President Obama just returned from Seoul and seemed bewildered by the negative reaction the FED's policy received outside the U.S. especially in Asia.
It is quite simple: during the economic tsunami, much of the dollars, euros, and yen pumped into the developed economies to stimulate the banks wound up in Hong Kong, China, Singapore and the rest of Asia. Why because the returns were better and Asia was deemed 'safer'.
It is crazy that the banks in the US are afraid to lend because of the economic outlook, yet somehow Asia looked to be a bargain. In Hong Kong, for example, our stock market rose a combined 21% in September and October alone, and real estate is now 20% higher than before the economic tsunami. Some experts predict another 20-30% rise in the price of luxury flats next year! Looks to me like the same behavior we saw in the U.S. before the Tsunami.
Check out this article from today's Hong Kong Standard about the plans of Hong Kong's Financial Secretary to combat more 'hot money' inflows from QE2:
I think the average American or European would be very upset to know that much of the currency printed and deficits created by their monetary authorities has left their shores to finance debt and mortgages in Asia!
Asian leaders are literally saying: 'we are awash in liquidity. No more please'.
Image by Getty Images via Daylife
Monday saw the Chinese currency rise .07 percent to 6.828 against the U.S dollar. Please click the link to read the article View this photo
Some speculate that this spike is due to demand this week after all markets in China were closed last week for the Chinese New Year Holiday. Others predict that the current peg against the dollar needs to widen in range.
Personally I believe the Yuan has to strengthen over the next 3 years...but I have learned forex is so hard to call.
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The International Herald Tribune reported last Thursday that China decreased it's holdings of U.S. treasury bonds by US$34.2 billion in December. Click the link to read the article View this photo
Hong Kong's Standard newspaper had even more to say on the subject. Click on the link for the article View this photo
Japan is once again the biggest holder of US government debt, a bit of a concern because some analysts say Japan cannot maintain their holdings too long because of their aging population.
Apparently there is an active debate in China as to if it should strengthen it's currency, or raise it's domestic wage rates. It is felt higher wages could further stimulate China domestic consumption, while putting more funds in the hands of the people.
The article in The Standard points to the opinion I hear frequently in business circles in Asia, that China will enlarge it's gold reserves over time. Most of my business colleagues in Asia are long on gold.
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