- Technical, Editorial Market Commentary -

November 4, 2010 (FinancialWire) (By Dr. Joe Duarte) (Entire article at http://www.investrendsyndications.net/12-content/manl/duarte/2010/11/php/03.php) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries) — The S&P 500 SPDR ETF (NYSE: SPY) is within reach of the 120 area, corresponding to the 1200 area on the S&P 500 Index. Yet, investors and citizens should be looking beyond the election and the next couple of years, as a major new development is taking place.

China, possibly tired of investing in the U.S. is looking for greener pastures, like Europe.

According to The New York Times: "Greece is one foothold for China’s broad, strategic push into Europe. It is snapping up assets depressed by the global financial crisis and becoming a significant partner of other hard-hit European nations. Ultimately, analysts say, Beijing hopes to achieve not just more business for its own companies, but also greater influence over the economic policies set in the power corridors of Brussels and Germany."

To be sure, this isn't a new strategy for China, which is well known to have invested significant amounts of money in resource rich countries, especially in Africa, but also in South America. And in Europe, China is not alone, as "secretive hedge funds and Qatar" have been buying depressed European assets at big discounts. Yet, China is clearly leading the charge "singling out Greek, Spanish and other downgraded government debt, as well as ports, highways and industries in troubled countries on Europe’s eastern and southern edges," according to The Times.

In 2007, and in 2010, during the "Flash Crash" we saw a more sophisticated machine attack on the markets, and the cat was out of the bag. The computers are doing most of the trading on Wall Street. Oh, sure, those who "regulate" the markets, and those who "make" the market want to play it down. They want those of us who trade for a living to focus on the guys with the suits and the hand signals on T.V. and think that this is what makes things go.

What's most interesting is that countries like Ireland and Hungary are trying to bring China into their territories as investors. According to The Times: "China is concentrating its efforts on ports in Greece and Italy and highways that link Eastern Europe to Germany and Turkey, and aims to secure larger infrastructure investments over time. It has provided billions of dollars in state financing for key public works projects that support Chinese state-owned companies and Chinese workers."

Yet, what's at stake is more than investments. According to The Times: "Such moves could give China a bigger presence in the European chain of distribution and production, while allowing it to build a track record of investments that it hopes will also encourage Europe to support its position on divisive currency issues and in trade disputes at the World Trade Organization."

The bottom line is that China is now competing with the U.S. in very familiar territory, Europe and that once they get established there, it will be hard to remove them as "investments also allow Beijing to advance the interests of Chinese companies as they go global."

China is playing it smart. As the U.S. consumes itself in political games and self-destructive behavior, they are gaining ground around the world, economically and strategically.

Tsun Tzu, in "The Art of War" made it clear that it would be best to conquer the enemy with no shots being fired, no bloodshed, and the preservation of the enemy's infrastructure.

In other words, a bloodless coup is the most profitable kind of conquest. Here's a final thought. China's huge move toward the top of the heap began after 9/11 when money flowed out of the U.S. Since then, China's economy has been basically unstoppable.

What's the bottom line? A good amount of the money China is using to finance its "bloodless coup" is U.S. money, both from American investments in China and from the interest the U.S. Treasury pays them on the treasury bonds that they own.

Ironic, iconic, and self-inflicted come to mind as adjectives to describe the situation.

(Go to http://www.financialwire.net/?s=drtjby to see more commentaries by Dr. Joe Duarte, and go to http://www.financialwire.net/2010/05/01/about-duarte/ for more about Dr. Duarte.)

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