $800 an ounce. I just think that such a significant retreat, given the vast problems in the global economy, and particularly in the U.S., has a very small probability. My downside projections for a correction are somewhere within the $850-$860 range if we see a correction, but should gold retreat to this range, I believe that this retreat will be very short lived as savvy investors will definitely view such a correction as a buying opportunity and jump into the market at this point to drive the price of gold higher again. As far as the “gold is too high” believers, even if gold doesn’t retreat by $40 or $50 an ounce, I believe that even at $900 an ounce, long term buyers of gold and those that have already been buying for years will be just fine adding to their current gold bullion positions at this price. At every step of the way during this current gold bull run, gold has been “too expensive”. It’s been “too expensive” at $400 an ounce, at $500 an ounce, at $600 an ounce, at $700 an ounce, at $800 an ounce, and now at $900 an ounce. The fact is that this gold bull run has a long long way to run.

As far as why I believe any such correction, if it happens, will be very short-lived, China provides some of the answers. A gold futures market just opened up in Shanghai on January 9th, with apparently plans for a silver futures market on the way as well. The Shanghai futures market may not have a lot of impact for now in the global market for gold, but it is an important global development as it definitely raises visibility of gold as an investment vehicle in China. With A-shares (shares of Chinese stocks available only in the Chinese mainland) still trading at ridiculous valuations and at 80% premiums to their H-shares counterparts (the shares of the exact same Chinese stocks that trade in Hong Kong), Chinese investors that are now sitting on 300% to 400% profits on their stock portfolios in just several years will be well served to take their profits and seek a new home for much of that capital. Gold may just be the winner in this rebalancing equation.

With (1) China overtaking South Africa as the world’s largest gold producer last year (a situation unlikely to change this year with the three largest mines in the world hampered by South Africa’s nationwide electricity emergency) according to London precious metals consultancy GFS limited; (2) Chinese New Years on our doorstep; and (3) Gold having thousands of years of significance as a traditional sign of prosperity and fortune in Chinese culture, I believe that China would serve an important role in propelling this current gold bull run to much higher heights. The fact that A-shares are still trading at an 80% premium to H-shares is proof that the local Chinese market is somewhat insulated from movements in the rest of the global economy. I believe the same will hold true in the gold market. Chinese believe in gold and what the rest of the world thinks won’t matter to their buying behavior. I would surmise that even if those living in China read my belief that gold could see a temporary dip lower in prices that this would not stop them from buying at $900 an ounce. So how will this affect the global spot market for gold? In the short-term, probably hardly at all. However in the long-term, the bullish behavior of the Chinese gold market will force the world to stand up and take notice and will eventually be priced into markets in London, Zurich and New York.

So here’s my call. Gold, if it does correct in price, may also temporarily drag the prices of gold majors down with it (juniors, due to their significant lag, should not be affected much during this correction if it happens). However, if a correction happens, both in the price of gold and gold stocks, they will be very short lived, and the price of gold, as it recovers, will finally propel gold stocks to their much higher level, as each subsequent dip and recovery in the price of gold encourages more and more of the fringe investment community that this gold bull run is for real, and thus, encourages more and more people to hop on board. In any scenario, whether we see a small retreat in the price of gold, a larger retreat in the price of gold, or no retreat at all, gold stocks, at some point in the near future (and especially the juniors) will handsomely reward our patience even more than the price of the underlying commodity has already rewarded us. Learn more about how to invest in gold and gold stocks here.

Technorati Tags: gold, gold stocks, China, Chinese New Years

“If U.S. Congress imposes prohibitive tariffs on Chinese imports, if China then follows that move by dumping dollars, this would be a double negative blow to the Chinese economy. So in imposing tariffs, such a move would in essence be a pre-emptive economic strike against the Chinese government that prevents them from offloading U.S. dollars.”

“However, such a short term victory would only cause a long term, much more significant defeat. Such actions would certainly alienate the Chinese government further, and any pleas by President Bush, U.S. Fed Chairman Ben Bernanke, and U.S. Secretary of Treasury Hank Paulson to the Chinese government asking them not to offload dollars in the future would almost certainly fall on deaf ears. I would guess that if tariffs do pass through Congress, that in the future, if the Chinese can dump massive amounts of dollars without such actions seriously hurting their own economy, then they will do so without concern for its effect on the U.S. economy.”

Today, five months later, the London Telegraph reported that the Chinese are threatening to do exactly what I predicted. But there’s even more to this incredible story.

Here is what the London Telegraph reported:

“Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.”

“Described as China’s “nuclear option” in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels. It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession.”

Incredulously, this article also reported that “the threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being ‘held hostage to economic decisions being made in Beijing, Shanghai, or Tokyo’.” This is incredulous because I have yet to hear any U.S. politician address the foolish actions of the U.S. Federal Reserve that has caused this great headache for the United States. How in the world does China and Japan get a hold of trillions of dollar denominated assets that they can now use to hold the U.S. “hostage” if the U.S. had not sold these trillions of dollars to foreign governments over decades of time to serve their purposes? Did China come to the U.S. and rob our banks? Of course not. The Feds foolish and irresponsible monetary policies have created this enormous headache and now U.S. politicians refuse to take any of the blame for a problem that has its origins within the homeland. The situation is comparable to you giving all your wealth to your next-door neighbor willingly as a gift, then scolding and berating him when he refuses to give up his new found lifestyle of wealth and return your money.

