Yesterday I wondered why China was speaking out on Iran and “diplomatic” efforts. My thought was related to oil, and I believe that plays a large factor as China is looking to Iran to meet their energy needs, but it may also be due to China providing nuke-tech to Iran.

Something I had not considered.

From the Guardian:

A Taiwanese company agreed to a request from a firm in China to procure sensitive components with nuclear uses, then shipped them to Iran, the firm’s head said Friday. Such transactions violate U.N. sanctions imposed on the Middle Eastern nation.

In a telephone interview with The Associated Press, Lin said he received an Internet order from a Chinese firm in January or February 2008 to obtain an unspecified number of pressure transducers, which convert pressure into analog electrical signals.

While pressure transducers have many commercial uses, they furnish the precise measurements needed in the production of weapons-grade uranium.

While the company who sent the technology wasn’t based it China (Taiwan) the order came from an Chinese firm. 

Kinda reminds you of Germany and France putting up resistance to the Iraq war. Oh, maybe because Germany was heavily involved with weapon sales to Iraq and the French had ties to nuke technology.

The Iranian nuclear game of poker continues to ebb and flow.  One side makes a vague political threat, the other decides to show their military power by having some ill planned war games.  Back and forth, back and forth goes the ball…

I tend to take notice when the back and forth nature of the situation changes. When something that, on first glance, doesn’t fit into the picture seemingly just pops up with no warning is usually a signal of changing undercurrent that the general public is unaware of. Today saw such a hint come into the public vision – China urges diplomacy instead of sanctions with regards to Iran.

The two major players in the political arena that had ’supported’ the Iranian position were Russia and China, mainly due to their involvement Iran’s energy sector. Russia, however, backed away from their hard line position last fall leaving only China holding up additional sanctions against Iran.

Why did Russia back away? Because the United States magically removed the missile shield from Poland.  Surprise how things like that work.

Why is China the only one still supporting the political process with Iran?  Easy – follow the money, and the money points to one thing.  Oil.

From the Washington Post:

Iran is China’s second-biggest supplier of oil, and imports are rising. In a country where more people are expected to buy cars this year than in the United States, China’s appetite for oil is unquenchable.

China’s investments in Iran also lessen the likelihood that Beijing will support enhanced sanctions. China’s state-run oil behemoths have committed so much money to Iran — an estimated $120 billion over the past five years.

To see China make a public statement makes me think the U.S. is going to make a push for sanctions sooner rather than later. Will they be successful remains to be seen.

Did anyone watch the action of the dollar today?

As I was unavailable most of the day I was unable to see the action until I got home but the dollar once again broke through the 75.00 mark – all the way down to a low of 74.77.  As the trading day was coming to an end the USDX managed to make it back above the 75.00, also known as what traders sometimes call the support level.

A number of people I speak to think 75 is a critical support level as there is very little in the way of support on the way down to the next major support level of 72.  When 72 breaks all bets are off the table.  This action is interesting to note, however, as the dollar manages to get back to support by the end of the day and has consistently done so over the past several weeks.

My question focuses on what happens when the dollar closes below that psychological level? As a betting man I would guess a movement lower from a mid-term perspective. We have to remember that investments rarely just go to zero (delisting of stocks/bonds aside).  What is often seen is a zig zag pattern – one step forward and two back.  While I would expect the USDX to find its way to the area around 72, it will not be a straight drop.

While a number of events are pushing the dollar lower the news of the day that may explain the action is this: China Signals That It May Allow Currency to Rise Against Dollar.

This is yet another signal, along with moving to a basket in place of the U.S. note as the reserve currency and not selling oil in dollars, that points to the U.S. dollar falling.  If China strengthens the yuan the government is providing a clear sign they have concern about the rise in property and equity prices within their country.

They are moving to prevent inflation.

From the U.S. perspective Chinese goods will become more expensive, possibly impacting the U.S. economy, and it also signals to the world that China is no longer interested in the dollar as an investment.  Also, the possible move to strengthen the yuan can be seen as retaliation for President Obama’s protectionist economic decisions that end up negatively impacting China.

Interesting times we all live in.

My post titled “The Coming Economic Storm” raised a number of questions from readers and the focus was on the movement in gold. My position is world governments moving money out of the U.S. dollar into something physical, a commodity, and gold is one of the resources where they are moving to.

One thing I did not place in my original post was WHY I started to hold this view, let me clear this up before moving on to backing up my position on government actions.

As the stock market recovered from from the March 2009 low I had expected to see the price of gold to move down; however, that did not seem to take place.  Traditionally, when there is uncertainty in the world – or in the U.S. markets – gold would increase in price.  When things would look “good” the price of gold would start moving forward. When it became apparent the price of gold was disconnected from stock market I started to think something else was up.

Now, why is it that I think world governments are moving into Gold and away from the dollar as an investment?

