Yuan Rising... As predicted

So as I predicted, China can not resist the combined weight of the U.S and the E.U on its Yuan valuation policy. And now Chinese financial officials are preparing us for a stronger Yuan.

http://www.marketwatch.com/story/china-central-banker-urges-rise-in-yuan-2010-11-22?dist=beforebell

People’s Bank of China policy board member Li Daokui said that the "rising prices of international commodities," was the reason for adjusting the Yuan exchange rate!!!!.... hmm, Never mind that commodities were rising since 2002. I suppose what else can he really say??!

the U.S is on a mission to re-adjust the trade imbalance between itself and its big trading partners... and they will do this financially and by tariffs if necessary ...

"“As currently constituted, the international monetary system has a structural flaw: It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances,” Ben Bernanke

Ugly Currencies

“If you listen to the Chinese, they have one interpretation of what is going on. If you listen to the Americans, they have another” Pravin Gordhan, South Africa's Finance Minister (FT. LINK)





This is what happens when the debtor (U.S) and the creditor (China) disagree on the financial policies (devaluation of the Dollar) of debtor.

I think we are set for a long period of weak dollar and strong Yuan. Eventually, China can not resist the weight of the U.S and the E.U combined on this issue. But it will not happen at once as the they wish. but perhaps gradual revaluation of the Yuan.

and what does that mean for the G.C.C? More expensive Chinese products as the GCC countries keep their peg to the dollar.

Interesting that No one GCC Minister has brought this subject up ....yet at least!!

Effect of LASP on the Dollar (and therefore GCC currencies)

The LASP is the "Large Scale Asset Purchases" which is basically when the government prints money to buy out the outstanding debt it has.

so whats the effect of that on the dollar? The answer is in the table above - in the left hand column

Friendly Reminder: All of the GCC currencies are pegged 100% to it and Kuwait is pegged about 60% to it

Dollar Signs And Expensive Tomoatos

The dollar today reached 6 months low versus the Euro in a further sign that the dollar is getting debased basically by the fed. the Dollar fell 8.3% versus the Euro, Gold is at $1,319 per Ounce today, and the Yen is back at the 83 Yen per Dollar level - by the way; the Japanese government refuses to learn that it is absolutely useless to intervene in a highly floated currency market such as the one for the Yen.

Additionally, inflation in the GCC is picking up real fast. Inflation was reported at 4% in Kuwait and above 5% in Saudi! while Qatar and the UAE were still down but that is do to the still declining housing costs in the two countries. ّIn Kuwait and KSA there wasn't much of housing costs decline; therefore the impact of food costs was more visible. In Kuwait, tomatoes have reportedly increased over 4 times in about 3 weeks. while that's not all due to the weaker Dollar as there are supply factors affecting that as well. But tomatoes are just one example - look at table below:








From Alqabas Newspaper (Link)

Go Go GOLD!

Today Gold has almost hit the $1,300 mark against the Dollar! The Dollar is also weakening against the Yen. Combine those two facts and the the whole equities run up in the past few weeks in the U.S and the GCC. This tells me that there is something happening at the dollar's front that is further weakening the dollar.

remember, the UAE, Qatar, and Saudi Arabia, and Oman are 100% pegged to the US Dollar and Kuwait is about 60% pegged. So if the dollar weakens then their currencies weaken as well. And weak currencies in such import dependent countries - the GCC - will eventually result in inflation. Which will also hit the U.S if its currency continue to slide further.

Gold futures rise to trade near $1,300/oz - MarketWatch

Saudis With Out Homes!!!

The two guys in the caricature are saying:

Guy Reading: The size of the Kingdom (Saudi Arabia) is 2.25 Million Square Meter
Guy Cross-Legged: And majority of its citizens are renting and don't own land (homes)!!


Now am finding this really hard to believe; but there are very good estimates that the % of Saudi citizens owning their home is between 50%~30% with the most likely estimate being 30% or less

the 50% estimate came from official figures - now I really have my doubts on those because for one I have low trust in government figures to start with. And mind you, these are economic figures from a government not known for its transparency

while the most likely figures are coming from market participants - look here! whom in such countries I would definitely trust more

What got me to write about Saudi Housing was that since 2008 up until now, people have been talking about the big Real Estate boom in Saudi Arabia. Yet we have yet to experience that on the scale that we saw in Dubai or in Qatar.

And a recent article on Arab News which points out the lack of low-cost housing and this is were the Oxford Business Group suggest to have the highest demand.

I suggest that the Saudi government to get serious about addressing such low level of citizens' home ownership as these are dangerously high for such a wealthy country

Hopefully someone there will listen, hopefully

A Sovereign Wealth Fund that Finally Gets it !

Advanced Technology Investment Company - 100% owned by the Abu Dhabi government - is making a huge push into becoming a leader in the Contract Chip Manufacturing (aka Foundry.) It started with co-founding Global Foundries (USA). It then went and bought (taking it private!) Charted Semiconductor Manufacturing (Singapore), and finally buying out the rest of Global Foundries from its the other shareholder (Advanced Micro Devices, of which Abu Dhabi owns between 10~15%)

So far so good, but the twist is that they are going to build a Semiconductor manufacturing facility out by Abu Dhabi Airport! the first of its kind in the Arabian Gulf!! target production is on 2014~2015

Abu Dhabi looked at what they have right now, financial resources and energy resources and while the Semiconductor business has very well established players out in Taiwan and China, Abu Dhabi believes it can still compete and achieve where many "Oil Producers" have failed, that is in True Diversification - which will be achieved when more semiconductor facilities open up in the Emirates.

I think Abu Dhabi is on the right track, and even though this may seem like a very expensive path they are taking; it makes a whole lot of sense if one is to look at the long term benefits for the people of the Emirates when they have a non-oil global industry established in their country.

Good Luck Abu Dhabi,