By D. Scott Peterson
My weekly talking points are snippets of ideas that are pertinent to today’s markets. They come from my readings, American history background, and from 30 years’ experience trading and investing in the American Capital Markets. They are designed to help you improve your investing knowledge and get beyond the flood of information (we call this noise) from the media, most of which can be counterproductive. Review these periodically, they will improve your investment choices.
1. There is a lot of talk in the financial media about the Chinese devaluing their currency.
2. Countries often do this to increase their exports and improve their economy as devaluation makes their exports cheaper
3. By contrast, goods they import become more expensive. So in this case, U.S goods and services sold to China cost more.
4. That in turn, can reduce U.S. companies profits, which is why we’ve seen the U.S. stock market pull-back recently.
5. One potential outcome is a currency war, where countries rush to devalue their currencies to keep their exports competitive.
6. An interesting sidelight to this is when a country, like Greece, cannot devalue its currency because they are tied to the Euro. That’s why Greece has been unable to escape from an economic recession.
7. This also causes additional questions about the Chinese leadership’s ability to deal with modern economy. Critics suggest that their futile attempts to stabilize their stock market and now the clumsy attempt to manipulate their currency, indicates their lack of understanding of how modern finance works.
8. Others point out that Chinese leadership has no choice; they must maintain a growing economy to keep the population happy so that the communist party can maintain control.
9. Markets are a very powerful force. Once unleashed, they are impossible to control, and attempts to do so often exacerbate the situation.
10. All this injects uncertainty into the global economy and causes markets to be more volatile than usual.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations of any particular security, strategy or investment product for any individuals. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.