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Tuesday, May 20, 2014
|YOUR BEST SOURCE FOR THE UNBIASED MARKET COMMENTARY YOU WON'T GET FROM WALL STREET|
|China-U.S. Economic “Cold War” Heating Up|
|by Mike Larson|
Is China our friend? Our enemy? Our biggest "fr-enemy?" Or something else entirely?
That's the question investors are wrestling with in light of the recent ratcheting up of tensions between the U.S. and Asia's growing economic and military colossus. Just consider the news from the past 24 hours ...
Vietnamese citizens have also rioted against Chinese and Taiwanese companies, forcing China to evacuate thousands of its citizens from the country. That could lead to enhanced ties between the U.S. and Vietnam, something that would undoubtedly vex China even more!
If it brings back memories of the standoffs we saw with the old Soviet Union in the 1960s, 1970s, and early 1980s, that's no surprise. In some ways, it's the same process playing out again — this time as a largely economic Cold War. It's also a key investing risk that my colleague Larry Edelson has done such a good job highlighting in his work on the Cycles of War. Martin covered that a few days ago.
So will these latest tensions turn into something much worse? Is China an ally or an adversary? And what does that mean for your investing strategy? Are you likely to keep more of your money at work nearer to home, or do you want to invest more aggressively in China or Southeast Asia? I'm interested in your take on the blog.
My view is that China is grappling with plenty of economic challenges, from slowing growth to a potential massive real estate bust. That would tend to argue against them getting too aggressive with trade sanctions or other anti-American moves.
But China also holds a real trump card in the form of hundreds of billions of dollars worth of our government bonds. If we push them too far, we could start seeing reams of sell orders come in over the transom from Asia. That would push up everything from the mortgage rates we pay to buy homes to the gargantuan interest bill on our $17.4-trillion-and-counting debt load! So it's important to pay attention to China in the days and weeks ahead to see what move it makes next!
Meanwhile, many of you were up in arms about the ramifications and motivation of companies like Walgreen Co.(WAG, Weiss Rating: A-) and Pfizer (PFE, Weiss Rating: A) shipping their corporate headquarters overseas to save a few bucks.
No matter which side you come down on this debate, there's no denying the ongoing trends toward offshoring and tax inversions will impact your wallet. They may help you as an investor by boosting the earnings per share your companies make ... but hurt you as an American by shifting more of the tax burden to you, or even resulting in you losing your job!
So will Washington get more aggressive to go after tax dollars? Or should it let corporations do what they want to do? Hop over to the blog to weigh in!
The euro has continued to weaken as I expected, in part because of threats of extraordinary policy measures out of the European Central Bank (ECB). The latest from Der Spiegel in Germany? That the ECB will introduce "negative" deposit rates. That would mean banks will have to pay the ECB to park money with it rather than do something actually productive, like lend it out.Reminder: If you have any thoughts to share on these market events, all you have to do is hop on over to the blog and leave your comments. Until next time,