• The IMF is selling 200 tons of gold to India
• China is expected to buy 203 tons of gold from the IMF
• And China has added 454 tons of gold since 2003
• Russia may buy gold and cut rates
• Pundits are now saying gold is going to be currency again
• Gold is finding buyers outside of governments

And what is missing from this picture?  The United States buying gold for their reserves.

It is clear other governments are stockpiling gold, and as a result, other investments are not being funded.

What other investments have you watched fall over the last 8 to 12 months?

The U.S. Dollar.

Right now, it looks as if the U.S. Dollar is marching toward the end of reserve status.  The question is how long will it take.

Looks like Ford may have finally found a buyer for Volvo.  Surprise, surprise!  It’s a company out of China.

Ford Motor Co. narrowed talks on the sale of its Volvo Car unit to one bidder, a consortium led by China’s Zhejiang Geely Holding Group Co.

Ford will be holding more “detailed and focused negotiations with Geely,” having chosen the Chinese company as the “preferred bidder,” the U.S. carmaker said in a statement today.

Ford is asking $2B for the brand, roughly 1/3 of what they paid for it.  With the Volvo platform totally integrated into Ford’s product line, it will be very interesting to see how such a sale would play out.  Also, would there be any anti-trust issues facing the deal.

Chinese companies are really picking up assets during this fire sale, aren’t they?

The drumbeat for the decline of the dollar picks up as we start another trading week off. China once again talk about he they may/should/are/are thinking (via Market Watch) about moving away from the dollar:

The dollar fell against the euro and the yen in Asia on Monday after an official newspaper of the Chinese central bank said China should cut its U.S. dollar holdings, adding to concerns over the unit’s global reserve currency status.

The dollar could weaken further later in the day, particularly against the risk-sensitive euro, which is also benefiting from stronger share markets, dealers said.

During morning trade in Tokyo, the People’s Bank of China-affiliated Financial News reported that China should shift more foreign reserves away from the dollar and into the euro and yen.

I am very nervous about this week (financially).  Here is why:

1. Capmark going under right on the heals of 7 banks closing down Friday
2. China feels the need to talk about moving away from the dollar (please see point 6)
3. CIT has the 10/29 deadline they are facing
4. Major companies report this week (industrial, some banks)
5. European Council meeting (late week) which will talk about the impact of the falling dollar
6. Q3 GDP numbers expected (Consensus is 3.0%).
7. HUGE U.S. bond auctions all week - roughly $124B

While every week has plenty-o-things going on, the stress levels ebb and flow.  Right now, when one looks at all the data, it almost feels like the financial market is on the crest of a wave about to crash.

I’m all for positive; however, just pay attention.

By Asian nations looking to ‘lead world’ in an EU-style community, does they mean China and India run Asia at the cost of the other nations?

Asian nations discussed plans at a major summit Saturday to “lead the world” by boosting economic and political cooperation and possibly forming an EU-style community.

The prime ministers of regional giants China and India also looked to foster unity on the sidelines of the summit in Thailand after months of trading barbs over long-standing territorial issues.

But nuclear-armed North Korea and military-ruled Myanmar were also set to top the agenda in the royal beach resort of Hua Hin, underscoring the challenges still facing the region.

The European Union is, basically, a French jockey riding a German military horse.  If Asia created a EU style government, I would expect something very similar; however, I have a hard time seeing China giving up political or military control to India (or any other country).

A number of articles in the last few months have shown how China is buying up commodities left and right, Niall Ferguson tells us why:

Washington D.C. is too complacent about China’s ability to wean itself off the dollar.

The idea they don’t have anywhere else to go or would shoot themselves in the foot if there were a steep decline in the dollar or appreciation of their currency reassures many people in Washington ‘we can relax’,” he says. “An appreciation of the renminbi may reduce value of their international reserves but increases the value of every other asset the Chinese own,” most notably the commodity assets they have been buying all over the world.

Let’s face it; in a barter system a commodity would have more value than a piece of cloth that has nothing backing it.

With the world now watching, the news is full of information on the events of Iran. Here are a number of new bits to fill you in:

The Mood In Tehran

Mohammad Sagha, a Chicago blogger, is in Tehran visiting his family for the summer, he has some interesting reports about what is going on that the Western press is not showing. Here is a great comment that, I think, shows something about the mentality of Iranians within the country:

This morning’s Tehran Times, an english publication inside Iran, had this following headline: “Candidates and followers are different from rioters: Larijani.” Larijani is the current speaker of Iran’s parliament, or Majles. This isn’t the first time a high official has made such a statement, but I think it is extremely important to reiterate; it shows that people look at opposition inside Iran as legitimate as long as they aren’t violent and there are powerful elements inside Iran which are serious about compromise and recognizing dissent.

In the end, if the government starts the violence, how should the opposition react? Kind of a catch 22.

Nico Pitney, of the Huffington Post, has a GREAT live blogging archive of events.

The BBC asks… where did all the votes come from?

Another good article by the BBC that breaks down the three potential areas where the “extra” votes could have come from, assuming they are legit votes.

