Look out below!

For bonds, that is.

China, which has been supporting U.S. Treasury bonds by buying huge quantities with funds from its trade surplus, may be wising up and diversifying into other investments:
China's central bank sits on a hoard of $1.07 trillion in foreign currencies and securities, making it one of the biggest investors in the world. Now, officials have agreed that the traditional approach to managing this massive rainy-day fund -- keeping it safely invested in bonds issued by U.S. and European governments -- is out of date.

Following the lead of countries like Singapore, South Korea and Norway, China is starting to look at new ways of managing its investments.

Together, these moves by central banks have ramifications for financial markets world-wide. The likely result: fewer steady purchases of investments like U.S. Treasury bonds and more buying of investments that are riskier but have better long-term returns, like corporate bonds, stocks or even real estate and commodities.

Scholars suggest China could spare perhaps $200 billion or $300 billion from its reserves for more aggressive investments.

Even a slight shift of this type could have a significant impact in U.S. markets. China has long been one of the biggest buyers of Treasury notes, making it in effect a major lender to the U.S. government. China's buying has helped keep interest rates low in the U.S.: The greater the demand for a country's bonds, the lower the interest rates the country needs to offer.

This is what I expected to see a long time ago. And some of it may have been taking place quietly over the past few years. But now that it is getting underway in earnest, the ramifications are the same: bad for bonds, good for stocks and gold. Buy gold and stocks, both U.S. and foreign. All of them will benefit (in dollar terms) from a falling dollar.

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