And it is precisely understanding situations like this that create the strategies we employ at SmartKnowledgeU for all of our paid-up subscribers. Are we worried that the Dow dropped another almost 400 points yesterday? Not at all. My portfolio is positioned to eventually soar when all this trouble finally manifests itself, because if the past two weeks have made you nervous, you ain’t seen nothing yet. It is just the beginning and if if you haven’t been doing so over the past six months, you better ensure now that your stock portfolio is not just defensive, but positioned to gain from this whole mess, because even defensive portfolios will suffer when this trouble finally shakes out and surfaces.

Technorati Tags: China’s nuclear option, politics and stocks, smartknowledgeu

However, according to former Federal Reserve Chairman Alan Greenspan, there is little reason to fear a wholesale pullout by China out of U.S. government bonds, because he claimed that China would not be able to find anyone that would want to buy the bonds. Greenspan no doubt made these comments because China has been stating their wishes to offload U.S. dollars for three years now with no real action taken. At the Davos World Economic Forum in January of 2004, Zhu Min, general manager and advisor to the President of the Bank of China, stated: “All the Asian countries hold dollars for security reasons, but at some point, this has to end… There is a love affair. But everybody knows that this love affair has to end. The United States is benefiting from China using its trade surplus to buy U.S. Treasury paper as a reserve currency, along with other Asian nations. But in the long run, this is not sustainable…. China will focus more and more on domestic demand, which is growing fast. Then we won’t be able to finance the U.S. deficit. We cannot keep exporting our goods at a growth rate of 30%.” Of course, Zhu Min wasn’t an official government spokesperson, but as the President of the Bank of China, he was merely stating the concerns of his fellow bankers at the time.

It appears now that Greenspan spoke to soon and that Zhu Min is finally going to get his wish. It turns out that Greenspan could be right about China’s inability to find anyone that would want to buy their U.S. government bonds, but wrong about China’s inability to find a solution to this problem. China may have found a solution to getting rid of its U.S. government bonds by acting both as the buyer and seller. Last week, China’s Ministry of Finance announced that it would sell a special treasury bond to raise money to buy foreign-exchange reserves from the central bank, a finance ministry official said.

“Since it will be a special treasury bond issue, the state council will decide on the amount and then submit to the National People’s Congress for approval,” Zhan Jingtao, director-general of the treasury department of the ministry, said Monday.

China’s currency reserves have reached US$1.2 trillion (HK$9.36 trillion) as exports boomed. The government is setting up a state investment company that will use some of the reserves to buy investments with higher yields. The State Investment Company agency probably will be set up before the end of this year. Zhan declined to confirm media reports that the finance ministry will sell bonds to buy US$200 billion to US$300 billion of foreign reserves to put into the State Investment Company. “Detailed amount of the bond sales and how it will be sold is still under discussion,” he said, adding that the decision is likely to be made before year- end. Does this State Investment Company sound familiar?

It should, because it is exactly the same type of entity as the state-formed agencies that Middle Eastern countries have formed to invest the bulk of their petrodollars. Yet the media provides zero coverage of the actions of these Middle Eastern state-sponsored investment companies even though they at times manage many multiples of the amount of reserves controlled by their respective central banks. And my guess is that China wants to accomplish exactly the same. This strategy will move U.S. bonds from their central bank into a state investment authority and outside the scrutiny of the press and media, which only seems to care what happens in reserves held inside central banks. Once domiciled in their state investment authority, China would have much more liberty to find creative solutions to offload the U.S. bonds.

Looks like Greenspan’s call of checkmate on the Central Bank of China may have been a little bit early.

Technorati Tags: politics and stocks, Alan Greenspan, China, dollar crisis

“We are in a mutual hostage situation, and China may hold the better cards,” Stiglitz said.

The story stated that

if Congress were to pass measures cutting off Chinese exports to the U.S., China could quickly reduce these purchases. China could keep a high growth rate, but the U.S. “would have a very much of a problem financing our deficit,” Stiglitz said.

On March 13th, right here on this blog, I stated

I would argue that in the long run, punitive tariffs imposed upon Chinese imports for the Chinese government’s failure to respond to the U.S. directive of strengthening the yuan would do much more harm than good…U.S. Congress has already alienated China once before by blocking Chinese state run oil giant CNNOOC’s bid to buy U.S. oil company Unocal by calling the purchase a threat to national security, even as U.S. companies clamor for a larger piece of the pie in China. However, a bigger threat to the national security of the U.S. would be a decision by China to dump a large portion of its estimated $1 trillion of U.S. dollar denominated reserves.

I would guess that if tariffs do pass through Congress, that in the future, if the Chinese can dump massive amounts of dollars without such actions seriously hurting their own economy, then they will do so without concern for its effect on the U.S. economy.

