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The Daily Reckoning Wednesday, November 18, 2009 What Obama might have said in China...and what, alas, he did say, What's up with resources? Confessions of a commodity trader, Plus, world trade's great collapse, hunger in the U.S. and more... --------------------------------------------------------------- Bill Bonner, reporting from London, England... The newspapers are a-buzz with stories of Obama's trip to China. The Financial Timestells us what "he should have said." According to the FT, the American president should have told the Chinese that he wasn't going to put the US into depression just to protect the value of China's dollar holdings.  'We didn't ask you to stock up all those dollars,' as Obama might have put it. 'It's not our fault if the dollar goes down and you lose money.' Perhaps Mr. Obama should have quoted the immortal words of a former US Secretary of the Treasury, John Connolly. "It may be our dollar, but it's your problem." Over at USA Today, the editors are more concerned about human rights. The paper must imagine itself back in the days of Woodrow Wilson or George W. Bush, when the US nobly embarked on a mission to raise all of mankind out of sin and error. In effect, Mr. Obama said that all people have 'universal rights,' including the right to a free press. China figured this was just the sort of opinion that its people didn't need to hear. So, it killed the story in its own press. The American president might as well have been talking to himself. China is today's big story. Throughout the world's media there is much buzz and blather about the "romance"...the "historic relationship"...between the two titans. Some reporters see love. Some see jealousy. Some see rivalry.  Here at The Daily Reckoning we are suckers for romance. Give us some "a cigarette that bears a lipstick's traces...an airline ticket to romantic places..." and we are moonstruck. But we don't see much romance in the US and China hook up. What we see is the sort of things that delight psychologists and bore everyone else - perversion, co- dependency, and enabling.  On the surface, the two giants bicker over money like any other couple. The US accuses China of being a tightwad...holding its currency down and saving too much. China accuses the US of being a spendthrift, destroying its own purchasing power by wanton and reckless expenditures.  "US president's currency call breaks with script," says a headline in The Financial Timestoday. US economists think China should raise the value of the yuan. This would immediately lower the value, domestically, of the trillion(s?) worth of US-dollar assets China holds as reserves. It would also make Chinese products less competitive on the world market.  Mr. Obama wasn't supposed to say anything about it on his trip. It would be like bringing up your husband's drinking problem on your wedding anniversary; it would spoil the occasion. Apparently, Obama couldn't help himself. Or maybe he just thought the folks back home would like to hear him give the Chinese a piece of his mind. But how does the American president know what price to put on the yuan? A sinking dollar is good for the goose over in the US. Why isn't it okay for the gander in the Middle Kingdom? A strong yuan would help the world economy "rebalance," say economists who think they know what they are talking about. In a nutshell, the Chinese produce too much; Americans consume too much. A higher yuan would come down on the high side of the scale - giving the Chinese more purchasing power (thus increasing consumption in the Peoples' Republic)...and making Chinese exports more expensive (thus decreasing consumption across the Pacific). With a stronger yuan, the Anglo-Saxon economies would be able to produce and sell more things to the Chinese...thus tilting the US economy more towards capital formation and production. Chinese authorities are no dopes. They know they have a "floating" population of some 150,000 million people who are looking for work. They know that if they don't find some way to keep these people occupied they are likely to cause trouble. Trouble is the thing China's leaders most don't want. "You think you've got trouble," Premier Hu Jintao might have replied to Mr. Obama. "Did you know that there are something like 200 million Chinese who still get by on as little as a dollar a day? Let's face facts. You're sitting there in Washington, comfortably talking about how much free health care and unemployment benefits to give the American people. We don't have the time...or the money for those kinds of things. Too many Chinese people. They don't earn enough to afford the kind of cradle-to-grave bribes you give your people. We have to keep them working; there's no other way. "Besides, we don't quite see why we should pay for your mistakes. It wasn't our economy that blew up. It wasn't our financial industry that sold houses to people who couldn't afford them. It wasn't our consumers who spent more than they had and went too deeply into debt.  "It's the debtor who's supposed to pay, not the lender. We're the lender!" Behind all the superficial arguing, accusing and kvetching, however, is a sick relationship. It has give and take. But the US is all take. China is all give. And now, on both sides, public authorities make the same mistake. In the US, they try desperately to prod Americans to take more...to continue doing what they were doing wrong. They offer incentives of every sort to lure consumers to consume even more. And their solution to the debt overhang is to hang on even more debt. In China, meanwhile, the authorities desperately prod their people to give more...to produce more. Or, at least to build more plant and equipment with which to turn out more goods.  In the US, consumer spending is about 70% of the economy. In China, fixed capital formation is estimated to have made up 70% of China's growth in 2008 and as much as 90% in the first half of this year. Is this a formula for a happy marriage? Over the last two years, this co-dependent relationship has broken down. Paul Krugman wrote in The New York Times that we've seen "the greatest collapse in world trade in history."  But neither side has learned a thing. The taker now proposes to take more. The giver now proposes to give more.  They don't need counseling. They need a divorce. --- Limited Downside...Life-Changing Profits --- Tired of trading "gurus" giving you lousy recommendations that lose money? How's This for a WINNING STREAK! Last year, I recommended 37 trades to my readers, every one a winner! With a total gain of 4,647% you could have claimed $232,381 in Profit! Dubious? Check out my 2008 Track Record for yourself and learn how you can join my winning circle... --------------------------------------------------------------- And more thoughts... Not much action in the markets yesterday. The Dow rose 30 points. It is now well above the point at which the post-'29 crash bounce peaked out.  Gold didn't move yesterday. It remained at $1,139.  Mortgage delinquencies hit a new record in the third quarter. And producer prices came in lower than expected. These are both indications of a weakening, deflation-prone economy. Perhaps this is what prompted Mr. Ben Bernanke to tell the world that he may keep rates lower, for longer, than he thought...and perhaps forever.  "Bernanke signals 'extended' low-rate period may become longer," reports Bloomberg. Today, we discover that "1 in 6 hungry in America last year." That is the headline in theUSA Today. If you believe the report, 49 million people went hungry at some point in 2008, the highest number since the government began keeping track in 1995.  Meanwhile, we learn - in the same paper - that "Rising obesity will cost the USA $344 billion." That's what fat people cost the nation annually, equal to 21% of health-care spending. The two problems should cancel each other out, shouldn't they?  Oddly, the states with the greatest girths are also the poorest. Mississippi is number one in fat. It's also the poorest state. Could it be that fat people are going hungry? Is this a good thing; or a bad thing? Until tomorrow, Bill Bonner The Daily Reckoning --- So You've Got Gold...How About This Dollar Hedge? --- Introducing an investment vehicle touted as... Better Thank Gold! One investment should rocket even faster than gold over the next 12-24 months... yielding at least 3-to-1 gains on every dollar invested... GUARANTEED. In fact, I'm so sure of this, I won't charge you a penny to show you how... If soaring gold feels good... when this "other" metals investment makes its next big move, it's going to feel even better. With much greater potential for high returns.  --------------------------------------------------------------- The Daily Reckoning PRESENTS: Readers of these humble pages are not surprised to find gold on a steady, lunar trajectory. We've devoted countless column inches to our favorite metal and, well...so far so good. But gold is not the only dollar hedge worth following. Readers might also be interested in the range of other commodities out there and, in particular, how to make a little money as they rise (and fall!) For today's column, we asked our Resource Trader Alert editor, Alan Knuckman, to explain some of the ins and outs of commodity trading. So far this year, he's averaging a 69% gain for every recommendation issued...that's buy AND sell recommendations. In other words, he knows what he's on about. Please enjoy his thoughts... (Some) Commodities Are a Buy By Alan Knuckman Chicago, Illinois I'm a commodity trader...but that doesn't mean I always expect commodity prices to go UP. In fact, a lot of times you've got to bet AGAINST commodities if you want to make a buck. But that's not the situation today. Most commodities are in a bull market...and it's not to late to profit from it. Lately, the stock market has been grabbing most of the headlines for its surprisingly strong performance since last March. But commodity prices have been surging as well. Favorable macro-economic trends are powering both markets. The S&P 500 Index is up more than 50% from its March lows. Meanwhile, the CRB Index of commodity prices recently broke above the 280 level making new