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Five Things You Need to Know: Treasury's Paulson: Like a Rolling Stone, China's Upper Hand, Looks Like They Got Us Over a Barrel, What Next?, Buffett's Tips for Individual Investors


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Treasury's Paulson: Like a Rolling Stone

U.S. Treasury Secretary Henry Paulson urged China on Thursday to work towards a freely floating currency. Meanwhile, somewhere out there in the distance, perhaps down Highway 61, former Treasury Secretaries Paul O'Neill and John Snow are clinking shot glasses, softly laughing to themselves and whispering under their breath, "How does it feel?"

  • Speaking at the start of two days of talks aimed at easing trade and currency problems between the U.S. and China, Treasury Secretary Henry Paulson said China must work toward a freely floating currency.
  • Once upon a time you dressed so fine, You threw the bums a dime in your prime, didn't you?
  • China needs a system where "currency values are determined in a competitive open marketplace based upon economic fundamentals,'' Paulson said.
  • People'd call, say, "Beware Paulson, you're bound to fall son," You thought they were all kiddin' you.
  • In an embarrassing rebuke, Vice Premier Wu Yi, who is leading the Chinese delegation, wasted no time in dismissing the Treasury Secretary's plea.
  • You said you'd never compromise with the mystery tramp, but now you realize.
  • "Some American friends are not only having limited knowledge of, but harboring much misunderstanding about, the reality in China,'' Wu said in a statement.
  • He's not selling any alibis. As you stare into the vacuum of his eyes.
  • "This is not conducive to the sound development of our bilateral relations," Wu added.
  • And ask him do you want to make a deal?
  • Wu's response is embarrassing because it not only challenges the timeframe (Paulson indicated the U.S. would like to see the yuan become freely floating within a few years), but suggests both ignorance ("limited knowledge") and the lack of bargaining power ("misunderstanding of the reality") that the U.S. possesses with respect to China and trade and currency reform.
  • How does it feel?

2. China's Upper Hand

Meanwhile, there is some change forthcoming on the Chinese currency front. China intends to step up its foreign exchange trading activity and plans to double its in-house trading departments that manage the country's estimated $1 trillion USD foreign exchange reserves, the Financial Times reported.

  • The State Administration of Foreign Exchange (SAFE), the agency under the central bank which manages the reserves, has recently embarked on a recruiting drive for additional trading staff.
  • According to the FT, the changes coincide with a rapid build-up in reserves and increasing pressure on the Chinese authorities to maintain the value of the funds given the fall in the value of the US dollar.
  • Although the exact amount of reserves held in U.S. dollars are a closely guarded state secret, it is estimated that China has 70% in US dollar-denominated assets.
  • Over time, SAFE is believed to have begun diversifying into euros and away from the low-yielding yen.
  • SAFE has also been diversifying away from relatively low-yielding U.S. Treasury bills in favor of agency paper such as Fannie Mae and Freddie Mac as well as other corporate bonds.
  • This "news" is certainly not new.
  • Qin Chijiang, a Beijing-based professor and National People's Congress delegate, said over a month ago that China's current foreign exchange reserve management policy of buying U.S. treasuries or financial assets in other countries is "stubborn and too simple."
  • The timing of the story, however, is what makes it interesting.
  • That this story appears just as U.S. Treasury Secretary Henry Paulson (along with Federal Reserve Chairman Ben Bernanke) ventures to Beijing to encourage China to work toward a freely floating currency is no accident.
  • The message to the U.S. should be crystal clear: China does indeed intend to manage the yuan and its massive holdings of dollar-denominated assets.
  • So the U.S. should be rather careful for what it wishes.

3. Looks Like They Got Us Over a Barrel

The Organization of Petroleum Exporting Countries (OPEC) agreed Thursday to reduce oil output by 500,000 barrels a day starting in February.

  • OPEC, producer of 40% of the world's oil, agreed today to reduce oil output by 500,000 barrels a day starting in February, Qatar's oil minister said, according to Bloomberg.
  • The group has already curbed output once this year, reducing production back in October by 1.2 million barrels a day to 26.3 million barrels.
  • However, as usual, the 10 member countries bound by those production cuts have been suspected of failing to adhere to their commitments to cut output.
  • The International Energy Agency estimated that Opec production actually fell by only half the 1.2m b/d target last month, the Financial Times reported.
  • The next OPEC meeting will not be held until the middle of March next year.

4. What Next?

A new television ad by the union-backed group features a pastor asking, "Would Jesus shop at Wal-Mart? Should you?"

  • The spot is scheduled to run in 43 media markets.
  • Pastor Joe Phelps of Highland Baptist Church in Louisville, Ky., asks in the ad, "Would Jesus shop at Wal-Mart? Should you?" and "Can we continue to shop at Wal-Mart without insulting God?"
  • Click below to find out if Jesus would shop at WalMart.
  • The "Would Jesus shop at WalMart?" ads have turned Madison Avenue on its head as advertising execs rush to create their own "Would Jesus shop at..." campaigns to capitalize on Jesus' rising popularity and star power among the 34-65 demographic.
  • For example, take a look at the following TV spot from Buffalo Wild Wings (BWLD).

    Announcer Voiceover:

    Would Jesus eat at Hooters?

    Of course not!!!

    Not when he can enjoy
    Tuesday Ten-Cent Wings Night at
    Buffalo Wild Wings!

    Don't make your last supper a bland one.
    Repent now and become a disciple of good taste
    with our tantalizingly spicy garlic chicken wings
    at Buffalo Wild Wings!

5. Buffett's Tips for Individual Investors

Warren Buffett, the billionaire investor and insurance executive, relies mostly on gut instinct to run his multi-billion dollar investment behemoth Berkshire Hathaway.

  • According to a profile in the Wall Street Journal last year, Buffett "makes swift investment decisions, steers clear of meetings and advisers, eschews set procedures and doesn't require frequent reports from managers."
  • So how does he do it?
  • Can the principles Buffett relies on to manage Berkshire Hathaway investments work for the individual investor?
  • Minyanville tried to find out!

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