How China’s Economic Boom Will Eventually Affect Us All
Wednesday, July 12th, 2006
By Michael Lombardi, MBA for Profit Confidential
China just announced its trade surplus to the world widened to a record $14.5 U.S. billion in June because of soaring Chinese exports. China’s trade surplus could come in for the year at $110- $120 U.S. billion this year, up from $102 U.S. billion in 2005.
What does this mean for investors like you and me?
China’s booming surplus results in China accumulating plenty of foreign currencies… money China is receiving for goods it makes. It is estimated that China’s foreign reserves currently stand at about $875 billion–a great deal of that currency in U.S. dollars.
At some point, China will have close to $1 trillion U.S. dollars in its reserves. What will China do with all those U.S. dollars?
Most economists in the U.S. are calling on China to revalue the yuan (the Chinese currency)… to make the country’s currency stronger against other world currencies. And China has taken some steps in this direction. China raised interest rates in April of this year and, last month, increased the amount of money Chinese banks need to set aside as reserves.
But the problem may not be the yuan. The problem, as I see it, is too many U.S. dollars in China. The greater the amount of any item, in this case the greater the supply of U.S. dollars in circulation, the lower the price. As investors, we should look carefully at stocks we own directly or indirectly in our mutual funds, to ensure we don’t own equities that are dependent on a strong U.S. dollar.
Tomorrow, I’m going to talk about the long-term trend “change” in the value of the U.S. dollar, how I believe in the long-term it will compromise the current U.S. standard of living, and why I believe interest rates will need to remain at their current levels in the U.S. so the U.S. dollar is saved from collapse.
For today, I’d like to leave you with this question: If the U.S. dollar is weakening, if the countries tied to the euro have yet to constitutionally recognize the euro, if the yuan is years away from being recognized as a stable currency… What other currency will investors move their money into? (A hint: This currency is not printed on paper.)
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Tags: china, euro, interest rates, U.S. dollar
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
