Watch the U.S. Treasury market closely, because a next leg down in the collapse of the dollar (in real terms) will begin in earnest when the number of indirect buyers begin trotting away from the auctions.
From now until 2015, it appears that Beijing will be pulling the plug on the dollar.
In a great piece posted on zerohedge.com today, the author, Brandon Smith of Alt Market, alerts readers to a recent change in tone in its “unofficial” communiques regarding China’s plans for its estimated $2.2 trillion dollar reserves.
“We would like to buy stakes in Boeing, Intel and Apple, and maybe we should invest in these types of companies in a proactive way,” David Daokui Li, Director of the Center for China in the World Economy (CCWE), told attendees of the World Economic Forum held in Dalian, People’s Republic of China. (NYSE: BA) (NASDAQ: INTC) (NASDAQ: AAPL)
To affect this move, Beijing intends to “liquidate more of its holdings of Treasuries” once the U.S. Treasury market “stabilizes,” Smith added.
So there you have it—Beijing feels Apple stock offers better value than the sovereign debt of the world’s primary reserve currency. Li’s comments suggest Beijing’s outlook for the U.S. dollar is so bad that buying stock in a company, that Warren Buffett won’t touch because he can’t wrap his mind around the tech giant’s perceived moat, holds more value in the long run.
Smith points out that China’s biggest concern presently stems from the effects of rapidly growing inflation on food and energy prices in China, which have been estimated to be running at more than 12% (official figures are grossly understated)—thanks to the Fed’s QEx’s.
And because Beijing cannot export inflation back to the West through its renminbi currency (not fully convertible in large quantities), the people of China have been taking the hit, badly—which bothers China’s leadership greatly given the long history of domestic tensions exploding into political upheavals and simultaneous civil wars throughout the country’s provinces during times of financial hardships.
“With harsh inflation continuing unabated, eventually, the Asian nation will be forced to enact abrupt policies,” Smith wrote. “This will likely take the form of a strong Yuan valuation, or a “floating” of the yuan. A sizable increase in the value of the Chinese currency is the ONLY way that the government will be able to combat rising prices.”
Up until now, the timing of Beijing’s exit out of the U.S. dollar has been very murky. Many analysts suggest that China cannot exit from the dollar without hurting itself in the process, a theory that lacks any credible evidence. But again, the one-man firestorm of information lays out the plan quite clearly for anyone willing to notice amongst the noise out of Europe.
“It is quite possible for China to realize yuan convertibility by 2015,” Li told an audience at a trade fair in China’s southeastern city of Xiamen last Friday. “I believe there should be big progress.” It should be noted that Beijing has denied that a timetable for an “orderly” exit out of the U.S. dollar exists, but as long as China’s political leaders allow David Daokui Li to keep talking, the information he presents serves as Beijing’s way of telegraphing the markets.