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Gold Takes Out $1000/oz, China Alarmed by US$ Printing, CIC Looks To US Real Estate, FHA: Another Taxpayer Assault?

Gold changes hands above $1000/ounce this week as China continues to sound the alarm regarding US$ weakness…

China alarmed by US money printing – Daily Telegraph Daily Telegraph reports

The US Federal Reserve’s policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”. “We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como. “If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

China’s reserves are more than — $2 trillion, the world’s largest. “Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added. The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction.

 

I devoted Monday’s post to the rise of the inflation trade. Well, I thought I’d throw another log on the proverbial fire with the story below. The Chinese realize they are in possession of a bunch of rapidly depreciating paper and they are in the process of plowing said paper into any hard asset they can find. This process is, of course, the very definition of inflation.

CIC looks to pile cash into U.S. real estate – WSJ
The Wall Street Journal reports China’s $300 bln sovereign-wealth fund is eyeing big investments in distressed U.S. real estate, according to people familiar with the matter. To finance some of the deals, China may rely on the U.S. government.

In recent weeks, officials from China Investment Corp. have held talks with U.S. private-equity fund managers, including BlackRock (BLK), Invesco Ltd. (IVZ) and Lone Star Funds, about potential investments in beaten-down property assets, namely mortgage securities backed by office buildings, hotels, strip malls and other commercial property. CIC also is considering buying ownership interests in buildings, according to the people with knowledge of the matter.

In addition, CIC is weighing investing through one of the U.S. government’s bailout programs, the Treasury’s Public-Private Investment Program, known as PPIP. The program is designed to rid banks of toxic mortgage securities by enticing investors to buy these assets with financing from the U.S. government. Representatives for CIC, BlackRock, Invesco and Lone Star declined to comment.

Here we go again…

Concerns are mounting FHA may need taxpayer assistance – WSJ
WSJ reports as it tried to help shore up the ailing housing market during the past year, the Federal Housing Administration increased its exposure, particularly to mortgages in high-cost states that have also seen some of the sharpest price declines.

Now concerns are mounting that the agency — and the U.S. taxpayer — may have to pay the price. The FHA insures loans secured with down payments as low as 3.5%. But values in many markets in which it has been increasing its activity have fallen far more than that in the past year. The result: A growing number of homeowners with FHA-backed loans owe more than their homes are worth and are more likely to default Officials worry that the resulting losses will help push the FHA’s reserves below the level required by Congress. The value of those reserves will be revealed in the agency’s annual review due Sept. 30. If they have fallen below the minimum, that could prompt a new round of questions about the role government should play in stabilizing the housing market.

David Stevens, the FHA’s new commissioner, said on Friday that the agency will continue to support the housing market and isn’t in danger of needing a taxpayer bailout. But some housing analysts warn that, if home prices decline much further, the agency would require taxpayer assistance for the first time in its 75-year history.

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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