Look Homeward (The Economist): The “wall of money” argument is a hardy investment perennial. Back in the 1980s, it was the Japanese who would sweep in and push up stock markets. In recent years, sovereign-wealth funds have assumed the role of sugar daddies, with cash readily available to support asset prices.

SWFs will obviously grow a little older and wiser as a result of the U.S. mortgage collapse. They are likely to invest in their own backyards from now on spelling trouble for U.S. companies desperate for foreign relief. Why invest in the Big Three when you can start your own car company for less?

Emerging Market week – Weak Commodity prices to hurt EM (Reuters): Emerging markets are likely to continue their downward spiral this week, pressured by a slump in commodity prices as demand wanes due to the intensifying U.S. recession.

This summer, U.S. stock indices were tightly correlated to oil prices. As oil futures rose, stocks fell. Now as oil prices have fallen, the the emerging market indices are retreating. The correlation goes both ways.

U.S. Sees China Intent On Yuan Gaining Value (Washington Post): Treasury Secretary Henry M. Paulson Jr. said Friday that China remains committed to market reforms and to allowing its currency, the yuan, to appreciate in value even though it fell steeply this week.

U.S. Treasury securities are the only major export to China. If the yuan appreciates then piddly return China is already getting will weaken even less.

Paulson sought to play down American concerns about China’s growing financial influence in the United States, particularly its position as the world’s top holder of Treasury bills. “It’s a fact that China is an investor in the U.S.,” the Treasury secretary said. “But as I look around the world, I don’t see any country with a stake so big that I consider it a threat.”

I don’t know if I understand this right, but how does China gain as its currency appreciates?

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