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Tastylunch (29.42)

China Says to America "It's On Like Donkey Kong!"

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49

June 16, 2009 – Comments (31)

Uh Oh Here we go

from

http://www.ft.com/cms/s/0/66454774-5a7c-11de-8c14-00144feabdc0.html?nclick_check=1

" ‘Buy China’ policy set to raise tensions

By Jamil Anderlini in Beijing...

China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.

...

“From a domestic political perspective this makes some sense because local governments do tend to favour foreign products in some categories,” Dong Tao, chief China economist for Credit Suisse, said. “But given how important free trade is for China’s economy this is not the right message for them to be sending to the rest of the world right now.”

Just a few months ago Beijing was raging against a proposed “Buy American” clause included in the US economic rescue package....

 “We are puzzled by this discussion, especially since most European companies operating in China are locally incorporated and have not benefited directly from the government’s stimulus package,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “Requiring government procurement to favour Chinese goods and services certainly won’t help to address China’s trade surplus of €170bn...”   "

 

Tasty's commentary- Oh (EXPLETIVE DELETED) !  Smoot-Hawley Trade War II: The Staring Contest has made it past the opening credits!

Oh Joerg you silly silly man, the Chinese never had any intention of addressing that surplus. Why would they? Would you if you were them? I don't think I would.

Think the Chinese gov't isn't serious about this?

 

Here's exhibit A  that's possibly to the contrary

http://www.chinadaily.com.cn/china/2009-06/16/content_8288001.htm

"For the first time in 11 months China's holdings of US Treasury bonds fell - to $763.5 billion in April, US government data showed.

The figure, down from March's $767.9 billion, was the lowest since June 2008.

They do not include US Treasury bond holding in Hong Kong Special Administrative Region, which climbed to $80.9 billion in April from $78.9 billion the previous month.

The decline in the China holding "seems to stem from net selling of Treasury bills," said Chirag Mirani of Barclays Capital Research." "

 

Hahaha hoooo well that's not good, when you consider how much supply we are putting out there right now. I didn't think China was that stupid to pick a fight like this while the US still has this much punch left in the tank. I thought they'd wait a couple years when we are weaker and more dependent on them holding our debt (if the current course holds true) It appears to me that the US and China are heading for a showdown

 

Think Geithner knew this when he went to China two weeks ago? I bet he did.I bet it's why he went at all.

 While I doubt even China is suicidal enough to dump all their US holdings at once  and one datapoint does not a trend make, this bears watching. If this continues and/or accelerates our dollars may not be worth very much.

Oh and guess what Brazil, India and China and Russia met today today without the US to discuss a new int'l reserve currency...

http://themessthatgreenspanmade.blogspot.com/2009/06/decline-in-treasury-holdings-by-chinese.html

That should be fun.I think they are planning a secret birthday party for the US  (shhhh our birthday is coming up next month!) don't you? What you don't think that's what they are doing?

I don't know about you but all this makes me more than a little nervous. It's far from being a full blown problem at this point, but the seeds are starting to germinate.

Personally I was expecting a corrective small move up in the dollar in the short term  but when geopolitical chicanery on this scale gets involved I'm not sure  Economics, fundamentals and TA really  matter as much. 

 

31 Comments – Post Your Own

#1) On June 16, 2009 at 10:49 PM, binve (< 20) wrote:

Tasty. Wow, that is just craziness. But you definitely get a rec because of the title and your comments. LOL! Awesome man :)

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#2) On June 16, 2009 at 10:54 PM, JakilaTheHun (99.93) wrote:

I don't thing this is a very wise move.  China needs the US more than the US needs China. 

Quite honestly, I'm getting rather sick of China's arrogance and constant suggestions that the US is solely to blame for this.  It's true that America adopted a reckless economic policy based on unsustainable borrowing habits, but the reason this avenue was available to begin with was because China was buying the USD to manipulate its own currency and subsidizing American consumers to increase their own exports more.  Yeah, the US is guilty, too, but it takes two to tango. 

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#3) On June 16, 2009 at 10:56 PM, russiangambit (29.42) wrote:

> "For the first time in 11 months China's holdings of US Treasury bonds fell - to $763.5 billion in April, US government data showed

---------------------------

China sold Treasuries to finance their own stimulus and to stockpile on commodities. Their exports are also significantly down, so they don't have as many dollars to buy Treasuries with. Not a good news for US Treasury rates.

Also, the idea that Chinese stimulus somehow will stimulate US economy doesn't hold water. Chinese don't buy anything from the US (well, may be with exception of heavy machinery), they have their own knock-offs. If anything, it will drive up the price of commodities.

