Isn’t that a scary thought?

Just a couple of days after Obama touched down in Washington, China makes a very American decree. It’s telling its banks it had better shore up their capital situations or face strong sanctions from the government.

They say imitation is the sincerest form of flattery. America did it first, now the communists are following.

In case you missed the news over the past year or so, China’s economy is flat-out soaring ahead. While no figure that disseminates from Beijing is ever trusted, most analysts believe the country’s GDP is growing by a rate of 7% or so. Some even say it has eclipsed the 10% mark.

Just like here in the States, very little of that growth is organic. China’s government is just as fond of manipulating natural market forces as our friends inside the beltway.

And, of course, anytime the government gets involved, some unnatural and unexpected economic reverberations will be felt.

Just as their American brethren did over the past decade, China’s banks are taking advantage of a fixed currency and an optimal lending environment by sending all the money they can dig from the couch cushions into the streets of China.

As the economy grows, the leverage on their books multiplies. Like we learned just 13 months ago, the situation will eventually collapse under its own weight.

That’s why Beijing has stepped in and told the banks that they had better save some money for their backup coffers… or else.

This is bad, bad news for a country surviving on borrowed money (no, not us… this time). China’s economy has been artificially inflated by the government’s cash infusions. But now the leadership is starting to pull back, realizing enough is enough.

Continuing with Friday’s lead, this proves natural market forces are still alive and well. Better yet, it proves China is in for some bumpy traveling.

If you would have asked me early last week about China’s economic health, I would have told you I like what I see. But then something odd happened.

Obama visited. And it’s been downhill ever since.

*** I love it when the markets make a mistake. After some positive economic data from the consumer front this morning, the equities market put in quite a showing today. In fact, even the ultra-bearish natural gas sector followed the crowd of bulls today.

It has created another fantastic buying opportunity. Natural gas prices climbed by less than one percent, but much of the sector is up by two or even three times that figure. Investors mistakenly got caught up in the rally.

Over the next few days they are going to pay for it.

Late last week, we locked in gains of 400% thanks to the natural gas market’s recent selloff. Thanks to today’s action, investors that make their move now have yet another shot at triple-digit gains.

To find out how, read my updated report.

This is going to be a fun week for the energy markets.

*** Let’s face it, the dollar is in trouble. But so is the sun at the center of our solar system. The big question is which will implode first. Now that the dollar has slowed its decline, the race may be tighter than you think.

The dollar will eventually be tossed aside, but will it happen in the next million years?

Here’s a bit of what I told Contrarian Profit readers this afternoon:

“Is the drop in the dollar worth watching? Just like the sun will eventually shine its last ray of light, the mighty dollar will someday buy its last barrel of oil or its final container of Chinese imports.

“We all know it is going to happen, so why bother discussing it. Right?

“There is no doubt the world’s currency of choice has more pressure stacked against it than ever before. But even with $12 trillion in debt and nearly a trillion of annual interest payments due within the next decade, the greenback is still stronger than it was just sixteen months ago.

“While so many of us are betting against the dollar and calling for its demise, plenty more investors are using it as a security net, buying American treasuries to protect themselves in case the bottom really falls out.

“With the sun someday going to fade, I could sit in my basement and wait for the big day to come, or I could live my life without worry.

“It’s the same thing with the dollar. We could bet against the greenback and profit as it drops, or we could forget about the minimal return potential and keep our eyes looking forward, where the real money is at.

“Here’s the scoop. The dollar is likely to fade, at most, six percent below today’s value against the Euro. That’s major erosion for such a massively distributed currency, but six percent over a few years doesn’t stack up to a hill of beans in the grand scheme of things.

“I can list a couple of dozen stocks that are up by twice that figure today alone.

“No doubt, you should pay attention to the dollar, as a six-percent decay in the value of the world’s most important currency will change all sorts of valuations. But don’t invest in the cause, invest in the effect.” Keep reading here.

