Hong Kong, China (CNN) - Markets all over the world are watching the Fed. The U.S. Federal Reserve is expected to take further action this week to support America's weak recovery. Investors are waiting for a second round of "quantitative easing" - what is being nicknamed "QE2."
Quantitative easing is a way central bankers can help boost economic growth. It's a little controversial, but the idea is to create money out of nothing and to get it in the hands of bankers, businessmen, and consumers to spur economic activity.
So how does it work?
Hong Kong, China (CNN) – Chinese Premier Wen Jiabao said in Europe this week that a free-floating yuan would be “a disaster for the world.”
He noted that Chinese export companies have small profit margins and could be hit hard, setting off a potential wave of social turmoil.
Yet a report by Mark Williams, a senior China economist at Capital Economics, on Thursday noted that export margins of Chinese companies did not fall when the yuan loosened its peg to the dollar from 2005 to 2008. The yuan increased in value against the U.S. dollar nearly 20 percent during that period.
In fact, “because most firms were able to raise either prices or productivity, margins did not fall at all” when the yuan rose against the dollar. The price of low-end exports rose, but so did Chinese firms’ market share.
The Chinese government is expected to focus on rebalancing its economy away from exports at its policy meeting next week. Economists at Goldman Sachs and JPMorgan expect they will look for ways to boost domestic consumption and investment and wean China off exports as demand for Chinese goods globally slows down.
That may be good news for China’s trading partners in the long run. But at the IMF meetings this weekend and the G20 summit next month, China’s currency policy is clearly going to remain a controversial topic.
Hong Kong, China – One of China's big banks has debuted on the Shanghai stock market.
Agricultural Bank of China, or AgBank for short, has raised over $19 billion. If enough investors show interest in the stock, the listing could bring in another $3 billion and become the largest initial public offering in the world.
With so much buzz, it looked as though the listing was headed for a strong first day. But that never happened.
Many investors are worried about the state of the global economy, including China's slowing growth.
Analysts such as Victor Shih with Northwestern University believe the country's banks have made bad bets funding projects by some "reckless" state-owned companies.
Shih estimates the Chinese financial system is clogged with up to $440 billion of defunct loans. In AgBank's case, some investors are concerned the bank's government mandate to lend to farmers could limit its loan portfolio.
One financial analyst pointed out to me that many of China's big banks (AgBank, Bank of China, ICBC) are rushing to raise funds - perhaps billions of dollars - to help replenish their reserves after a record year of government directed lending.
AgBank has a customer base of around 320 million people - bigger than the entire population of the United States. At the listing ceremony in Shanghai, the bank's chairman said by purchasing AgBank shares, investors are "buying into the future of China's economy."
Given all the uncertainty, is now the right time?
(CNN) – After a lot of finger pointing, squabbling, and teeth-sucking, the Chinese have finally loosened their grip on their currency.
Over the weekend, the government said it would allow the yuan to be more flexible. So far, no one thinks the Chinese will tolerate anything more than a small blip.
However, longer term the flexibility could bring greater purchasing power to Chinese consumers by making imported goods cheaper.
Brokerages say consumer companies globally could benefit from a new currency rate and the official push to encourage the Chinese to spend.
Internationally-branded cars and cell phones might become more affordable.
Other kinds of multinational firms like those in the construction business may also enjoy a bump in buyers. Analysts though say major retail chains could suffer a bit as some of their suppliers struggle to offset potentially unfavorable currency fluctuations.
In business, are you a Chinese currency winner or loser?
I love visiting the U.S., but while traveling there I sometimes get a little concerned about its future. I find myself managing down my expectations - preparing for long lines at the airport, overpriced fares for flights and train rides, and spotty mobile phone service. Meanwhile, travel in China gets more efficient and affordable by the day. And I can talk on my cell on the subway uninterrupted.
On a recent subway ride in Hong Kong I kept my phone in my pocket as my traveling companion was U.S. Commerce Secretary Gary Locke. Secretary Locke is in China for several days with a delegation of American executives from the clean energy sector. He's here to promote U.S. technologies, hoping the Chinese will adopt American wind turbines and solar panels.
