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Rumor PBoC Governor Zhou "John Meriwether" Xiaochuan Has Defected From China After Suffering Half A Trillion In UST-Related Losses
Today's stunning if true news comes from Stratfor which has just issued a blast notifying of circulating rumors "in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country." If proven true, this will be the proverbial first rat bailing on the sinking ship. It gets scarier vis-a-vis prospects of US bonds: "The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou." Um, $430 Billion in losses? Hopefully this explains why next month's TIC report won't show any incremental increase in Chinese holdings of Treasuries (and most likely quite the opposite). Stratfor continues: "Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China." Even if Zhou is safe and sound in Beijing, the fact that China has experienced nearly half a trillion in losses on its UST holdings is shocking, and means that the US Treasury bubble may be approaching the popping phase.
From Stratfor:
STRATFOR has received no confirmation of the rumor, and reports by state-run Chinese media appeared to send strong indications that Zhou is in no trouble at the moment. However, the release of this rumor and its dispersion throughout the public is significant, particularly as the Communist Party of China (CPC) is preparing for a leadership transition in 2012.
Chinese state-run media and official government websites have run several high-profile reports about Zhou, which should be seen as a move to refute the rumors. The PBC website published two articles on its homepage reporting on Zhou’s meeting with visiting Japanese Financial Services Minister Shozaburo Jimi during the third China-Japan high-level economic dialogue as well as a meeting with an Italian delegation. Xinhua news agency reported that Zhou told the PBC Party Committee Enlargement Meeting on Aug. 30 it should “continue to implement justice, and strengthen legislative work in the financial system.” Prior to this news, Zhou appeared at the 2nd annual conference of the heads of the Chinese, Japanese and Korean central banks held on Aug. 3, and his most recent public appearance was Aug. 10 for China’s Financial System Anti-corruption Construction Exhibition.
Zhou is known to have lofty political ambitions and is believed to be a close ally to former Chinese President Jiang Zemin, as well as a core figure for Jiang’s “Shanghai Gang.” There has been no shortage of rumors about Zhou’s possible dismissal in the past five years, as he is believed to be associated with several high-level financial scandals. For example, Zhou was rumored to be under “shuanggui,” a form of house arrest administered by the CPC, during the massive crackdown of Shanghai Party Secretary Chen Liangyu in 2006, which was perceived in the country as a crackdown of the Shanghai Gang and part of Hu’s effort to consolidate power ahead of the 2007 power transition. There was also a rumor that he might have been detained following the investigation and arrest of Wang Yi, the vice governor of the China Development Bank, along with several other officials in the financial circle. Currently, several financial scandals are still under investigation, and it is likely that Zhou, as PBC governor and one of the most powerful economic players in the country, could be associated with some cases. Therefore, whether or not the rumor is true at this time, the leaking of this news is very likely to be associated with a power struggle within the Communist Party’s economic hierarchy.
We will bring you more as we get it on this potentially groundbreaking development.
Some math:
Assuming average 6 Year duration on holdings (completely arbitrary), and a 2% drop in rates, means $430 billion is 12% of total notional, so somehow China must be short $3.5 trillion in notional or synthetically. Not good.
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Tha fuck ? Isn't that almost a 25% loss on their entire UST holdings ?
And how could you lose that much money in UST if you're long and yields have gone down so much in the last month?
That is exactly what I want to know. Maybe they were long yields and/or playing the spreads without hedging. I can not even compute how such a loss could be incurred by simply being long/short the cash. I mean given that the most probable outcome of monetary policy over the last 2 years would be higher yields [did not happen], lower cash value [did not happen]; I would say they fucked up everything; meaning both the yield play, the cash play and the spread play. Multi-year lows/highs [or even all time low/highs] could have done a serious damage.
Makes me feel a little bit better about the beating I've been taking in TBT.
Additionally, this could be...could be...the true trigger. Not necessarily a black swan in the traditional sense but the trigger nonetheless.
I think this would constitute as a Black Swan. No one, and I literally mean NO ONEexpected this. RE imploding, civil unrests, tight credit and implications of said tight credit coming out of China; yes; but not this. This is enormous if true.