The dollar is going to fall, but you and I may not live long enough to get rich off the move. The smart money is looking somewhere else. I say we follow.

Almost immediately, pension funds and hedge funds from around the world poured money into this BRIC nation. In fact, Brazil sold over $500 million in bonds to these hungry investors. That doesn’t even count the investment assets that poured into Brazil’s stocks, real estate, etc.

Brazil’s tax revenue also jumped 13% last month alone. Household income has increased, unemployment has gone down, and Brazil’s booming real estate market has all added new money to the government’s coffers.

Brazil has made huge strides in recent years. Just 20 years ago, Brazil was an entirely different country.

The largest economy in South America was drowning in debt. The Brazilian currency, the real, was practically worthless. And even in the ’90s, Brazil was still trying to get its act together and dig itself out of years of debt.

Today, it’s a completely different story. For the past decade, Brazilian officials have capitalized on its expanding commodities and completely rebuilt the economy from the inside out.

And now, Brazil is one of the hottest emerging markets on the planet. I believe Brazil will continue to soar for years to come. I say that because Brazil’s economy expanded 6.2% in just the fourth quarter alone (when other economies around the world were slowing). That’s the highest growth rate since 2004.

Brazil’s currency, the real, has now gained 28% against the buck in the last four years. That’s the very best performer of the top 16 currencies of the world.

And right now, things have never been better for Brazil. Petrobras, Brazil’s state-owned oil company, is hiring another 14,000 engineers, geologists, and drillers as it taps into the biggest crude discovery in the Western Hemisphere since 1976.

In fact, this latest “oil find” may allow Brazil to overtake all of OPEC’s output with the exception of Saudi Arabia. So this will be huge. It will provide a huge base going forward for Brazil to divert some of its oil money into other viable investments.

Money just keeps pouring in as the demand for Brazil’s bonds, stocks, and commodities continues to pump money into the economy.

So what will Brazil do with all this newfound money? Brazil’s reserves have already doubled since 2006 to a whopping $195 billion. Not bad for a country that had trouble paying its debts just a few years ago.

Brazil’s policymakers have considered many options lately. Rather than touch the $195 billion in reserves, they have decided to start a $20 billion sovereign wealth fund (SWF). This new SWF would take this newfound wealth and diversify it into many different investments.

What’s the plan now? First, Brazil’s policymakers will use the proceeds from the recent bond sale to pay off more expensive debts. Then they’re planning to build their SWF. They’ve already announced they’re investing at least part of that $20 billion in U.S. dollars.

Brazil’s policymakers are also planning to use part of this money to buy rivals overseas, fixed income assets, and finance companies seeking to invest in their operations.

Brazil is becoming more solid all the time. And as they diversify their income streams, Brazil’s leaders will just create a brighter, more stable future for themselves.

I find it interesting that they feel buying dollars at this point in time is a worthwhile investment. You buy things only because you think they will go up in value…as far as investments are concerned.

Even the epic dollar bear Jim Rogers agrees there could be a short-term dollar rally. He estimates that it may last only about a year. He’s going to use that dollar rally to finally exit his dollar-denominated assets.

He also stated another reason why the U.S. dollar may rally for about a year: America is a huge agriculture producer. The world is in dire need of agricultural commodities, so our American farmers are going to pick up the slack where the economy has fallen.

So, in the near term, you can see that both Brazil and Jim Rogers are betting on the greenback.

In the longer run, Rogers believes the commodity dollars (Australian dollar, New Zealand dollar, and the Canadian dollar) will do better than those that aren’t commodity exporters during this commodities boom. In fact, he especially emphasized his Aussie dollar position (and since Brazil is also a “commodity currency,” I believe it will prosper right along with these others that Rogers has listed).

So don’t get me wrong, over the years, the dollar will have problems. But in the next few months, there’s money to be made by investing in dollars, and Brazil knows it.

Sean Hyman
For International Living

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Source: Brazil Is Hitting the Town and Buying…Dollars?