Two months ago, when I wrote this blog article, nobody but me commented about the Congressional stance towards China and its pure foolishness. However, I guess when a Nobel Prize winning economist makes the exact same statement, the world listens. The point here is this. It’s not so much that other known figures are now making similar public statements, but the fact that politics have always been and will always remain critical to investment decisions, like it or not. I’ve discussed tons of other countries’ actions right here on this blog including those of the United Arab Emirates, Russia, Iran, and Venezuela that should greatly impact your investment choices.

If I have time, I will discuss recent developments in Bolivia and Kuwait as well in the future. If you don’t understand politics, when all is said and down, investors will find themselves invested in all the wrong sectors when it will eventually matter very soon in the near future. Now, a rising tide is raising all ships, whether in Brazil, Germany, Singapore or the U.S. What makes you a good investor is not times like these as anyone can throw darts at a board and make money. What makes you a good investor is understanding how you must prepare your portfolio NOW for a future time when these soaring markets fade away.

Technorati Tags: China tariffs, Joseph Stiglitz, politics and stocks, dollar crisis

May 22, 2007 - On September 25th of last year, I blogged about the close relationship of Goldman Sachs and the U.S. government and how it was more likely than not that Goldman Sachs dumping of 72.66% of the unleaded gas position in its commodities index right before the mid-term Congressional elections was politically motivated. The following week, the New York Times wrote the exact same article.

On March 13, 2007, I delivered my opinion here about the foolishness of the U.S. Congressional stance towards China and its heavy handedness in threatening China with tariffs given China’s huge ability to influence the continuing downfall of the U.S. dollar. This week, more than two months later, The May 19^th Economist, on pages 71-73, published an article that basically is a carbon copy of my March 13^th blog article. In fact, I’m beginning to think that finance and economy journalists are reading my blog to formulate articles of their own.

I have many thoughts about the recent Asian summit held in Chiang Mai, Thailand where the Asian tigers met to strategize about pooling their reserves. (correction: held in Kyoto, Japan. The summit was to revise an accord drawn up in 2002 in Chiang Mai). I, for one, don’t believe the story as it was spun in the media as it was spun very matter of factly, and again have very different views than the media about the significance of this Asian currency reserve pool. Maybe if I blog about it, my opinion will show up again in the Wall Street Journal or some other publication.

Technorati Tags: China tariffs, Joseph Stiglitz, politics and stocks, dollar crisis

16 May, 2007

Several months ago, I wrote that I wouldn’t touch any of the Chinese bank IPOs with a ten foot pole. Although in retrospect that seemed like bad advice as many of these Chinese banks that IPO’d on the Hong Kong market are now up 50% to 60%, I still maintain my position due to the same reasons I stated back then. There were plenty of other Chinese stocks with less inherent risk that also appreciated by similar amounts that were much stronger plays. Just because stocks appreciate by similar amounts do not mean that they stand on equal footing in strength, quality and risk. I still believe that the regulatory infrastructure that moderates risk in Chinese banks is far too weak and is a recipe for future disaster.

Anytime a banking system forgoes risk management issues in the pursuit of short-term profits that feed the bottom line, such an approach always leads to disaster. In fact, the current state of Chinese banking reminds me much of the situation in Japan that almost created a collapse of the banking system and ushered in a two decade long recession. In the future, Chinese banks will probably be among the best Chinese stocks to short when their short-term greed comes home to roost.

While loose credit and easy money makes everyone happy and all things appear rosy during spectacular economic growth as the Chinese economy is currently experiencing, it is the same conditions that sparked such rapid growth that will ultimately create a dire situation in the future. While there has been much recent press in the media about investor speculation creating a potential bubble in Chinese markets, I believe that the rampant speculation of Chinese banks in their own economy will play a much larger role in any future significant correction in the Chinese markets. As far as the timing? Like everything else, structural weaknesses always take some time to bubble to the surface, so short-term corrections are much more likely be triggered by profit taking, and the Chinese economy is still likely, even with any short-term corrections, to see an onward push into the 2008 Beijing Olympics. However, when the correction triggered by banking woes begins, it will much more likely be steeper and more prolonged.

Technorati Tags: Chinese stocks, Chinese banks

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J.S. Kim is the Founder and Managing Director of SmartKnowledgeU™, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.

One stock that I’ve already made over 100% gains on is Chinese advertising company Focus Media (FMCN). Since I’ve sold out of it, I’ve stayed out of this stock, but this morning, I looked at its chart and am considering getting back in. As a price target, I would have much preferred getting in around $36 a share but it gapped up significantly higher at the end of last week. In any event, I haven’t yet had time to perform the type of analysis on FMCN that I did on BIDU and GM that would allow me to make an intelligent decision on the risk reward setup of this stock at its current price. However, I am saying that the chart looks compelling enough right now to justify a deeper analysis of this stock to make a quick determination.

Technorati Tags: Chinese stocks, Baidu, BIDU, Focus Media, FMCN

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J.S. Kim is the founder and Managing Director of SmartKnowledgeU™, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.