China is throwing a mountain of money into sectors like green energy in the belief that it is laying the groundwork for superpower status. Beijing has already overtaken the U.S. in renewable energy investments. It's earmarked billions on new airports, rail lines and highways – an ambitious investment in infrastructure that’s an order of magnitude more than anything being committed to rebuild the U.S. Sure, China is starting from a lower base, but it's moving ahead faster than a speeding bullet train to become a more efficient, competitive rival to America.
In a decade, which country will be the better bet - the U.S. or China?
After a series of safety recalls, the Japanese automaker has been trying to move on, pledging better safety to its customers.
Now Toyota's luxury sports utility vehicle, the Lexus GX 460, has been slapped with a rare "Don't Buy" warning from influential magazine Consumer Reports.
The magazine's testers believe that the SUV has a handling problem around sharp turns. During the tests, the testers found the vehicle slid nearly sideways before the electronics stability controls kicked in.
Their verdict? They wouldn't want to drive it with their families in the car.
The safety warning is the latest blow to Toyota's battered image. However, the carmaker's attitude appears to have changed. Toyota moved swiftly to address the issue. It suspended the sale of the GX460, is offering loaner vehicles to concerned customers, and says its engineers are already working hard to correct any problem.
Toyota certainly wants to salvage its reputation as a maker of safe, reliable cars.
Would you buy a Toyota car today?
Hong Kong, China - While politicians and business leaders in the United States lobby for a stronger Chinese currency, many of the people who work in the manufacturing belt of southern China quietly hope their government will keep the yuan more or less where it is.
The Chinese government has been controlling the rate of its currency, the yuan, for years, mainly because officials believe a stable currency is key to supporting their exporters. However, now that China is the world's biggest exporter, more critics of Beijing's tactics are emerging in Washington. They argue Beijing is setting the yuan too low, keeping it artificially cheap, a policy that hampers American businesses and contributes to the U.S.'s trade deficit with China.
Yet at this shirt factory in Dongguan, the people are grateful for that stability. China's predictable currency rate has helped tens of thousands of factories to thrive here. The boss at this factory though acknowledges momentum is building for Beijing to loosen its reins on the yuan. He's preparing for the possible changes. His biggest question - how much more are American consumers willing to spend on clothes from China if the yuan appreciates? Because if the currency appreciates, he says he would need to pass on some of the costs.
How much more would you be willing to spend?
The end of a year (or the start of a new one) is a time of reflection, a time to reassess life and your financial portfolio. Last year was tough for the global economy but a lucrative one for investors in stocks or gold.
So what about 2010? These are some of the trends to consider when investing.
1) Interest rates are bound to stay low. With governments trying to encourage economic growth, financial experts expect central banks to keep money cheap. What does that mean? "People are getting no return on their cash, no return on their bank accounts," Keith Wade, economist at Schroders, told me. "They will continue to look for yield."
2) Emerging markets will be in focus. With fund managers concerned about sluggish growth in the U.S. and Europe, many say they will hunt for higher returns in places like Asia. Asia has been recovering faster than the West. Stocks and property have run up in the past several months and brokerages like UBS believe the trend will only continue all year. Some governments have taken measures to rein in speculators, but in places like Hong Kong, their hands are tied. This city's monetary policy tracks the U.S. because its dollar is pegged to the greenback.
3) The U.S. dollar will likely stay weak but be prepared for a few surprises. Richard Duncan, author of "The Dollar Crisis," argues the U.S. economy is structurally flawed and too burdened with debt, which hurts the prospects for the dollar. He says with the U.S. government borrowing so much to finance its massive spending programs plus two wars, the outlook for the dollar will only worsen. However, with so many financial experts down on the dollar, some are starting to wonder if the greenback might swing in the other direction at least for a short while in 2010. One theory is that the dollar makes a comeback as investors flee to dollars to shelter themselves from market volatility.
And given the lingering fears of another Dubai debt crisis or a double dip recession, there will be no shortage of market jitters.
Hong Kong, China - As long as there are free markets and humans remain emotional creatures, there will always be financial crises.
So says renowned British historian Niall Ferguson. The Harvard University professor and I had a chance to meet in Hong Kong at a recent investors' conference. He shared his observations on the current economic crisis.
CNN: Is there anything unique about this recession?
