China is the world’s fastest growing economy, and for the first time ever, it now drives the global economy when it comes to commodities like steel, lead and nickel. China’s trade surplus with the U.S. almost doubled in the first quarter and the Chinese hold an estimated $7 billion of our currency. In fact, the U.S. has less control over its economic destiny today than it’s had since WWII. China is setting prices where the U.S. used to, changing the entire dynamic of the world economy. For example, homebuilders are all weak, but copper and other uilding materials are high because of Chinese demand. Americans are now paying up for something where the demand is dropping at home. To try and explain the implications of this sea change, Joe Lavorgna, chief economist at Deutsche Bank, joins the guys on set.
We first saw this happening in oil, and now it’s happening with other commodities and raw materials, Lavorgna says. China owns a lot of U.S. assets and they are going to diversify those over time. He recommends shorting the U.S. dollar as a play against this, and buying those big cap companies that can compete against China and even benefit from a weaker dollar. You want to bet on a steeper yield curve as well, Lavorgna says, where longer-term interest rates will be higher and shorter-term rates will go lower.
Eric is bearish on the dollar as well. He explains that when China finally decides to sell its U.S. assets, that is going to put a lot of downward pressure on the dollar and it will get cheaper in turn. He wants to own gold in this scenario – when the dollar is down, it’s a safe bet that gold will become more expensive.
This thesis of shorting the dollar and going long commodities has been a trade for years, Tim says. He likes the iShares Pacific ex-Japan Index (EPP), an ETF which has been on fire lately.
Guy’s got two Asian ETFs he likes for this sea change – the iShares Singapore (EWS) and Taiwan (EWT) Indexes.
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On APR 10, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Bolling Owns (XOM) (EP), Gold, Silver
Strazzini Owns (CBS), (T), (VZ), (YHOO), (MER)
NBC Universal Is The Parent Company of CNBC
LaVorgna Is Deutsche Bank's Chief U.S. Economist