Chinese President Hu Jintao comes to the U.S. with a very strong hand, China is the world’s second largest economy, has the largest auto market, holds a mound of U.S. debt, has more internet users than the entire U.S. population, and just reported that 2010 GDP grew 10.3 percent. On the eve of President Hu Jintao’s visit, the official Chinese Communist Party newspaper ran a headline title,
Rare earth mining update
The Chinese Ministry of Land and Resources has invoked a law to take control of 11 rare earth mining districts in South China. Last night the ministry stated that these southern districts had been placed under its national planning authority. Remember, 95% of rare earth minerals come from China, so any limits can have a huge effect in global prices.
After soaring more than 100 percent against the the U.S. dollar over the last 8 years, Brazil’s currency looks better than ever. Brazil’s central bank raised interest rates to 11.25 percent, increasing its key rate by half a percentage point late last night. Brazil and the rest of the world is dealing with massive dollar devaluation that is causing price increases around the world. Hoping to blunt the effects of global price inflation, Brazil’s central bank unanimously voted to the rate hike. Even with the recent tax of foreign capital for fixed income investments, these type of rates will inevitably attract more foreign investments, Brazil is one of the stronger emerging economies and clearly has the best fixed rate of return.
*Special note on gold* Today, the media will try and claim that the reason gold is down is because of Brazil’s rate hike. In our opinion, this statement is absolutely ridiculous. Gold, like all other commodities, are experiencing healthy corrections after having HUGE moves up over the past 4 months. The fact that gold is down and Brazil just raised their interest rates is a pure coincidence, the media could have used any headline. As far as they know, gold could be down because Simon Cowell wasn’t on American Idol last night for the first time in 10 years. In order for gold to actually have a reaction to what a central bank does, it would more than likely have to be a major rate hike by the Federal Reserve who controls the world reserve currency and global commodity prices. The Fed would have to hike rates, stop QE, convince the government to live within its means, end stimulus, and reform entitlement spending. Oh and somehow they would also have to sl ow China down and reverse the effect of reduced spending from an aging population that will dramatically decrease their spending habits over the next 15 years. This is highly unlikely, and in our opinion, damn near impossible.