CB, I agree, if true this is a genuine black swan. Even if it's not true, this could be some rumor started by someone massively short USTs, and if the markets can't disprove it quickly then the reaction could be swift. It doesn't take much to pop the biggest bubble in history.
Black swan or not, I bet the man is sweating bullets right now :)
I bet that anybody who even slightly looks like the guys doesn't dear to leave his house :)
I bet Hugh Hendry and David Rosenberg are sweating bullets too.
Nassim Taleb ? not so much...
Let's hope it's just a rumor, cause this is of biblical proportions, and not the good parts of the bible either.
Speaking of the Old Testament...
...scapegoat, bitches?
bastards & bitches, O H m y†
Ok i may have had one too many Harvey Wall Bangers this afternoon but can someone explain how China losing money on USTs is possible when they have had a monster rally this year unless this guy was sidebetting with synthetic shorts? If they are short to that extent on a sidebet then you dont want to be betting on an implosion in bonds anytime soon...
if hyperinflation is for real all i care about is food and a safe place to live. right now i have to trade it as i see it , and that has been for the past 2 years deflation (longer if you look at trends) and will be deflation for the next 2 years. enjoy stepping in front of that truck - when the poom part of ka eventually comes those betting against UST will all be broke and not able to profit.
calling bonds a bubble is as dumb as saying stocks are a buy and hold. TRADE IT.
They fell for the Tungsten Treasuries.
Assuming this is, at least partially, true, who was on the winning side of the trade?
Fuck me if I know. But if 3.5 T is the total amount of their short position, I would think everyone of any greater significance. That means probably the top 10 CBs and cca. 200 other financial institutions. You need to use the whole Universe to for this trade. Probably hundreds of counterparties involved in this; IF TRUE.
Maybe this has something to do with the short position?
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a62_boqkurbI
http://usahitman.com/united-nations-alan-greenspan-now-implicated-in-134-5-billion-bond-scandal/
this article you quote is full of BS....
my favorite excerpt "according to the CIA", oh really the CIA makes official statements now?
Uhhh, yes, yes they do.
CIA - The World Factbook
tmosley, think before posting please?
(anyone else noticed ZH being more & more polluted by conspiracy freaks comments here?)
Coincidence?
then spin for the you hope, as being coincidental.
spin your heady attempt, spin for every member
spin the cold fish & the strange dish
spin for every gender.
You act like the CIA is some super-secret organization that doesn't have a public face and never makes public statements. The fact is that they publish huge volumes of information, from basic geopolitical research (ie the world factbook) to in depth analyses of any number of subjects (white papers).
Who the hell mentioned any conspiracy? Certainly not me. I just pointed out the facts.
yes, I noticed too, just bring up 9/11.
That is my point... it's too much money to be unknown. I'd assume the value is greatly exaggerated, a decimal point misplaced in the currency conversion, maybe.
Rroldman Rrachs
I think you mean Gordman Socks
oldman-gay acks-say?
""Gold bugs"" expected it and still do.
Trouble in the treasury market, whatever form that trouble takes is irrelevant.
Keep buyin those 30 year treasuries....
Sure you did ....
Only in a very vague way, ie "hyperinflation will be triggered by the popping of the treasury bubble". You are right that no-one expected China to be short. I'm not sure I really believe it at this point.
It's a crazy, mixed up world we're living in, though. Who is John Galt?
It's a strange, strange world we live in ...
http://www.youtube.com/watch?v=c5uQMRM8JWo
Don't waste your breath on these wacko's Cheeky.
Cheeky, Spitzer is the same guy that was promoting Peter Schiff nonsense. I am sure he expected this... hahahaha.
I for one would like to see additional information. Seems pretty unlikely but if there is smoke most times there is fire. We'll see, the numbers seems kind of far fetched though.
Even if this story is BS, (STRATFOR hates China, listen to his interview with Themadhedgefundtrader) there will be trouble in the bond market in the future. Use this story as a warning.
Use your head and just get the hell out. Why participate in the most unbalanced market manipulated market the world has ever seen ?
