The following is the text of an e-mail I sent today to Subscribers of StockResearchPortal.com. StockResearchPortal.com is a research website that provides coverage on the approximate 1,600 Mining and Oil & Gas stocks listed on the Toronto and Toronto Venture Stock Exchanges.

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China, Iran, Russia and other countries continue to express concern about the ongoing credibility of the U.S.$ as the world’s Reserve Currency in a ‘fiat currency’ world (a ‘fiat currency’ simply being ‘a currency declared by a government to be legal tender). There are many reasons for this, not the least of which are the U.S. economic statistics I summarized in last Thursday’s e-mail. As you may know, President Obama currently is visiting China. Among other discussion topics is the Chinese government’s position on continuing to fix the value of the Chinese Yuan against the U.S.$. The U.S. and other developed countries would like to see the Yuan (in their ‘ideal world’) float freely against other major currencies, or as a minimum be re-priced upward against the U.S.$. I consider this ongoing debate (Henry Paulson met with Chinese officials on this over a year ago) and the outcome of it to be critical generally, and to commodity prices in particular.

I recommend you read the following two articles that have come across my desk in the past two days. The first, is titled ‘Is China’s Currency Manipulation Coming to a Head?‘ written by Bryan Rich of MoneyandMarkets. Mr. Rich contends what he calls China’s ‘currency manipulation’ will “become a major point of contention for the global economy in the coming year”. He expresses his belief that there is a very low probability of ‘China floating its currency’, and a high probability that China will resist any revaluation of the Yuan or will appreciate the Yuan slowly as from time to time it has done in the past. In the latter scenario Rich “expect(s) the world to quickly grow impatient, for political tensions to mount, and for major tariffs to hit Chinese goods”. He thinks:

· this might result in the global economy reverting to recession, and probably depression.

· both scenarios “are major disappointments for those who have anticipated a sharp recovery in global economic activity. That’s a major blow to risk appetite. And a blow to risk appetite is bad for global stocks, bad for commodities and likely good for the safe haven appeal of the U.S. dollar”.

A second article titled ‘China-U.S. discord on currencies clouds Obama visit‘ says

· “China has pledged to keep monetary policy moderately loose, and their concern is still the economic recovery,” said currency strategist Enrico Tanu Widjaja at OCBC Bank in Singapore. “They will probably let the yuan strengthen when they start tightening policy.”: and,

· Chinese officials have grown testy about the pressure over the yuan. Chinese banking regulator Liu Mingkang told a forum in Beijing on Sunday that ultra-low interest rates in the United States were fuelling speculation in overseas asset markets and threatened the global economic recovery.

Whether or not Mr. Rich proves to be correct remains to be seen. My own current view on all of this is:

· I find it difficult to believe China’s government will do other than what it believes to be in China’s best interest. I don’t see the Chinese Government agreeing to let the Yuan float freely any time soon. I simply see the Chinese Government predictably acting in whatever manner it thinks is the best interest of China; and,

· I am not sure why Mr. Rich believes a continuation of China’s current currency policies defacto would be ‘likely good for the safe haven appeal of the U.S.$’ unless he believes the U.S. will institute major tariffs against the import of Chinese goods into the U.S. in an attempt to revert manufacturing jobs back to the U.S. that have been lost to China over (in particular) the past 10 years. I think globalization has advanced too far, too fast, for that to happen in a meaningful way, and that other (perhaps nasty) repercussions would arise out of such protectionist actions by the U.S. and the other developed countries.

That said, I strongly recommend you read the two referenced articles by clicking on the links to them provided in this e-mail - and subsequently follow this ‘Chinese Currency Exchange Rate’ issue closely. You can also find several additional articles on this topic and Obama’s ongoing China trip in the ‘Today’s Filtered News’ data components available on the left side of StockResearchPortal.com’s Home Page - see for example ‘Obama unlikely to push China hard on currency‘.

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