Thursday, November 09, 2006

Biggest Story You may have Missed

With all the other things going on, I'm not sure this got a lot of play in the US -- especially on the tube.

But, this is a big "story", with the caveat being that if it is genuine it is *beyond me* why the Chinese would telegraph this move so every trader and institutional and otherwise could front run them.

Is it possible that the Chinese are devious enough to plant a story to send people off the real scent? Certainly. And usually, I'd suspect just that....but in this case, I tend to believe what they are saying -- just because I can't understand what kind of insanity would make them do otherwise.

Please pay special attention to the last paragraph and my comment after the story.

The story:

">>Dollar Declines After Reuters Says China May Diversify Reserves By Daniel Kruger and Min Zeng Nov. 9 (Bloomberg) -- The dollar fell to the lowest against the euro in more than two months after Reuters reported People's Bank of China Governor Zhou Xiaochuan said he has a ``clear'' plan to diversify the country's foreign-exchange reserves.

China's foreign-currency reserves have exceeded $1 trillion to become the most ever held by a single country, China Central Television reported on Nov. 7, citing the nation's currency administrator. ``It seems to have pressured the dollar,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research. The dollar traded at $1.2837 per euro at 12:37 p.m. in New York from $1.2757 yesterday. The U.S. currency touched $1.2848, the lowest since $1.2875 on Sept. 5. The U.S. currency also traded at 117.91 yen from 117.84. The dollar earlier reached 118.59 yen.

The People's Bank of China is the fourth central bank to announce it may diversify its reserves in the past two months. The People's Bank of China joins the Bank of Russia, the Swiss National Bank and the Reserve Bank of New Zealand in announcing an intention to diversify currency holdings. Gold Rises Gold rose after the announcement by the Chinese central bank's governor. Futures for December delivery increased $15, or 2.4 percent, to $633.30 an ounce on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain since July 11.

When asked whether China planned to shift its reserves away from Treasury notes and into higher-yielding U.S. corporate and mortgage-backed debt, Zhou said China is considering ``lots of instruments'' for diversification. "

WTF? could you imagine??? How stupid would one have to be? They see a coming collapse in the value of the dollar -- or at least more risk than they are willing to live with "undiversified" -- and to get *AWAY* from the risk, they just buy more dollar denominated crapola only with a few more basis points of return to compensate for their stench?

However bad a risk the US govt is, why why why why why would anyone accept the tiny spread between the US govt paper and some over extended greater fool's mortgage promise in bubblicious USA in the form of MBS (mortgage backed securities).

....even with the Chinese affinity for crappy/new residential construction, even *they* can't want to be holding the bag on that disaster in the making.

Maybe in 3 or 4 years when they can just walk in and buy it all at a severe discount....but move $1T into MBS?? hahahahhahahahaha....ok, i'm better now.

ciao for now,

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