We weren’t expecting the Fed to reduce the Fed funds rate, nor did we expect it to give indication of near-term rate actions. Cutting that rate, or indicating near-term cuts, damages the dollar further, and increases the risk for inflation. And on that note, the dollar resumed its downward move against major currencies. What makes the dollar situation worse are China’s threats to liquidate $1.33 trillion in U.S. Treasury holdings if the U.S. moves for sanctions.

If the Chinese government were to carry through with its threat to liquidate its $1.33 trillion in U.S. Treasury holdings, the dollar would plummet further, U.S. bond yields would spike, the housing market would grow worse, and we’d be knee-deep in a possible recession. But that all depends on if the United States carries through with its threat to impose trade sanctions. 

Trade sanctions, already backed by the Senate Finance Committee, call for trade tariffs against Chinese goods over alleged currency manipulation. To date, say reports, the Senate Finance Committee approved sanctions, 20-1. And for good reason -- U.S. manufacturers have been asking Congress and the current Administration to take action against China’s alleged currency manipulation, which, they say, is undervalued by at least 40%. Undervaluing the yuan makes it cheaper for Chinese products to be sold here, but makes the same products more expensive in China.

Ian L. Cooper
Death Cross Trader

Death Cross Trader is up 2,122% year-to-date…
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