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#4) On June 16, 2009 at 11:09 PM, Deepfryer (27.77) wrote:

I think you're probably exaggerating a bit, but you get a rec for excellent usage of the youtubes.

Maybe we should be more worried about North Korea!

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#5) On June 16, 2009 at 11:26 PM, JakilaTheHun (99.93) wrote:

But while we're on the subject, the best thing in the world is for the value of the USD to decline.  Declining dollar = more US exports.  The USD's value has largely been inflated by China in order to manipulate their own currency.  American policymakers have seemed to ignore the fact that this harms our own economy.  For whatever reason, our politicians are obsessed with a "strong dollar" --- I guess they like the word "strong", but in this instance, it's not necessarily a good thing.

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#6) On June 16, 2009 at 11:34 PM, alstry (36.12) wrote:

You have been warned. 

Our banks have been flooding China with our dollars.

Our banks have been flooding China with our jobs.

Our banks have been investing in Chinese Banks .

Our banks have loaned Chinese billions and billions supporting Chinese industries.

American citizens have purchased trillions worth of Chinese goods building up China's industrial base.

American citizens have bailed out our banks to the tune of trillions.

Now our banks won't loan American citizens any money or forgive the debts after we bailed them out??????

Ask yourself if pushed against the wall, who would our bankers support???.....Americans or Chinese???....how about those that could make them the most money!!!!!!!

Who do you think that is now????

Prepare...you know in your gut its coming!!!!!!

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#7) On June 16, 2009 at 11:34 PM, Tastylunch (29.42) wrote:

binve

haha thanks man :)

figured it was about time to bring another one of these post out

since my last one was nearly a year ago.Remember this one?

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=57950&t=01001099994698083105

I wanted to include the original Ice Cube video, but figured it wasn't CAPS friendly.

It's not a Binve quality post, but it's breaking stuff anyway. :)

JakilaTheHun

I completely agree. Most people miss that part of the picture. China doesn't have a whole lot of readily available options for a market for their products.They do need us and they just can't dump all our debt at once.

It's why their antagonism surprised me so much. I thought China would want to buy more time to wean off of  the US market before upping the ante (e.g. their recent trade deal with Peru) I knew we could be dumb, but I thought China was smarter than this.

I guess political power makes everyone foolhardy.

russiangambit

That makes sense. We have the limitless ability to issue treasuries but of course China have their own limitations on how much they can buy.

We'll have to see if this is the beginning of a trend or a one time event. The timing though is not fortuitous the Uninted States in the political game.I suppose it culd just be manuever  put pressure on Obama to adopt measures the Chinese would like to see us do.

I don't know why anyone would think a Chinese stimulus would help us, bit I've seen people buy into more poorly thought beliefs. I'm sure you have too.

I agree with you RE:commodities and treasuries, I had been neutral to slightly bearish on commdoities after the rcent run-uup but this I think keeps the fires burning.

I would think most outcomes from this event favor higher commodity prices and higher treasury yields.

 Deepfryer

why thank you

and your are right I probably overstated the significance somewhat of the events, due to my poor attempts at humor. This is a but a troublesome step along a dangerous path.I do think it;s very significnat though, considering what happened in the GD re: Trade Wars.

Re: N Korea I disagree. I always have viewed N Korea as China's Bad cop mouthpiece. As long China holds their leash I doubt  N Korea will bite us severely. I think the situation there is mostly bark and little bite at present.

Perhaps that is an incorrect assesment but that's how I see it.

 

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#8) On June 16, 2009 at 11:43 PM, binve (< 20) wrote:

Tasty: LOL! Yeah man, "Get Off the Counch Fattie" was a classic! :). Yeah, the house of cards that Treasuries have become is getting more unstable with all of these wind gusts (China and Japan). But like you and I have talked about in the past, the Treasury bubble won't collapse yet precisely because everybody is expecting it to. However, developments like these won't help Treasuries or the Dollar short term or long term. Thanks man :)

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#9) On June 16, 2009 at 11:55 PM, Tastylunch (29.42) wrote:

JakilaTheHun

I'm inclined to agree. the dollar peg has been a real hindrance to my region of the US (Midwest) for years.  Many of us have been pushing for a weaker dollar relative to Renminbi for years to allow our manufacturers to be more competitive.

Of course whether that's good or not will depend entirely upon degree. and speed of revaluation.

There's a whole ton of ways that could go wrong.

I would think though if the WTO worked at all, China would have to have a floating currency by now.

That's just how it seems to me.