Ferguson: This isn't a recession is the first point to make. It's a near depression. In fact, I am calling it the Slight Depression to distinguish it from the Great Depression of 1929 to 1933. And the unique thing is that we nearly repeated history. In other words we nearly repeated the Great Depression, but we avoided it with massive monetary and fiscal stimulus. So we are in new territory.
CNN: When does government intervention work?
Ferguson: We need to be very careful when we talk about government intervention. That covers a multitude of sins. There was a lot of government intervention in the Soviet Union and we know how that story ended. So we are talking very specifically here about two policies: one is the use of central bank money creating power to avoid a liquidity crisis that crunches the entire banking system. So intervention by the (U.S.) Federal Reserve beginning in 2007 and escalating in September of 2008 was primarily designed to avoid massive bank failures of the sort that made the Depression so serious in the early 1930s. And I think there is no question that we have learned from history and Ben Bernanke, as chairman of the Fed, has learned from history, that it's a good idea to avoid a generalized collapse of the banking system.
CNN: When does government intervention not work?
Ferguson: The other kind of government intervention, which is slightly more problematic, is the sort in which the government runs a large deficit in order to stimulate the economy by building roads and building bridges in order to get people back to work in the hope that in doing that, it will generate a recovery. This is the model developed by John Maynard Keynes back in the 1930s and it's been used by countries around the world to varying degrees. And to some extent, this has been effective. But the problem is, in the United States, you are adding a stimulus on top of an already huge structural deficit in the public finances, and the prospect of a trillion dollars of new borrowing every year for the decade ahead, that scares me and it should scare everybody.
CNN: There's been a backlash against the financial world, especially Wall Street. Have we seen the same level of fury after past crises and where does that vitriol lead?
Ferguson: It's not, by any means, the first time that people have felt furious of what they have seen going on in Wall Street: a financial speculative bubble that bursts and causes a recession which drives other people, ordinary folks out of jobs. The question is just how far this populous backlash is going to go in the United States and indeed around the world now. My suspicion is that it's got a ways to go. Each time an American loses his or her job, not surprisingly, he or she looks around and asks who's to blame for this. And when they see on Wall Street, the banks paying out million-dollar bonuses with what appears to be, and in some cases is, taxpayer money from the TARP fund, I am not at all surprised that people feel mad. And when they feel mad, they turn around and they say, 'How can I express this anger? Who can I vote for who is going to articulate my feelings of frustration?' And I wouldn't be at all surprised to see, as we approach the mid-term elections, more and more politicians, particularly Republicans, trying to articulate that sense of popular grievance.
What lessons have you learned from the current economic crisis? Tell us what your experiences are.
Sometimes I think if you want to be a serious investor, you shouldn't become a business journalist. Sure, you learn a lot about various industries and get insightful advice from experts at the top of their game. On the other hand, you know all too well how everything can go terribly awry.
Jim Rogers, the famed commodities investor and author of new book "A Gift to My Children: A Father's Lessons for Life and Investing," admitted to me that he is a horrible short-term investor. However, he says you don't need to be a good trader to make money.
Here are his tips for anyone looking to invest in the current economic crisis:
1) Buy what you know. "You should only buy things that you yourself know a lot about - whether it's cars, sports, hairdressing, fashion, or whatever it is," he told me. "Do some research, do some homework, and if you see something really dramatic changing that is cheap, buy it. You are going to know about it long before I am, long before a broker on Wall Street is, and that is how you are going to make a lot of money. "
2) Don't be cocky. "Being overactive is usually a mistake," Rogers mused. "It always leads to problems. People don't like it. They want to jump around all the time. That's not the way to succeed as an investor."
3) Buy low, sell high. "It's as simple as that," he said. "Nobody likes to hear it. Now that is so simple and so easy, but you cannot believe how difficult it is to buy low and sell high. That is the hard part."
So what is Rogers doing with his money?
He wouldn't buy stocks today - not even in emerging markets. He is selling the U.S. dollar because "it's a flawed currency." Today, he would put new investments into commodities or what he thinks are "sound" currencies such as the Canadian dollar and the Japanese yen. And one of his favorites - farmland. With food prices rising, he believes farmland "may be one of the best investments a person can make in 2010." But get to know the farmer and the industry first, he reminded me.
In other words, be sure to do your homework.
About Business 360
CNN International's business anchors and correspondents get to grips with the issues affecting world business, and they want your questions and feedback.