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The Dollar's Demise: Is China Signaling the Beginning of the End?

Posted Jul 08, 2009 10:51am EDT by Peter Gorenstein in Investing, Newsmakers, Recession, Banking
Related: dvn, eog, xle, ^gspc, ^dji, fxi, rsx

The G8 Summit in Aquila, Italy is underway. World leaders are gathered to discuss threats to global security, climate change, world hunger, and the global economic crisis.  But investors will be paying especially close attention to what's said about the U.S. dollar as the de facto international currency reserve. 

Charles Ortel managing director with Newport Value Partners, an independent research firm, is convinced lawmakers have already doomed the greenback.  "In the actions of our politicians of both parties - Democrats and Republicans - all you see is fiscal irresponsibility."

China and Russia have already said they want less reliance on the U.S. dollar.  Just this week, China began a new program allowing some importers and exporters to settle trade in China's currency, the yuan.  However, with $2 trillion worth of reserves, mainly in dollars, China has to walk a fine line.  Even so,  Ortel thinks we need them more than they need us.   "It’s helpful to us to have their cheap goods."

And he points out China is already diversifying away from the dollar.  "They are quietly snapping up petroleum assets, raw materials, copper, etc. They could deploy a lot of their treasuries productively and quietly without disturbing their value too much," Ortel says.

So if you can't beat 'em, might as well join 'em.  He recommends piggybacking on China's investment  strategy by buying international timber,  natural gas and petroleum.   Specifically - for investors with a 3-to-5 year time horizon - he thinks know is great time to play the energy trade, with beaten down stocks like, Devon Energy (ticker: DVN) and EOG Resources (ticker: EOG). 
 

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