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#10) On June 16, 2009 at 11:59 PM, Tastylunch (29.42) wrote:

Shwoops should have included this video of what could happen if hostilities accelerate!

binve

Right-o my man. completey changes the technical picture for many things.I guess we are back to agreement again. :)

Wish I hadn't sold my ZINC on Monday :(

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#11) On June 17, 2009 at 12:09 AM, NOTvuffett (< 20) wrote:

Since when did we have many 'fair' trade partners?  My company has had trouble even sending stuff to Mexico.  Even our 'good friends' the Japanese put up all kinds of barriers.  We are fools for holding ourselves to that standard and expecting it from few others.

Maybe the Chinese weren't stupid for selling US treasuries and buying commodities for future use, although the last couple days not kind to commodities.  Maybe the future will be less kind to treasuries, lol.

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#12) On June 17, 2009 at 12:55 AM, PedoBear (< 20) wrote:

The whole notion that Chinese leadership is patient and calculating, due in some part to their long history, is something I feel to be deeply flawed.

China hugely miscalculated with their U.S. debt investments, to such a large degree that the fallout would threaten their fragile social/political situation.  Sustained economic growth is the only way the Chinese communist leadership remains in power and they know it, so the prospect of saying "my bad" and writing off U.S. debt and taking the hit is equivalent to suicide.

So while dumping and neglecting U.S. debt is good for China in the intermediate and long run, I don't think they have the chopsticks to do it...China is going to get hammered.   

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#13) On June 17, 2009 at 12:57 AM, awallejr (81.36) wrote:

"Oh and guess what Brazil, India and China and Russia met today today without the US to discuss a new int'l reserve currency... "

And yet both Japan and Russia, 2 of the 3 top holders in US treasuries basically either outright support the US dollar or stated there simply is no alternative to it.  Dream on China.  While you might spur economic growth short term with infrastructure play, without the US buying your crap, you aren't going anywhere long term.  And since it looks like the US won't be buying China's crap they better rethink communism and build up their own middle class.

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#14) On June 17, 2009 at 1:20 AM, Tastylunch (29.42) wrote:

NOTvuffett

No one ever said we did. And Frankly we've had unfair trading relationships that have been solely in our favor in the past.  But there are degrees of fairness.

And I agree with you at some point if we don't force our trading partners  to hold their end of the bargain (whatever that may be) we (or whomever is the fully open party... the US isn't always the good guy) just get taken advantage of.

What's the point of free/fair trade if only one party does so?

No one is saying the US acts in completely good faith here, but the dollar peg strikes me as overdue for adjustment.

PedoBear 

again it's by comparison. Compared to US lately their leadership sure seem to be at times.

I agree they can't wholesale dump, but if they can find a willing chump or a way to wean off of it, well it's not good for us.

I don't believe their growth numbers for  second, they claim GDP growth is continuing yet electricity usage is dropping. That doesn't add up. As long as they can spoon feed people BS statistics, they can probbaly keep the populace in line until the growth engine actually restarts.

Still just because it's suicide doesn't mean the Chinese cant play brinkmanship. It's been done with nuclear weapons I don't see why it can't be done with debt.

awallejr

I'd expect continuous double talk out of of both of them. China is now Japan's largest trading partner as of last month btw.They may not have an alternative to the dollar right now, but that doesn't mean they aren't looking or developing one. But until it's ready they don't want to rock the boat I'm sure.

I agree about China needing the american consumer. It will be interesting to see if they are able to create new markets for their products. But yeah that will take years to create.

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#15) On June 17, 2009 at 1:32 AM, angusthermopylae (39.53) wrote:

The whole notion that Chinese leadership is patient and calculating, due in some part to their long history, is something I feel to be deeply flawed.

While Pedobear does have a good point, I would say that such a view is because they are currently running a country with 4-5 times the population of the US...everything they do has to keep that behemoth running (fairly) smoothly.

With that said, I'm with everyone else:  This is pretty damn surprising...if it's more than financial saber-rattling.  I've said time and again that they would be cutting their own throat if they dumped Treasuries and started a trade war...

...but I'll allow that, for them, they might see it as better than whatever alternative they predict.  Perhaps cutting ties because they have other plans, and can't be too dependent on US?

Or, it is "financial saber-rattling", and they want to make sure they get preferred treatment when it all hits the fan.

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#16) On June 17, 2009 at 1:39 AM, 11x (< 20) wrote:

Boy, this "Buy Chinese" propaganda is really going to hurt the US!!!  Just imagine all those American goods that are going to sit on our dock that were formerly going to Chinese consumers!  Things like... uh.....

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#17) On June 17, 2009 at 1:40 AM, awallejr (81.36) wrote:

"I agree about China needing the american consumer. It will be interesting to see if they are able to create new markets for their products. But yeah that will take years to create."