1) Voter turn out

Result – reported turnout figures are problematic.

2) So where did the new votes come from?

Result – in order to get to the total declared of 765,000 votes from the provinces 44% of former reformist voters would have had to have voted for President Ahmadinejad. Unlikely according to the report.

3) Do rural voters support Ahmadinejad?

Result – his increase in support for Ahmadinejad amongst rural and ethnic minority voters is out of step with previous trends, extremely large in scale, and central to the question of how the credibility of Ahmadinejad’s victory has been perceived within Iran.

Angela Merkel, Chancellor of Germany, said….

“Germany stands on the side of those people in Iran who want to exercise their right to freedom of expression and freedom of assembly. I strongly urge the Iranian leaders

• to allow peaceful demonstrations;
  
• not to use force against demonstrators;
  
• to release political prisoners;
  
• to allow free reporting by the media; and
  
• to recount the votes cast in the presidential election.

What is true for the rest of the world is also true for the Iran: general human and civil rights must be fully respected!”

Seems to be a lot more than what President Obama is willing to say.

China wants Ahmadinejad election recognized

China is throwing thoughts about the Iranian election into the mix:

Last Thursday, an editorial in the state-owned English-language China Daily called on the international community “to leave Irans internal problems to the Iranian people and accept their verdict.

“Attempts to push the so-called color revolution toward chaos will prove very dangerous,” the editorial continued. Opposition candidate Mir Hossein Mousavi “refuses to accept defeat. Win and loss are two sides of an election coin. Some candidates are less inclined to accept defeat.”

China Daily pointed to a pre-election poll that showed President Mahmoud Ahmadinejad ahead by a 2 to 1 margin.

You think Tiananmen Square may be haunting some members of the Chinese government? Maybe it’s the fact that if a revolution could break out in Iran, it could also happen in China. Oh, and the “pre-election poll” the China Daily pointed to is very, very suspect. According to the BB,C 1,731 people contacted and well over half either refused to participate (42.2%) or did not indicate a preferred candidate (15.6%).

UPDATE #1: The IBTimes is reporting Revolutionary Guards commander defies Khamenei’s orders to use force on protestors

General Ali Fazli, who was recently appointed as a commander of the Revolutionary Guards in the province of Tehran, is reported to have been arrested after he refused to carry out orders from the Iranian Supreme Leader Ayatollah Khamenei to use force on people protesting the controversial re-election of President Mahmoud Ahmadinejad.

If recent events are any indication of what may happen to Ali Fazli, you know it won’t be good.

UPDATE #2 0n 6/24/09: Iranian footballers who wore green armbands to support protesters forced to retire

Four footballers who wore green armbands in solidarity with Iranian protesters have been forced to retire from the national team.

Their gesture in a recent World Cup match in Seoul attracted worldwide attention last week.

But the authorities have now taken revenge revenge by imposing life bans on Ali Karimi, 31, Mehdi Mahdavikia, 32, Hosein Ka’abi, 24 and Vahid Hashemian, 32. According to the paper, they have been ‘retired’ from the sport.

Last Friday a U.N. Security Council resolution forbidding North Korea from spreading nuclear and missile technology and it seem the United States is ready to test the will of the United Nations as well as the intent of North Korea.

Kang Nam, a North Korean ship, left port Wednesday and is expected to carrying banned materials.  Apparently this vessel has repeatedly shipped band materials in the past and, as such, intelligence agencies believe it may be doing so once again.

Here is where things get, well, interesting.  The U.N. Security Council resolution forbids a foreign power from forcibly boarding the ship.  I kid you not.  This would mean the USS John McCain, the interceptor, would need to radio the Kang Nam and say…

“Hey, yea, do you mind if we come aboard, look around a bit… see if you have anything illegal…”

If the ship actually has materials the outcome of that request is rather obvious.   Even if they do not, I suspect the answer would be the same.

If there is absolutely no power to prevent the North Koreans from proliferating missile and nuke technology, what is the point of the resolution and why is the United States making it a point to press the North Koreans?

In regards to the U.N. resolutions, well, it’s because the group is a paper tiger.  They want to have the ability to say “Look, we did something” while not really doing anything at all.  They are trying to keep everyone happy, even those in violation of the law and regulations they’ve established; all in the name of world peace.

Yea, good luck with that.

I suspect the U.S. is sending the USS John McCain to test the reaction of other U.N. Security Council members – to gauge their reaction – in order to set the potential groundwork for a defensive attack toward North Korea if American interests are targeted.

Second, this may also be a way of calling out China.  If the Chinese government supports the North Korean ship, or interferes with the intercept, they will do so on the world stage thereby showing the a conflict of interest between what was said in the UN and their real motives on North Korea (which would be protection of that State)

Finally, I believe a message is being sent to North Korea that we are serious; that all within the law will be pursued if they launch an attack.

With news out that North Korea may be planning on firing a missile toward Hawaii on the 4th of July, and this intercept, the situation may get very interesting, very fast, in the next two weeks.