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Will China one day buy GE or Nike?

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It could be GE, it could be Nike, or it could be something else. But keep your eyes and ears open folks. We are going to witness the great U.S. giveaway.

We keep hoping to sell our wares in China and we do. But only at a pace that is structurally managed by the Chinese to grossly favor them and continue to create huge trade imbalances here. These imbalances are financed by their accepting our Treasury notes in return. As they amass fantastic sums of capital at modest but stable rates of return on their investment, they allow us to keep buying their goods and stimulate still further imbalances. The interest payments compound and compound the problem too. They are truly giving us enough rope to hang ourselves.

In addition to our trade imbalances, we are expanding our Federal spending and increasing our national debt without hesitation -- as if we could just print money without any pain.

The Federal Reserve, meanwhile, believes it must continue to raise interest rates or watch the dollar sink in value due to the deficits and trade imbalances. It is not inflation that they are worried about per se, but the weakness (even collapse) of the dollar. This is very serious!

Now if you're the Chinese holding billions and trillions of U.S. dollars you are going to have to diversify your portfolio some day soon. Add to this the fact that holding dollar assets will depreciate in value and you have some powerful incentives to move from debt instruments to equities. Even Warren Buffett has been hedging against the dollar. This mean buying hard assets like real estate, gold, and most importantly U. S. companies which to them appear on sale.

 

I used Nike in the header because most of its products are produced outside of the United States (mainly in Asia), and the Chinese might as well control the whole operation. I used GE because it is working with the Chinese in areas like power generation and water projects. If GE makes any significant dent in the balance of trade the Chinese will insist on owning a piece of the company. Why not buy all of it? They could even overpay by our measuring stick and still come out ahead.

The Chinese chased Unocal and Maytag unsuccessfully, acquired the IBM Think-pad (Levano) and most certainly this trend will continue with them making many more acquisitions in the near future. It only makes good business sense for them. Our maps may indicate that our borders have not changed. However, a financial map, if there was such a thing, would indicate that we have shrunk in size considerably.

Many of our greatest financial minds have been banging this drum for a long time pointing to this shrinking financial map for years. But our political leaders are acting as if they are running for office on a daily basis and can not deal with any long range issues -- like giving the Country away and mortgaging our future at the same time.

As investors we have little chance of redirecting Washington, so all we can do is direct ourselves. Do for yourself what the Feds will not do -- reduce personal debt, save more and if you get a chance, send your representatives a letter of encouragement!

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Last updated: November 28, 2009: 03:23 AM

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