Yup.  Time will tell, but it really will take some serious time.  If the average annual income of a wage earner in China is anywhere from 2 to 4K, I don't see such major impact worldwide.  Someone earning 2k annually isn't buying a $15,000 car.

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#18) On June 17, 2009 at 1:57 AM, FleaBagger (28.84) wrote:

When you're selling a rapidly depreciating asset like UST's, you want to be one of the first ones to sell, even if you hold enough to significantly impact the price.

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#19) On June 17, 2009 at 6:32 AM, TMFDeej (99.30) wrote:

Great find, Tasty.

Deej

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#20) On June 17, 2009 at 9:51 AM, madcowmonkey (< 20) wrote:

I guess we could just settle this within the DSRL world championship series. What a way to decide.

I wouldn't mind making the alternate squad. I have been practicing my entire life:)

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#21) On June 17, 2009 at 10:01 AM, madcowmonkey (< 20) wrote:

I guess this relates if you know what a kill screen is.

http://www.youtube.com/watch?v=UmkhXdSC62w

" The end of an arcade game. Your so damn far into the game, the game gets confused, and in Donkey Kong's case, just kills you."

 

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#22) On June 17, 2009 at 10:07 AM, rofgile (99.32) wrote:

The "Buy Chinese" propaganda is not an economic measure, but a social measure.  Read about what's happening in China this last year - factories in the cities have been cutting jobs like crazy, workers are having to return to the countryside.

This is a country that is already starting to have public unrest over property rights, the environment, and inability to legally defend oneself.  Internet media is becoming much more powerful - China's latest moves have been to clamp down on computers with defacto firewalls built in from all manufacturers who sell into China.  

In the history of the world - revolutions don't happen when economies are good - they happen when they are bad.  They happen when people are out of work, upset and have time to organize.  That is where China is currently headed if things don't improve.  The government is getting worried about this possibility and doing desperate actions.  Plus - while people in China might get upset about a Buy American clause here, I think most Americans don't even follow world news enough to care about China having a Buy China clause.

 

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#23) On June 17, 2009 at 2:03 PM, anchak (99.85) wrote:

Hilarious blog on a not-so-hilarious infact downright dire issue.

Some of this internal-posturing, some sabre-rattling , but there would be a slice of element of truth. And that's what's worrisome - let me say this - and I simply cannot recall too many blogs ( except maybe a couple by Deej) .....

The aniticipation and wealth/greed associated with the Chinese Olympics never materialized - but the simple political/posturing problem to deal with their "Beijing Fog" - the industrial shutdown - caused the Commodity frenzy to be starved - and I think really was cause for the Oct crash.  - Till then the Fin Short-Comm Long was working so well ( check in the Fool - that's when SpecBear started falling off also)

So seemingly ancillary actions - have tremendous unintended consequences.

Tasty ...your voracity with info is an asset to us who miss these

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#24) On June 17, 2009 at 6:21 PM, Tastylunch (29.42) wrote:

angusthermopylae  I feel you, your thoughts are similiar to my own. As for Chin'a goal of the two you mention I figure it's a little column A and lat of column b. They are probbaly trying to give themselves as many options as possible.
  11x  LOL, well it wouldn't hurt us very much directly other than a few megacongloms (it actually might be subtle way to suggest to them that they relocate to China) it would probbaly hurt some European countries like Germany more. The real thrust though is that this escalation in Trade war talk.  Now that could be disastrous.
 awallejr  "Yup.  Time will tell, but it really will take some serious time.  If the average annual income of a wage earner in China is anywhere from 2 to 4K, I don't see such major impact worldwide.  Someone earning 2k annually isn't buying a $15,000 car." I was actually thinking China would focus on other international amrkets for their products. Certainly  as you've stated any domestic demand would be anemic for decades, although average income number probably isn't super useful since there is dramatic disparity between urban and rural dwellers in China.Plenty of Chines companies seem to have found a big market in the big citites for products.Evethough what only 27%+ or s of Chinese live middle calss lifestyles you are still talking about a market of 200million or so. That's a significant US demand replacement puzzle piece.  FleaBagger (98.68) wrote: Well that's always true but it's a little different if the person's asset you are trying to dump has nuclear weapons.China has to be very careful lest they risk our wrath should they send us into a freefall (the same would hold true for us in a similiar situation)
 We've gone to war over far less. Imagine what our gov't might do if a foreign country intentionally deepsixes our economy? I really think military retaliation would be on the table. I really really hope it never comes close to that.
 

