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The Bull 'n Bear on the Yuan, Goldman Sachs



April 20, 2011 – Comments (0) | RELATED TICKERS: BRK-B , GS , GLD

Two items that caught my eye in today's papers:

- The WSJ's front page article is China Speeds Yuan Push, which describes some of the steps China is taking to give the yuan a bigger role within international financial markets. Is the yuan the next international reserve currency? Will it replace the dollar? Let's not get ahead of ourselves; after all, the Chinese currency isn't even convertible at this stage (not within the capital account, in any case). However, it should be clear that we will probably witness the rise of the yuan as a major currency and there is no reason to believe that it could not become an important reserve currency alongside the dollar and (to a much lesser extent) the euro.

What is certain is the the U.S. must be prepared for a long period of slow decline in the primacy of the dollar as a reserve currency. Furthermore, if the U.S. political class is unwilling to tackle the problem of the country's unsustainable public finances, that process will only take place faster than it would otherwise.

On a related note, gold futures broke through $1,500 yesterday. At the beginning of the year, I predicted that gold would be hugely volatile, breaking through a wide band on the upside and the downside($1,600 was the level I had set on the upside).It looks increasingly likely that I will be at least half right.

- Goldman Sachs reported earnings that beat estimates, but that impressed no-one. Apparently, investors are concerned about the sustainability of current profits. I think Goldman is being prudent in the face of regulatory uncertainty. Would it surprise you to learn that the firm is actually the least leveraged of the top 5 banks?

Enjoy your day!

Alex Dumortier

The Bull n' Bear

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