— “Profit Confidential” Column, by Michael Lombardi, CFP, MBA

I’m sure you’ve seen the picture by now.

Many newspapers around the world ran a picture from Reuters on November 14 showing President Obama “bowing” very low when he met Japan’s Emperor Akihito. Former Vice-President Dick Cheney was quick to note that the bow would indicate “weakness” on the part of the United States, while one major newspaper ran the headline, “Did Obama’s bow to Japan’s emperor shame America?”

Well, they’ve got it all wrong again.

Japan is not America’s problem. In fact, Japan has enough of its own problems, as the country, after many years of fighting deflation, is still not on solid economic ground. Who cares if the President bows too low to Japan’s Emperor? After all, bowing in many parts of Asia is a custom. The real problem for the United States is China, not Japan.

I would have to wager that only a small percentage of Americans realize that China is now the number one lender to the United States. We borrow more money from China (to finance our debt) than any other country.

The U.S. dollar, because of a reduced domestic interest rate policy and because of its ever-increasing debt, has seen its currency fall 16% against the euro this year. And some other currencies have been doing exceptionally well against the greenback, like the Canadian dollar that is up 20% this year against the U.S. dollar.

It has been months now that China has been publicly complaining about the declining value of the U.S. dollar, because a lower greenback reduces the value of China’s U.S. dollar holdings (which are now worth over $1.0 trillion). China, which has kept its yuan steady with the greenback for the past 18 months, has indicated that it could start letting its currency appreciate against the U.S. dollar.

Central banks all over the world are concerned about rising U.S. debt and the declining value of the U.S. dollar. We must remember that the greenback is the reverse currency of about 70% of all world central banks. As the U.S. dollar moves lower, more interest central banks are considering a new reserve currency.

Our stock market loves a lower U.S. dollar, because the lower the greenback, the more profits big American corporations bring home from their foreign operations. A weak greenback also promotes domestic spending.

Where am I going with all this talk about the declining value of the U.S. dollar?

In the years ahead, the U.S. dollar could lose its status as the world’s reserve currency. As this happens, China will gain more economic power. There are some who believe that China will eventually trump the U.S. as the economic engine of the world. I’m in that camp.

What the eventual world reserve currency will be we do not know at this time. But what we do know is that China continues to promote gold as a safe investment for its citizens. China is the country the U.S. needs to worry the most about in respect to our economic future.

Michael’s Personal Notes:

We moved our publishing offices to a more “high tech” space this weekend in an effort to better serve our customers. So far in 2009, we’ve had the pleasure of welcoming 84,045 new readers to PROFIT CONFIDENTIAL alone. To serve our growing customer base, we needed better technology, especially for the Internet and our phones. Over the next two weeks, you’ll hopefully notice an improvement in our service. All our phone numbers, fax numbers and e-mail addresses remain unchanged. Thank you for your patience during this transition.

Where the Market Stands:

I’m getting tired of reading so many different opinions on where the stock market is headed. I read one stock analyst’s report and I find five reasons why stocks should be headed lower. I read another report from a different analyst and I’m presented with five reasons stocks should move higher. (By the way, the analysts’ reports on why stocks should go down outnumber positive reports on the stock market by a wide-margin, which is actually good for the stock
market.)

The fact is that stocks have been moving higher since March of this year. And, until proven otherwise, you know my old motto: The trend is your friend. So why fight it or waste time thinking about the trend? Just join it and enjoy it! The Dow Jones Industrial Average opens this morning 17.6% higher than when it started 2009.

I was very impressed Friday to see how the stock market was able to work through the negative earnings news of both Dell Computer and homebuilder D.R. Horton to close down only marginally.

What He Said:

“I’ve been pushing gold bullion and gold shares for over a year now. Bank in January 2002, I personally started buying gold shares.” Michael Lombardi in PROFIT CONFIDENTIAL, December 13, 2002. Gold bullion was trading at under $300.00 an ounce when Michael first started recommending gold-related investments. Many gold stocks recommended in Michael’s advisories gained in excess of 100%.

Tags: chinese economy, Dow Jones Industrials, gold stocks, interest rates, stock market, U.S. debt, U.S. dollar