Here’s an  eye-grabbing story filed from Switzerland yesterday by an Associated Press reporter:

“China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said Wednesday at the World Economic Forum. At a standing-room only session focusing on the world's fastest-growing economy, Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn't whether to devalue the yuan but ‘to limit it from the U.S. dollar.’

“But he stressed that the Chinese government is under no pressure to revalue its currency. China's exchange rate policies restrict the value of the yuan to a narrow band around 8.28 yuan, pegged to $1. Critics argue that the yuan is undervalued, making China's exports cheaper overseas and giving its manufacturers an unfair advantage. Beijing has been under pressure from its trading partners, especially the United States, to relax controls on its currency. ‘The U.S. dollar is no longer -- in our opinion is no longer -- (seen) as a stable currency, and is devaluating all the time, and that's putting troubles all the time,’ Fan said, speaking in English.”

Deficits Matter

CNN was there too, but played a somewhat different angle:

“Massive U.S. deficits pose a major risk to the world economy, which is enjoying its best performance in decades, and correcting them will prove tricky, top economists and business leaders said Wednesday.”

If you’re wondering why the dollar got hit yesterday, chalk it up to the powwow in Davos. Not that there haven’t been a hundred good reasons for the buck to continue falling. But the current bout of weakness has come amidst a short-squeeze begun three weeks ago that I doubt is spent. Perhaps we might nibble on some gold stocks just to hedge our bets. But unless there are some glow-in-the-dark technical sign that I’ve somehow overlooked, I’m convinced there will be better opportunities in the weeks ahead.

Silver About to Fly?

One of my correspondents evidently thinks there is no time to lose. Here’s the note that I received from him earlier this week: “I believe the bounce we have had the last few days will end on Tuesday.  On February 1, I look for the DJIA to top around 10,600,  the S&P around 1190  &  the NASD Composite between 2085 to 2100.  GOOG should reach 197-200, at which time it and all the averages should be sold and sold short.  Gold and Silver have put in major bottoms and are buys -- especially Silver, which is in the last few days of trading below $7, in our lifetime.  Phil”

You may have noticed that I didn't feature this prediction in today’s headline. There are two reasons for this. First, I’ve grown weary, and wary, of sensational forecasts, even when they come from prognosticators who have hit the bullseye in the past. When a guru occasionally gets inside the eight ring with an especially dramatic call, we have learned to attribute his success not to any great skill or prescience, but to a law of averages that is obliged to bestow the same sort of "kindness" on Keno players who have blown $50 grand or more on losing cards. This is notwithstanding the fact that, if you were to tally up gurus and armchair technicians who claim to have predicted the October 1987 crash exactly, the final figure would probably be in the low thousands. The second reason I haven’t billboarded Phil’s prediction is that it is not the first in which he has asserted that silver, at a particular price, was a last-chance-in-this-lifetime buy. Perhaps his earlier tout was intended for the presumably small number of bullion traders who work from hospice beds?

Julian’s Indicators Go Buggy

I should mention that one trader whom I greatly respect, my friend Julian from Houston, observed that his usually sage indicators weren’t working too well yesterday (and neither were mine, as some of you may have noticed). He says this seems to happen whenever the stock market is close to an important turning point. That’s a connection I’d never made -- a potential revelation, actually -- so I’ll be quite interested to see how the market acts over the next several days.