Peter Schiff and most Austrian economists expect trouble in the bond market.PERIOD
Peter said to go to the Europe and Asia... good luck.
Then he said not to short US stocks.
If anything you would think Peter would be short Ts and getting his ass handed to him or more like his stupid client.
I would guess the rumor is false but I will wait and see.
Firmly in the camp of 'This is an absurd, BS rumor'. On the other hand, if it were true, it would seem to explain Treasuries historic lows and set the stage for the hyperinflation many see as the next stopping point. It would also set the stage for a colossal ass-raping of the dumb money piling into bonds. Max pain, anyone?
I will concede that this story is more or less bullshit but it should be taken as a warning for everyone that is pretending that treasuries are gold.
STRATFOR knows nothing about economics, just listen to the recent interview with the CEO on themadhedgefundtrader website. For some reason, he thinks the US economy is in a position of strength right now.
How can any good come out of the news that the US's financier took a half trillion dollar loss ?
+1000
Friedman is a shill; he used to have a talkback blog up back in 2006-7 timeframe when the NIE came out upon which his posts were systematically ripped to shreds/discredited. He ended that "experiment" in engaging the audience when he seemingly determined that the audience knew far more than he did. That his economic analysis is lacking is clear (understatement of the day) which makes him incapable of tying together his geopolitical hearsay with things macro.
Cheeky! Great to see you again. It's always a pleasure to see someone with obvious intelligence here.
I'll second that.
Third, miss your insight and humor.
Fourth. Cheeky has always been a bigtime personal favorite.
5th.
6X FOR ME ..Great to see you back my friend..Hope all is well for you...
you all, must be H O M O's, just speculating though, h a r d on, for some cheeks.
Right, there would be all kinds of complications if China stops buying US debt.
But probably it is just a rumor.
Any sense of what the relative short position would have to be to offset the long side gain? If the position is that big (counterparty Sack?) would not the UST know who the owner of record is on that position (and perhaps act accordingly)? Sov CDS spreads have moved all that much. Sounds like disinfomazia. Good to know th Carrier killer ABM is ready to go (see link in comments)
http://www.zerohedge.com/article/frontrunning-august-30#comments
Perhaps Robert Citroen (Orange County) was an advisor to Zhou - that would explain everything.
Just being LONG treasuries this year has been a gift from GOD. The returns have been positive, outshining just about everything else on a risk/duration adjusted basis (eg, 30 yr. vs. S&P 500)
If there have been losses in the portfolio related to treasuries, been currency related. But that's not the dollar treasury position, that's currency.
But Wait There's More!
What about any funky derivatives, hedges, twisties that they'd put on the books to "hedge" their exposure? Hah! Betcha therein lies the rub. And that would be a great reason to get the hell outta Dodge.
Own one of the best performing asset classes of the year and screw it up. Opppppps.
Long ago in countries far away, when the advisers to the Kings rendered bad advice imperiling the kingdom, they were summarily executed, impaled for public display upon pikes surrounding the Gates to Heaven.
Might be a good lesson for some of our own kind. Pay attention now, ya'll hear?
Official holdings of $840 billion means losses of more than half on notional. Which would also mean that China has been shorting far more bonds (which would not show up on TIC) than it has been buying, ostensibly via London. If true the implications are huge. Also, if true, begs the question how much of the recent bond move was due to Chinese covering.
Ah, ok, thanks. I was with Cheeky and egdeh on how this loss would be possible.
That'd be a GINORMOUS short. Bet it pays off big nonetheless!
Oh, thanks man. I dont know why I had the 2T number in my head [too lazy to Google it].
I think you and I talked about it at length some time ago. IIRC, China is also a significant player in GSE debt with exposure in the T's. Several economists (don't have the link handy ATM) guesstimated their total exposure ~$2T.
Fuck; I knew it that 2T was, somehow, in play. True, we had a lengthy talk about this. I think the number [total] is smaller now. IIRC; they liquidated some of the holdings in May/June. So, lets say 1.75 T. Still, a big fucking loss if this is true.
This is the cover they will use to explain how they unloaded ~$440B in Treasuries without anyone noticing.