TMFDeej

Thanks Deej

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#25) On June 17, 2009 at 6:24 PM, Tastylunch (29.42) wrote:

madcowmonkey

Clearly the DSRL has been setup for this very purpose! I'm not an Oreo man myself, I'm more partial to the kroger store brand knockoffs. I don't know why :)

RE: donkey kong ending, that's comedy gold man :) I never amde it that far in DK, I think stage 12 or so was the furthest I got. I've beaten Donkey Kong JR though. :)

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#26) On June 17, 2009 at 6:30 PM, Tastylunch (29.42) wrote:

rofgile

I think it's many things. The point you bring up is a good one about trying to keep revolution suppressed at home for them. It is a definite issue for them and clearly the gov't economic numbers do not come close to matching the reality on the ground there. No question the chinese has to walk a tightrope right now.

We already know China's move at this point, I'm now more worried about what our government will do.Hopefuly we are too lazy to respond.

I agree the American public won't notice unless someone like Glen Beck starts ranting about it (the Fox news crowd has a stong anti chinese slant many times), but I'm more worried the US treasury and Geithner are gonna freak when they see the Chinese cutting their US stake in conjunction with the smack talk.

I don't think they(Geitnehr et al) act based on what the American people want or need anyway. That makes them liable to do anything.

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#27) On June 17, 2009 at 6:39 PM, Tastylunch (29.42) wrote:

anchak (99.69) wrote:

It's High Stakes for sure. This ahs to be the most international tension I've seen in my entire life (well that isn't that long). my old man though is more scared about what's been going on than he's been in his entire life, that makes me nervous.

I agree I think this is sabrerattling that in this climate has the real potential to get out of hand. The US and China do not seem very adept at talking with each other. Unlike it was with the USSR I dont know if we can successfully mutually back away from the ledge if things escalate. There is a real cultural communication style barrier here.

I wish I had the guts to short China post olympics, I remember not going long China primarily becasue I thought it would slowdown there (and the past history of host countirs stock markets post games is usually terrible once all the gov't spending and foreign tourism money turns off host country companies). But I chickened out actually shorting it.

I agree I think the Bejing fog was a mjor contributing factor to the commodity collpase. I do think hedge funds were just as important to it as well though. They started dumping commodities in July if I recall. Unlike specbear they were a lot of long fin long com and they were forced to dump both tocover the losses fin was giing them.

So seemingly ancillary actions - have tremendous unintended consequences.

That may be one of the wisest things I've ever read on CAPS. Very true and well stated.

Tasty ...your voracity with info is an asset to us who miss these

Hey Np, we don't all have your analytical prowess my friend, I'm glad it was of use to you. I try to use whatever edge I can get and share it when I can :)

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#28) On June 17, 2009 at 7:15 PM, UKIAHED (38.11) wrote:

Tastylunch

 

Nice post – good find. 

My .02 – we would not stand alone in any trade/currency war with China.  If they tank the dollar – it would affect everyone on the globe.  I’m pretty sure that the first to jump off the treasury bandwagon (in any huge way) would be held up to the fire by the rest of the nations holding dollars.  It seems to me that backing away slowly from treasuries would be the more likely course for China and/or any other creditor nation.  What better way to do this than to rattle your trade saber – then at the precipice – back away graciously – while still slowly reducing your treasury holdings.  

If I am wrong and things do progress to an all out trade war.  Be thinking of dumping stocks whose inventory comes from China (Walmart, Target, Dollar store, etc).  What would Chinese stock values look like?  Hmm – I’ll have to think about that.

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#29) On June 17, 2009 at 7:32 PM, Tastylunch (29.42) wrote:

UKIAHED

good thoughts. You may be onto something here. The real danger to China mightbe the Japan's etc who would get burned by a hasty withdrawl by China

The problem with Chinese value stocks is the accounting over there is unreliable unfortunately. However that of course makes the legitimate ones more attractive since they'd likley be unfairly painted with the same brush unfairly. I think most Chinese equity is unattractive at the present though.

Me personally i'll stick with Brazilian equities.

I agree Re: big box retailers. Especially those with private label brands. Most of those are imports,

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#30) On June 18, 2009 at 5:08 PM, Tastylunch (29.42) wrote:

Uh oh this horrible idea appears to be gaining traction

http://blogs.wsj.com/chinajournal/2009/06/17/shopping-around-on-the-push-to-buy-chinese/

I think the net result of this could be relocation of some europeans companies to China.

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#31) On June 18, 2009 at 6:37 PM, Tastylunch (29.42) wrote:

more good thoughts here

http://www.businessinsider.com/chinas-suicidal-buy-china-provision-2009-6

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