To start this off: I queried a passenger today — a Chinese fund manager — about when the Yuan is going to appreciate and by how much. His answer was uniquivocal: 5% in June. This is markedly different than what I’m reading in the US sources about more than 2% but less than 10% this “Summer” or “July”.
I was inspired to ask the question by a phone call from Down South, pointing me to this article:
Chinese Yuan Appreciates for 20 Minutes on Friday
[A]s traders drifted back to their desks from lunch in Asian financial capitals on Friday, the yuan suddenly broke out of its prescribed trading range. No one knows for sure if the move was deliberate or a result of a technical glitch.
But regardless of whether it was a Chinese test of their ability to manage a rising yuan or simply a case of the Chinese central bank briefly failing to buy enough dollars to keep supporting the American currency, traders noticed it and the prices for many other currencies began to shift in response.
The Response: Everything rose against the Dollar. Gold rose, the Euro rose, the Yen rose: everything went up and the USD sank. The logic of the market, I think, is that if China lets its currency appreciate, it will do it by cutting back on its purchases of US dollars. If China cuts back, everyone else can cut back on their purchases of Dollars too without being at a comparaive disadvantage. Basically, China is the market leader for the price of cheap labor — if it says the price is going up, everyone else will follow along like good oligopolists.
I have plans this summer that could really get fouled up if the dollar drops significantly. 5% I can handle, but that’s just what China wants. What happens when everyone else in the region cuts back Dollar purchases to maintain parity? Well, I guess the Chinese buy up until everyone settles down at the new price level, right?
Warren Buffett is betting against the (US) Dollar
Omaha-based Berkshire’s stake in foreign currency contracts total “a little more than $21 billion”… That bet backfired in the first quarter: But Buffett remains worried that U.S. policies are causing trade and budget deficits to spiral higher, and might cause non-U.S. investors to pull money from the country. “The world has demonstrated a diminishing enthusiasm for dollars over the last few years as they get flooded with them,” Buffett said. “Does that lead to some tipping point at some point? Who knows? I have a hard time thinking about any outcome from this that involves an appreciating dollar.”
Now, I understand that when you’re talking about $20 BILLION a change of only .006 is big money to Warren and nothing to me. But it doesn’t instill confidence in the dollar to have Big Daddy Buffett betting against the dollar. His money quote from the article? “We’ve got more money than brains.” How do you find +$40 billion worth of brains?