"Ups, bad trade" - BS, we unloaded bonds first! True China bond holdings decrease >50% in a month.
Yepecayey modafokeeer!!
What also isn't being discussed is the degree to which currency manipulation plays into these losses. I have no idea how it works, but I would imagine but you don't necessarily have to have a short position against UST's to have downside exposure to liquidity flights. Simply being long EUR or JPY is probably enough, especially when those countries figure out they can export their losses into the Chairman's welcoming bosom just as we've done for several decades.
Liability/equity is the opposite of asset. What's the opposite of [reserve] currency? I think they just figured it out...
H I . i have to be very careful cause i don't have a delete button, kinda like when your ? question mark key went out a while back, well maybe about a year ago. glad you still use the word F U C K a lot especially at the beginning of your sentences and of course, man. that is your style. so ........... c u around a little more, maybe? nice lipstick.
Which means the last month's move has been about leaning on the fsckers until they puke and cover.
C'mon, throw it up, get it off your books. It'll feel so much better...
Hu's your daddy?
Thousand times Dubai debt crisis
Yes, the United States has at least 10 times the debt crisis as Dubia.
and as many Muslim citizens
Why on earth would they be short UST with the Fed's printing brigade?
Only thing I can think of is that it was a hedge entered into with the consent of the Fed and the US Treasury which was designed initially to prevent the Chinese from openly dumping treasuries. But Xiaochuan got greedy, and went net short, and got burned by the printing press.
Seems like the next stop is China dumping treasuries en masse, but that is probably my bias talking. Am I anywhere close to being on the mark here?
was the parabolic move a chinese short squeeze?
That's what we're speculating.
If so, they're so screwed. They threw away basically 7 years worth of trade surpluses on that trade. They weren't buying treasuries, so they couldn't sterilize that surplus. Then they let their currency rise due to our pressure.
Bwahahahaha! Smart money SWFs FTW!
Hmmm...or release information about a fake loss on a non-existent short of gargantuan proportions, then dump treasuries into the rally as "short covering". Take the dollar profits and buy everything that isn't made of paper, everywhere, during the ensuing confusion.
Again, that might be my bias talking.
WAW Tyler, you really nailed this one. But that's like attacking America at it's weakes point.
But that doesn't mean they won't dump to cover the loses right?
Looks like we're going to go hyper pretty soon now.
Tyler, what do you do when you know you think you'll make billions.
You already spend a heck of a lot of it on bullshit projects.
What I mean is, they will soon turn out short on some projects pretty soon.
Nobody takes such a position without a very good reason to do so. Just greed doesn't cut it, I rather thing it's to cover up some other big loss.
If the move is from short covering, all I care about is where the flow will go from there. Any idea Tyler?
it makes sense that a (huge) short position would cost them that much notional, but the only way to lose that much scratch from a short UST position, since they have such a large long UST position, is to lever up that short UST position...am I missing something?
Wonder how much more they'll need to cover...
Not London, Tyler, but via the tried-and-true Italy-Japanese Businessmen-Suitcase With Hidden Compartment-Swiss Border market.
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a62_boqkurbI
WOW everyone follow this link and read this article
It happened again a few months later. I believe that both times the smugglers were allowed to get away. No big deal, you know...a few hundred billion dollars...and I can't seem to find my previous postings regarding this little matter on Zero Hedge using the search function, either.
That is just nuts!!
Yakusa express delivery.
Isnt that just impossible when you are long US Bonds and they have only been going up in price? This article as it is just does not make sense, if they were short UST ok, but they certainly are not.
I call bullshit on this one. How in the blue fuck could anyone have losses on a treasury position ? What was the chinaman doing? Buying TBT?
not if they're short.
I mean with the massiveness of the bond rally, they should be giving this guy a parade. China's decision to cease accumulation and actually roll off while the bonds have done nothing but rally like pets.com shows them to be the dumb money
No here is a real solution....the US should also punish traders who lose too much! AIG boyz and girlz the Fed is coming after you, I here they have some room in guantanamo!
