Baby Steps

China has announced that it is in the process of setting up a government controlled agency to manage its $1.07 trillion USD of forex reserves. Lou Jiwei flat out said that the majority of their reserves are in USD denominated assets, and they are losing money on the investments as the Yuan gains in value. In other words, they don't want USDs any more. As they use these USDs to buy other assets, the value of the dollar will begin to decline sharply. They have stated that some of their investments will go to overseas technology companies, oil fields, and mining companies. I wrote about these speculations a long time ago. I believe the post was titled, "If You Don't Believe me, Believe China." Once again, China is making investments in uranium, precious metals, base metals, and oil. I will look to add my holdings in Chinese mining companies, because I believe that as they increase their forex holdings of gold, they will get as much as they can domestically. The initial amount that the new investment fund will handle is $200 billion USDs worth.

China holds roughly 70% of its reserves in USD and in 2006, they experienced a $3.4 billion USD loss in exchange rates. With the Federal Reserve reaching for the trigger on interest rate cuts, their losses on exchange rates will be much more significant if they continue to hold USD. Can we say "snowball effect." You betchya. That's "you bet" in the native tounge of Minnesotans if you didn't know. By the way it's a wonderful 40+ degrees here in Minneapolis today. You gotta love it.