The Group of 20 ended on Nov. 12, 2010 in South Korea culminated in a watered down statement without any meaningful agreement on rising global tensions over trade and currency issues. This presentation outlines some of my observations regarding G20, U.S. dollar policy and investing strategy in this environment

1. G20 & The U.S. Dollar Policy
Dian L. Chu
Economic Forecasts & Opinions
Nov. 14, 2010

2. Highlights
2
 Events Leading to G20 – Dagong, Greenspan & Geithner
 G20 – A ColossalWaste of Time
 Post G20 - TradeWar & ChinaYuan Policy
 Bigger Problems at Home
 The U.S. Dollar Policy & Investing Strategy

3. China’s Dagong Downgrades The U.S.
3
 Nov. 9 - China’s Dagong Credit Rating Agency reduced U.S.
credit rating to A+, from AA, with Negative Outlook
 Citing a “deteriorating intent” and ability to repay debt
obligations after QE2
 Downgrade could be reflecting Beijing’s concern
 Dagong’s Debt Progression Chart
 With QE2, the U.S. has progressed into Stage 3 - Monetary Crisis
. Overall
Crisis
Monetary
Crisis
Economic
Crisis
Debt
Crisis
(U.S. )

4. Greenspan & Geithner Spar Over
Dollar
 Nov. 10 - “America is also pursuing a policy of currency
weakening.” ~ Alan Greenspan, Financial Times
 Nov. 11 - “We [the U.S.] will never seek to weaken our currency
as a tool to gain competitive advantage or to grow the economy.” ~
Timothy Geithner, CNBC
4

5. Highlights
5
 Events Leading to G20 – Dagong, Greenspan & Geithner
 G20 – A ColossalWaste ofTime
 Post G20 - TradeWar & ChinaYuan Policy
 Bigger Problems at Home
 The U.S. Dollar Policy & Investing Strategy

6. The Great American Expectation Of G20
 China to be condemned by the world for “Currency
Manipulation”
6

7. G19 – Are You $600-Billion Serious?!
7

8. G19 – Look Who’s Devalue To Prosperity?
8

9. G19 – More Hot Money Thanks To QE2
9

10. G19 – We Need Quantitative Tightening !
10

11. G20 on Currency & Protectionism
 “Countries commit to moving toward more
market-determined exchange rate system… and
refraining from competitive devaluation of
currencies.”
 “Countries will resist protectionism in all its
forms" and will "roll back” any new protectionist
measures.”
 (Translation - Protectionism and “Currency
Weakening” is ok.)
11

12. G20 On Trade Imbalances
 “The G20 will develop "indicative guidelines“..” to help identify
large trade imbalances…"
 (Translation –There will be a “new index”, but trade imbalances are
ok.)
12

13. G20 on Capital Control
 “Advanced economies…will be vigilant against excess
volatility and disorderly movements in exchange rates.
These actions will help mitigate the risk of excessive
volatility in capital flows facing some emerging
countries.“
 (Translation - Emerging markets can protect themselves
from "hot money" by imposing capital flow controls, true
to the free market form.)
13

14. Highlights
14
 Events Leading to G20 – Dagong, Greenspan & Geithner
 G20 – A ColossalWaste of Time
 Post G20 -TradeWar & ChinaYuan Policy
 Bigger Problems at Home
 The U.S. Dollar Policy & Investing Strategy

15. Trade War & China Yuan Policy
 G20 outcome reflects a diminished leadership role of the U.S.
 Yuan-Dollar peg will likely continue, but with a weak dollar, Beijing will have
room to guideYuan higher
 China will likely implement more monetary tightening with growth the top
priority
 TradeWar? The U.S. should not engage, as there are a lot bigger problems at
home
15

16. Highlights
16
 Events Leading to G20 – Dagong, Greenspan & Geithner
 G20 – A ColossalWaste of Time
 Post G20 - TradeWar & ChinaYuan Policy
 Bigger Problems at Home
 The U.S. Dollar Policy & Investing Strategy

17. #1 - Spending & Debt
U.S. Gov. Debt to GDP Ratio
Ranks #3 Among G20,
Trailing Italy & Japan
17

18. #2 - Structural Unemployment
 Labor Force Skill Mismatch andTransition
18

19. #3 - Rebuilding Wealth & The Middle Class
 The inflation-adjusted income
of the median household fell
4.8% between 2000 and 2009.
 80% of population with only 7%
of financial wealth
 Poverty rose to 14.3% in
2008—the highest since 1994,
with 43.6 million Americans
living below the official poverty
threshold
 1 in 8 Americans is on Food
Stamps
19

20. #4 – Credit Not Reaching Private Sectors
20
 Fed’s trillions from QE1 & QE2, and the perpetual near
zero interest rate is intended for banks to increase
lending and loosen credit conditions
 However, lending to the private sector still falling off a
cliff

21. FACT - Banks DO NOT Make Money From
Lending to Private Sectors
21
 Banks realize lending to private sectors is not as profitable as
playing equity and commodity markets
 Fed’s the “Sugar Daddy” of banks with unlimited free money
 Easy money also increases risk appetite
 Liquidity trapped in the banking system creating potential asset
bubbles
 Banks are also hoarding cash preparing for more write-offs
from Foreclosure-gate, and Commercial Real Estate, etc.
 Conclusion - It’s GoodTo Be A Banker Post-crisis in
America!

22. Highlights
22
 Events Prior to G20 – Dagong & Greenspan v. Geithner
 G20 – A ColossalWaste of Time
 Post G20 - TradeWar & ChinaYuan Policy
 Bigger Problems at Home
 The U.S. Dollar Policy & Investing Strategy

23. Profiling the U.S. Dollar Policy
 A classic “closet case” of Weak Dollar
 Misplaced concern of a Japanese Style
Deflation
 Whereas low headline inflation is due to
the liquidity trapped within the banking
system, without the usual circulation
 In total denial and refuse to deal with the
mounting debt and deficit
 Believing a Weak Dollar would bring
export & GDP growth, thus creating jobs,
etc.
 Devalue currency is the easy way out
 Talk of “Strong Dollar” to prevent a run on
the dollar – the trick is to weaken, but not
crash
23

24. Consequence of a Dollar Devaluation
24
 Markets likely to remain pessimistic on the dollar
 But dollar could strengthen, amid the even bigger European debt
crisis affecting the euro, and austerity measures curbing growth
 Expect Inflation to rise, and higher inflation expectation would push
up the U.S. bond yield
 Export may get a moderate boost; however, jobs are unlikely to
return to the U.S. since companies would just move operations from
China to e.g.,Vietnam, where wages are still low
 That could change if there’s a massive (50%+) dollar devaluation
drastically reducing the real domestic wage levels
 Such scenario would, of course, reduce the national debt
 However, it would also suggest a forever lost middle class and
national wealth. And we see that “progress” unraveling in Iceland!

25. Investing Strategy
25
 Wealth Preservation – Stay away from the dollar, and the
U.S. Bond
 Hard assets, emerging market equities, bonds and
commodity-based currencies
 Commodities, e.g., through mutual funds and ETFs, more
detail here
 Real Estate – some remain distressed in the U.S.
 U.S. commodity and resource producers and high tech
sector should benefit from a weak dollar. Many remain
global market leaders
 Gold – But expect high volatility, so invest on pullbacks
(watch out for silver, which tends to have 2x gold’s
volatility)

26. Thank You
Dian L. Chu
Economic Forecasts & Opinions
Nov. 14, 2010