Be calefur ... Rrrrook Rrrike sneaky busy-ness
I want to express my admiration of your writing skill and ability to make readers read from the beginning to the end. I would like to read newer posts and to share my thoughts with you. oilseed expeller
TANKED MAN
http://williambanzai7.blogspot.com/2010/08/tanked-man.html
Any chance our losers will defect?
Timmy to Greece, Ben to Zimbabwe, Larry to Iceland, Bro to Indonesia or Kenya..(wait, wouldn't that be just returning?)
I say we should all donate 1 penny to pay for their ticket!
And if we come short, we can always drop them from a cargo plain at half price without a parachute.
Swap the order of those two choices and I'm in.
I heard they're hiring in Hell. Only PhDs need apply.
It would be great if some of the US Treasury and Fed officials would similarly defect.
Their losses are *far* more than this piddly $half-trillion.
In order to lose money on US government bonds in the last couple of years you would have had to be SHORT. The PBoC was short the 10y? LOL
That doesn't make sense because they could initiate the run if they wanted to.
I'm sure he'll find save haven here since he probably was one of the guys who were willing to fund US's addiction to debt.
He got out before they could harvest his organs.
that's awesome!
gold and silver the only thing left of any actual value.
tax credits now to buy foreclosed homes. Of course if you foreclose you can never buy a home again. The only thing that keeps everybody from foreclosing.
that's awesome!
that's annoying
the damn comment page fd up! sorry folks.
walcott,
simply delete the post, and put an asterisk in it.
Less space, and words.(Dupes)
It would be nice to know if these were real losses or missed opportunity costs.
With currencies pegged for so long we should be able able to rule exchange rate losses out.
With deflation, we have been experiencing lower interest rates and therefore existing yields should be higher.
Perhaps this is a YOY loss on interest based upon China shortening up on LT Treasuries in favor of shorter durations.
I wonder if he bought TBT?
In the political climate in China, missed opportunities are the equivalent of realized losses.
As I understand it, there are temporary collateral and hedging issues, related to the Treasury holdings, that can narratively be transformed for political opportunity.
Yes, I believe that you are correct in your assumptions....
Best regards,
Econolicious
I heard that he's coming here to join Obama's economic team. Only the most incompetent for us!
Yes! +1
+1
+12
I don't know - where could Zhou run to really?
May have a trotsky like situation brewing - when they find him they will axe him some questions.
There's plenty of plush VIP suites in Macau with friendly service worthy of a central banker
This guy is probably dead. His body will be found with a suicide note apologizing for what he has "done".
Nah, we will find out he was just working for Foxconn.
http://abcnews.go.com/Technology/string-suicides-apple-manufacturer-china/story?id=10789704
Nah, he will join some big global macro fund as an economic advisor and get compensated very well for his knowledge. Capitalism at its best.
Or they may put him on the board at one of your Chinese solar cos. Pick your poison.
Dancing with the Stars? Would it truly surprise anyone from this site at this point?
Canada . Power Corp .
Obviously trying to avoid this fate...
http://www.youtube.com/watch?v=91EjRnGOZ2Q&feature=related
ugh!
30 years pratice 0, RPG 1. Game over.
Firing squad? Seems fairly humane.
dummo the chinese, they will lost $2 trillion eventually. got gold fool>
Assuming there were lossses, he would have to be massively short - how would a short seller blowing up pop the tsy bubble?
You've got to be kidding! Is he flying to Russia?
Taking a helicopter?
http://www.youtube.com/watch?v=Xs_OacEq2Sk&NR=1
Let me see, PBC UST holdings went from 1.3T to 830B in one month and its because they had a long side loss of 430B. No wonder they're in trouble! It seems the ChiComms can't reckon figures.
Just for debate purposes. How could he lose that much when bond prices have been going up for 5 months? Even if he bought in early 2009 and sold in early 2010 that much sold would cause a massive price movement lower.
Off balance sheet derivatives? Who could collect on them?
It seems unlikely considering the dollar amount mentioned.
Maybe at one time they had MTM losses on UST. But with current prices, I would think such losses are no more. We might consider that Uncle Ben however, was motivated to conduct more QE to make China's book look healthier. Again, hard to see how there are losses, unless they bought the December 2008 price top and sold into 2009 prices lows (on UST).
