Deflation, Chinese yuan, gold and other connections

I've been busy lately and haven't had as much time to post, but the financial markets continue to behave in a manner that has me planning rather than acting.

If you read nothing else, check out Hugh Hendry's latest letter to investors. He's still in the deflation camp and he raises some interesting points, such as the under-ownership of U.S. Treasuries by Americans, financial institutions and individuals. He compares it to Japan, which saw government debt ownership increase following the 1989 asset bubble peak.

Also see this from ZeroHedge, whither depegging. It's a good summation of the Chinese point of view on yuan revaluation and why one shouldn't expect it any time soon. And on that score, the China Banking Regulatory Commission (CBRC) Chairman Liu criticized U.S. government policy for creating new asset bubbles and following in the steps of Japan.

The yuan could be the critical currnecy. As the "whither depegging" article discusses, if the yuan started appreciating now it could cause an acceleration away from the U.S. dollar. That would cause gold and other commodities to gain and give the Federal Reserve a huge headache. Perhaps a terminal aneurysm.

Also see Mish Shedlock on unemployment "Unemployment Projections Through 2020 - It Looks Grim" and an FHA bailout.

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