Chinese association with US

The US Fed has chosen to keep short term interest rates nearly to  zero for an extended period of time. In effect, what has happened is that it has sounded the death knell for a US bank savings account. At present rates which are prevailing in the US market , the account is incapable of even preserving one's purchasing power.Amidst such a scenario, US citizens are forced to invest in risky assets like equities and commodities. This is because of the reason that US saving Bank account will not even give a return where in you can save your own  purchasing power. However, these remain extremely volatile in the near term and carry a strong possibility of a permanent capital loss. But now, there's some ray of hope we believe. And it comes from the most unlikely of sources, China. As per Moneynews, The Bank of China is letting Americans invest upto US$ 20,000 a year in Chinese Yuan. In other words, the Americans can have their own Yuan denominated bank account. These will offer two benefits what I  believe. First, interest rates would certainly be higher than what one gets in the US and secondly, there is a strong possibility of a capital appreciation as well what with the Chinese currency being significantly undervalued. This is one Chinese association which would be without its fair share of controversies what I  believe. This will help the US citizen to get more return on their Investment without a risk factor involved into it. Secondly the Chinese economy will get  a good number of investors from US which will increase the inflow of USD into their market.Let's check it out that how this move of China is going to work out and will it be really beneficial for the Chinese government to take such decision.

Is US safeguarding its Currency??????

Last decade gives us a clear picture that currency traders who seek profits by borrowing from nations with low interest rates to fund their own purchases in countries with high yield (carry trade)are loosing more money than any time. A study says that this strategy has lost 2.5% in 2010 as, dollar which is considered as the favorite for financing the trades because of its universal acceptance and also because of record low US rates got appreciated, according to an index compiled by UBS, the world's second largest foreign exchange trader. This is even more than the 0.98% drop in the very famous sub prime crisis year that is 2008 wherein the collapse of Lehman Brothers Holdings caused credit markets to freeze and this year was the worst year as far as performance is concerned for carry trades.

Thus gains in manufacturing and retail sales are leading the investors to buy dollar more rather than to sell it to fund their own other investments. Hence the falling demands for carry trades may help the greenbacks extend a rally that is driving the Intercontinental Exchanges which has moved USD up by 4.5% from its 12 month low in November.

According to Mr. Mitul Kotecha, Hong Kong base head of global foreign exchange strategy at Credit Agricole CIB, a unit of France's second biggest bank: "US will look reasonably strong compared to other economies" because bond yields will move higher, and that will certainly reduce the attraction that dollar possess as a funding currency.

Japanese prime minister Naoto Kan said that US was following a "weak dollar policy" through its plan to buy treasuries. According to Chinese central bank adviser Xia bin this will lead to "uncontrolled money printing".
Whereas German Finance minister called the strategy as Clueless.

Now its the time to go through all these statements and analyze what they are up to. According to me it's just a commendable strategy where in US is safeguarding its currency and is trying to bolster dollar with the help of losses through currency carry trade.

Is Investment in Commodities in 2011 safe?????????

As this is just the start of the new calendar year the most important question that comes to one's mind is  where to invest in 2011. Should one choose stocks or go for commodities, especially precious metals?

Today lets have a look how each of the assets have performed over the past 5 years. While stocks have gone up significantly, the precious metals - gold and silver - have massively out performed them. The average gold price during the year 2005 was hovering round about US $ 444.75/ounce. In 2010 the average price of gold is US $ 1421.22/ounce. Gold has become a red hot investment in the year 2010 just for the reason being that there are concerns about inflation and mounting fiscal pressures in the US and Euro. Sovereign debt worries in Europe and large stimulus spending in the U.S. resulted in a particularly volatile year for both the euro and the dollar. That left investors seeking safe-harbor in gold, which is often seen as an alternative currency. As far as Silver Prices are concerned you can very well guess that the Price for Silver has reached to its highest  till date since 1980. At present Silver is dealt at the rate of US$3091/kg.

However, the question is – will silver and gold continue to outperform stocks? Well they have proven themselves to be safer havens over time. And this has attracted investors who have poured money into them and most likely will continue to do for some time to come.

But a word of caution here! Gold unlike other investments acts as an insurance policy. Like a home insurance policy that protects us against any loss on our homes, gold protects our nest egg against inflation. Taken into account that the world is over, central banks are hell bent on debasing their currencies, they are just laying the ground for high inflation in the future. However, then we need to be careful  not to have an over exposure to this insurance.