yearly highs - about a 40% advance from the lows of last year. Therefore, no matter what America's grim economic data may be saying, the stock market and the commodity markets both agree that some sort of recovery is underway. I how no opinion about where stock prices are headed next, but I feel fairly confident that commodity prices will continue trending higher over the coming years. That said, many commodity markets have already posted such large gains during the last few months that some investors may be skittish about climbing aboard. I understand this fear, but investors must remember that commodities are not homogenous. Even though many of them have soared this year, some commodities have advanced very little. Corn is one of the notable laggards...and I think it has some catching up to do. My recent research travels took me to the West Coast to revisit acquaintances made during the July National Chicken Marketing convention. (Yeah, that's what I do for fun!) My big takeaway from this chicken confab was that most of the presenters and professionals in attendance believed that $3.00 corn was way too cheap and that corn prices would begin moving higher. I trust these guys. After all, it's their business to know the cost inputs from the egg to the bird on your plate. But their bullish outlook for corn was a minority opinion at the time. Back in mid-summer, when this convention took place, the corn crop looked likely to make it through the summer months in great shape, with no threats in sight to disrupt high yields. Consequently, corn prices were languishing near multi-year lows. But as it turns out, the "chicken crowd" was right to believe that corn prices were too cheap. And the corn price charts from last summer confirmed the strong potential for even higher prices. Though my view on trading weighs heavily on technical analysis, I learned long ago not to ignore important fundamental information. At the lowly price of $3.00 a bushel, the upside potential for corn seemed much greater than the downside risk. That's why I urged the subscribers of my Resource Trader Alert (RTA) to enter a bullish trade on corn. Over at RTA we use options to directly play commodities themselves - options help limit our risks, while still providing ample opportunity to profit. I recommended a six-month-long option play on corn, designed to benefit from any strong up-move in corn prices. The specific trade I recommended cost just a little more than $1,100 to initiate. I was looking for corn to move to $4.00 a bushel by then end of this year. But as it turned out, we hit that target in late October, which caused the value of the corn trade I recommended to more than double. That's just how quickly the commodity options can move - a 25% rally in corn prices caused the recommended corn options to double. By using options we were able to maximize our profit potential and substantially limit our risk. The reality of fundamental trading on things like weather, planting intentions, yields, exports or crop disease is that the information does not flow freely to everyone at the same time. The farmers, seed salesmen and grain elevator operators use their legal inside information in the market before others. Often, price charts reflect this "insider knowledge." In other words, a price chart can provide an early indication that a market is about move into a bullish mode, even before any broadly disseminated public information would confirm the rising prices. Therefore, when you combine technical analysis with the informed insights of industry insiders, you can shift the odds of success greatly in your favor. After a brief correction, corn is on the rise again and trading just above $4.00 a bushel. I'm staying with this friendly trend for now. Regards, Alan Knuckman,  for The Daily Reckoning Joel's Note: For whatever reason, people tend to get a little timid when they hear the word "commodities." They immediately think "RISK!" Ironically, those same people dive into US dollars - the paper currency of the world's most indebted government - whenever things get a bit dicey. Go figure... Anyway, in an effort to introduce people to many opportunities in the commodity markets, we've decided to offer Daily Reckoning readers the chance to grab Alan'sResource Trader Alert at half the regular price. We can't keep this offer open forever, of course, so if you are interested, you'll have to let us know soon.    The Daily Reckoning - Special Reports: Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future "THE GREAT AMERICAN RECOVERY RP-OFF" Brace yourself for what's about to go down as the BIGGEST FINANCIAL SWINDLE in world history.

AGORA Financial Resources: The Daily Reckoning Is: Economics & Politics  Crisis & Opportunity  Gold, Oil & Energy  Growth, Tech & Medical  Options Investing Founder: Bill Bonner Editorial Dir: Addison Wiggin Publisher: Eric Fry Managing Ed.: Joel Bowman Web Ed.: Greg Kadajski About The Daily Reckoning: Now in its 10th anniversary year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. For additional articles and commentary follow The Daily Reckoning on Twitter and Facebook.