How in the world could they LOSE a half trillion in UST? I was thinking they were up a quarter trillion. It will be interesting to know if this was from derivative exposure.
Maybe they were part of the ring of counterfeiting UST's, but that's just me being provocative.
hey, wasn't that the ammount of bonds they found in Italy about a year ago?
They said it was enough to downpay Italy's debt. Anybody remember?
They weren't counterfeit.
We should be so lucky. We will probably welcome him with open arms, as some type of political refugee, and offer him a top level Gumint job.
The Shanghai Gang doesn't sound so bad after shorting UST's. They could even lie and say they did it to help China win a cold war.
But Zhou Xiaochuan name isn't blocked on the Baidu search engine at the time of this post.
Still, this suggests that the extremely low salaries of Chinese bankers isn't the whole picture. Maybe these individuals have off the book accounts?
Don't you get the death penalty though for corruption in China?
Maybe the Chinese are now using dollar denominated gold as their base line currency ?
isn't china a tbtf? time to fire up the printers, got another one to bail out! this is getting fun.
No debt, no bailout required. Assuming their bookkeeping is accurate, come on, this is a country that can build ghost cities while still saving for a rainy day.
Ghost cities and now Ghost Bankers...
You can practically smell the Ghost wealth-creation.
How in the Hell did he lose money on Treasuries in this market? They only go up for some unknown reason.
I guess they underestimated the perceived flight to safety (UST) on a short term basis and got caught with a serious short position pinch. Kind of like me last year shorting SPY too early (LOL).
Since any news coming from China is almost certainly a fait accompli, he is missing because he has already been rewarded for his work. (Look next to Jimmy Hoffa for him)
This could also be a strategic ploy by China and has nothing to do with the individual.
if the story is true. i believe you might be right.
That is awesome trading
Try to separate the smokescreen of words from the possible facts they hide. "Loss on USTs" may be hiding a darker truth. We can speculate on everything from simple fraud to the next wave of collapsing Ponzi. The last would be my bet as the entire global financial structure since 2008 has been predicated on gonzo, booming growth to cover past follies. Which, of course, never materialized because the debt stifled it.
As it has basically been impossible to lose money being long USTs recently, is the loss at least partially an opportunity cost attributable to the "diversification" into European govt bonds, i.e. the total underperformance achieved by picking up PIIGS paper, etc rather than USTs?
I call bullshit until more details are released or it's confirm on AP, et al.
Bullshit is the correct call.
If this is a bullshit rumor, I wonder who would benefit from its dissemination?
People wanting to sell a LOT of treasuries, I believe. The US Treasury might see a temporary benefit as well.
The guy undoubtedly never left the country. Importantly, the Chinese own more US Treasuries than are being reported. They purchase through multiple vehicles and what you see is not the entire picture. SAFE -- like any hedge fund, doesn't buy everything under the same name.
If there were losses, they would only be because SAFE is reorganizing its holdings and may have had some leverage. There is reason to imagine their holdings as "net holdings" with swaps and leverage in order to diversify. Mistakes in reorganizing that could create some problems. Now heading into the JPY you see that everywhere SAFE goes there's potential for bubble formation.
Shawn Mesaros, Pamria, LLC
Something is fishy here.
I thought they just broke the
contracts when they loose on derivatives as in oil
a couple years ago. Must have either hedged
big time or it is all BS.
This is what happens when a few government officials control a nation's wealth. Millions struggle for decades to rise out of poverty. Working conditions so dire, that suicides are a continuous nuisance for businesses. Their earnings held artificially low by a leadership that is shorting their currency. All the sudden they discover that $400 billion has been lost from the nation's accumulated wealth. One man gets fired!! Whoops - sorry about that people, don't worry, we'll do some "reforms".
Smart move, in America the man would have already gotten a nobel price if he was able to do that.
Win small, lose BIG
The true American dream! ... or was it the nightmare...
They don't screw around in China. You lose that kind of money it's either jump ship
or find yourself on the end of a short rope.