Breaking News: China to the rescue

Wen Jiabao

Breaking: Chinese Has Expressed Readiness To Increase EU Investment: Wen

While this is positive in the short term, it's nothing that hasn't been said before, and may carry long term repercussions. Here's why. Obviously China is willing to buy European assets at fire-sale prices and invest in double digit +IRR investments. They'll do it happily! The question is, how long will the relief last, and on what conditions? After all, China already has sizable investments in the Euro, Greece, Portugal and the EFSF, and we've still ended up in this miserable situation. Will Wen then use the bailout as leverage to basically make the EU its bitch, and vote with China in all future WTO escalations with the US? When Wen says "Recognizing China as a full market economy is how a friend recognizes a friend", he means the Chinese will win any future trade disputes with the EU. Wen "urges" Europe to do this before the WTO does in 2016. A subservient trading partner like Europe could severely hurt our position in any upcoming trade wars, and if Europe likes life the way it is, that may be their only route. This coud devolve into worldwide trade wars, and after trade wars come war wars. Yeah. It sucks.....I'm not quite as pessimistic as to think this scenario will play out as I described, but it's certainly possible and something to be watched. The best way to hedge against all this craziness is physical gold. Not the Spyder Gold Trust ETF (GLD), but physical gold. That's why at least 5% and no more than 20% of your portfolio should be in gold. As of this post futures are down off the news by a half of a percent. It seems other people were thinking the same thing I was. Amazing how the lame-stream media misses the whole gist of the story. Sigh.

This is not a recommendation to buy or sell any commodities or securities. DAK owns physical gold and is long the GLD but positions can change at anytime.