Huff and Puff Geithner
Research for Online Investors

by John Dalt

9/17/10

Treasury Secretary Tim Geithner appeared before the Senate Banking Committee Thursday.  I am reminded of our daughters when they were little.  They would threaten to hold their breath if mom and dad didn’t give them what they wanted.  Well…go ahead.

The subject of the hearing was all about China, is the Yuan too cheap, too expensive, or just right?  The Senators want someone to blame for their stimulus not working.  The official reason for the hearing was “The Treasury Department’s Report on International Economic and Exchange Rate Policies.”  Wow

The administration’s policies are making the November elections look like a turkey shoot.  Most democrats standing for election feel like they have a target on their back and are trotting back and forth between trees.  The populist rants against Wall Street and health insurance companies have run out of steam.  What could be more productive than congress spending their last days in session ranting and raving about Chinese trade and currency policies?

Geithner told the senators that the administration would try to mobilize other members of the G-20 to pressure China to let the Yuan rise faster.  China let the Yuan adjust starting in June, just before the last G-20 meeting.  This was done after the congress huffed and puffed last spring.  The Treasury Department chose diplomacy over naming China as a “currency manipulator” in their last report in April.  Since June the Yuan has appreciated 1.25%.

The next Foreign Exchange report is due on October 15, and congress smells blood.  This could be just the diversion they need to play a three shell ponzi scheme on voters three weeks before the election.  An official designation as a “currency manipulator” would open the possibility for the U.S. to impose trade sanctions.

There is no doubt that China manipulates their currency.  They are just better at it than anyone else.  As a command economy, they can maintain a low valuation for export advantage.

Currencies are valued on supply and demand.  China spends the money generated from their trade imbalance buying other country’s debt rather than buying their currency back, which would raise its value.

Before we single out China, the U.S. must realize the holes in the “currency manipulator” designation.  Our Federal Reserve has engaged in massive Quantitative Easing, the result is a cheaper dollar.  Japan sold Yen this week to drive their currency down.  The Yen was hitting 15-year highs and hampering export companies.  Where does the list end?

If the U.S. believes the Chinese Yuan is too cheap, why don't we start buying up Yuan on the open market?  Oh wait a minute, they are buying our debt, we are broke.  Never mind.

Without enforcing respect for patents, copyrights and anti-dumping rules; a currency manipulation designation is worthless.  Reuters has the story, Geithner vows to take China currency dispute to G-20.

Today's chart illustrates rallies that followed massive bear markets. A 'massive' bear market is defined as a decline of greater than 50%. Since the Dow's inception in 1896, there have been only three bear markets whereby the Dow declined more than 50% (early 1930s, late 1930s until early 1940s, and during the very recent financial crisis). Today's chart also adds the rally that followed the dot-com bust during which the Nasdaq declined 78%. The current Dow rally has followed a path that is fairly similar to that of post-massive bear market rallies. The initial surge of the current rally lasted nearly 300 trading days and has been trading flat/choppy ever since. If the current rally were to continue to follow the post-massive bear market rally pattern, the current choppy phase would continue for another 200+ trading days.

To the mailbag:
There are hundreds of shops here in Wellingborough sitting empty.  What’s the council’s answer?  Stick a piece of art in the window!  They have a program to lower rent, but don’t apply it evenly.--- subscriber M.B.

John’s reply:  At least the artists are making money on the deal!  Property owners must adjust to the economy.  An empty shop brings in NO rent.  A rental contract, even for a percentage of receipts is better than no rent at all.

Great points on consumption in the United States.---paid up subscriber J.P.

I am not investing in the market; I don’t trust the Federal Reserve or the big bankers.---paid up subscriber T.M.

John’s reply:  Investing is not gambling if you follow a plan, and watch your trailing stops.  We do both.  Follow our Buy recommendations, and buy no more than one stock per week.  It will take you five months to be fully invested!  By the time we sell one once in awhile (like NLY yesterday) even longer than that.  We are up and beating the market, why not follow us?  Don't wait.  You will be making the mistake many retail investors make.  Waiting until you are comfortable with the economy, market, etc.  It will be 300 points higher before that occurs, and you will buy in just in time to watch it pull back.  Horse, meet water.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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