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.

Alpha used to be what hedge-fund managers promised their clients.

Better still, portable alpha — defined in the easy bed-time reading of finance MBAs as the “generation of excess return over a benchmark while maintaining the desired asset allocation to traditional market exposures” — offered to meet and beat whatever returns everyone else was making, thus proving the manager’s genius and justifying his infamous fees.

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Get Gold Cheap… Before It Takes Off Again

Gold is giving you another chance to get in for the inevitable ride up at a bargain.

Here’s how to get it at a discount and multiply those gains. Click here to read more…

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One-and-twenty? Two-and-thirty? By early 2006, SAC Capital Advisors (minimum investment, $25 million) were rumored to be charging 3% of client assets each year, plus 35% of their gains. Come Oct. 2007, and almost two months after the credit bubble began gushing air “some of the industry’s most exclusive hedge funds charge a performance as high as 50%,” said Reuters.

Now add the cost of audits, account administration, and even trader bonuses, reported LJH Global Investments, a Florida-based adviser, and those annual fees — win or lose — could rise by another 3.5%.

Here’s hoping all that alpha was worth the price. But now? With credit lines shut down at the investment banks? With margin calls hiked so high that — here in London at least — the money held by brokers, exchanges and clearing houses has risen to 43% of the U.K.’s entire cash deposits, up from the 10-year average of 26%…?

Might as well climb into your denim dungarees now, and start watching that blackboard for a shot at getting a work card to buck barley bags. Because whatever the Great Inflation of money and credit did for world trade between 1997 and 2008, it’s clearly ended with a deflationary slump for Mayfair and Connecticut’s finest.

“Hedge funds worldwide shrank by 9% to $1.56 trillion last month,” reports Bloomberg, “the lowest level in two years, after investors withdrew cash and stock markets declined.

“Investors pulled $40 billion from hedge funds in October, according to Chicago-based Hedge Fund Research Inc., while market losses cut industry assets by $115 billion.”

On a returns-to-investment basis, hedge funds lost their clients 6% last month, taking the year-to-date loss to 16%, says HFRI. Oh sure, that still means they’re delivering alpha over and above the stock market… now down by nearly one-half to an 11-year low on the S&P index.

But only one-in-six wealthy investors now believes hedge funds can offer “strong returns” in the current environment, said a survey this week from the Association of Investment Companies (AIC).

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The End of Cheap Oil

You wouldn’t think so. After all, oil prices just plummeted…

But the fundamentals are clear as day. Oil is destined to get a lot more expensive.

It’s going to change life in the U.S. and the world…forever…but you can protect yourself and prosper… Click here to take advantage of oil’s temporarily lower prices.

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Maybe making money — once easy, now hard — is just going to prove so tough, applying PhD mathematics and leverage will only make things worse. Maybe the hedgies should start seeking alfalfa instead.

“The great universities find that when their outstanding economic teachers are called into the business arena, the result is pitiful not only for business but for the teachers,” wrote Robert L. Smitley in his Popular Financial Delusions, four years before John Steinbeck would damn generations of high-school students to dust-bowl misery with Of Mice and Men.

“It seems to be almost impossible to strike a happy medium,” Smitley went on, writing when $1 was worth $20 in today’s money, “the way [these] $3,500 boys accepted $30,000 a year jobs with the Investment Trusts back in 1928 and 1929 and found themselves earning a pittance as hack writers in 1933…writing daily columns forecasting the stock prices and estimating the wheat crop.”

There are some…ummm…hacks, of course, who missed out on this bubble’s $600,000-a-year jobs. And after scribbling our daily columns and forecasting precisely this blow-up in complex, over-paid finance, no doubt irony has got a special treat in store for us, too…flooding the market for financial hacks with over-qualified wannabes desperate to work.

Still, at least a few of us already own gold. In a world shorn of credit, leverage and PhD finance, a lump of dumb metal may well prove worth having.

Source: Seeking Alfalfa