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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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For that kind a money, I bet they'll get more creative then that.
The kind of torture that man and his family will get will be remembered as the "Zhou tortuer technique"
For such a loss in honor, you either do yourself in or someone else does it for you.
I know, we're all wondering, Honor, what's that?
Prepare for massive carnage.
I call BS also. This would make the
Chinese the biggest idiots on the
planet...who advised them? Morgan
Stanley? lol
Lehman
someone already said it, Grodeman Sax, and they took the other side of the trade, I mean "made the market"
I believe that the firm to which you're referring is properly identified as "Old-man Sacks," "Gross-man Sex," or "Gross Man-sex." Mr. Blankfein would appreciate your cooperation in this matter.
Bullshit. They probably burned them up on purpose and now need a scapegoat. It's virtually impossible to lose that many clownbux with helicopter ben covering all losses.
Where then did 450B UST holdings go? Reports of holdings reduced from 1.3T to 850B widely reported this morning.
Is it even possible to buy so many short position on US bonds?
Who bought them?
Me thinks China was anticipating treasuries tanking and thus, went short to hedge their long treasuries and the fed came and rammed one up their butts.
you nailed it TD - your line of questioning certainly explains the past well ... wow!
no problem, they will cover their losses with SOLAR panels.
ROFLMAO!!!
photon for elctron swap.
Think you're all missing the point. Bottom line here is "money that should have been there is not, and it involves US Treasuries".
Putting this together with Moody's ominous warning on CIC bank recapitalization this morning, we can speculate that there's a dispute over money spanning the Pacific Ocean.
My bet: we're witnessing the first phase of a war over global domination of assets. US calling for Chinese banks to play conservative and not over-leverage is really an attempt to thwart further purchases with those funds. "Losses on US debt" could be interpreted as a warning that China intends to retaliate and has considerable power over the market for US debt.
Hahaha, holy hell...imagine if they start dumping en masse? That's an awful lot of cards to come crashing down at once.
I feel comfortable with my ten oz gold purchase on friday.
Exactly, bro. We need to watch, but if I'm correct there will be escalation in this war that basically involves the dollar's exchange value.
I'm hoping you mean last friday.
If so, I'm with you, though I bought silver.
So much for the Chinese "taking over the planet".
Damn, just as I ordered 2 million "CHINA ROCKS" bumperstickers...
anybody interested? I'll give you a 10% discount!
If this turns out to be true, then apparently the dragon just kicked itself right in the junk. Maybe the idea that these central bankers are engineering the downfall of ALL economies isn't such a far-fetched idea after all.
You should be writing headlines!
...Zhou Xiaochuan left the country because he was invited to lead a major undisclosed Wall Street establishement.
CDS premiums soaring - "Citizenship for Debt Swap"
Bazinga.
I find this notion of "accountabilty for one's actions" extra terrestrial.
But not to worry, I'm sure one of our Ivy league schools will be happy to give him a teaching gig.
Loss on Fannie Mae's and Freddie Mac 's debt securities actually; not UST.
THAT GUY, will go into the guiness book of records FOR SURE!
so all the rest doesn't matter anymore. RESPECT ZHOU! YOU THE MAN!!
Totally fake news. Stratfor jumped the shark on China-coverage years and years ago.
The Ming Pao in Hong Kong (a real newspaper) that was allegedly the source for this story, and already published a statement that they are not in any way involved behind the story. There are numerous articles in the Chinese state press today quoting Zhou Xiaochuan, which is even more definitive proof he's not "in trouble" in any way.
Oh, and Stratfor claims searches on his name have been blocked inside China:
http://www.baidu.com/s?wd=%D6%DC%D0%A1%B4%A8+
Yeah, that was the first thing I checked.
I also think it's totally kewl that ZH can be found using Baidu. Same with a site like Infowars.
Anyone from the mainland reading this?
Are you sure we get the same Baidu results as mainlanders?
Yes.
Another step towards unpegging the yuan. Governor Zhou is the banking cartels pawn.
I call this BS. Stratfor publishes too many tinfoil articles like all those imminent Israeli strikes on Iran nukes for the past several years. Who are the counterparties? The math does not add up--$450 billion loss!
If this is true, then the financial cold war has indeed been ongoing... and the Chinese just lost
i wouldn't bet on that. WHen they say 1/2Trillion "loss" on USTs they may mean "you guys owe us 1/2Trillion". And keep in mind they don't trade 'em, they hold to maturity for the yield like an IUO so the price of the paper is meaningless.
They have to be "trading them" to manifest a loss like this... and they aren't very good at it, apparently.
They don't trade Treasures at all...they're a central bank. THey hold to maturity and redeem.
That's even funnier because you're serious!
Well, I'm not serious about them actually having "lost"... that was a little hyperbole on my part, as the war is far from over. Still, this would be a major defeat, and illuminate some serious chinks in China's armor.
*shrugs*
Don't mind him, he's got a messianic complex -- and a BIG splinter in his thumb. ;)
If the Chi's accquired their pile of UST by clearing the trade-deficit over the past several years, it would appear that the 'cash' value they bought them for, was less than their notional amount (prevailing rate/duration at the time).
How can they possibly make a capital loss into the current zero interest rate environment? UST's should trade close to par notional.
Someone please explain.
Perhaps we now know who rode the MS steep UST trade to ruin.....
http://www.zerohedge.com/article/morgan-stanleys-jim-caron-apologizes-wr...
dup
Can't hide the crap forever...
http://www.youtube.com/watch?v=_X_1o3Qw4KM
No wonder the Yen & UST's gets to be the crutch of the moment.
I'm guessing synthetics. Such wonderful and useful instruments. I'm so happy our financial reform decided not to ban these beautiful and bountiful gems that contribute so much productivity to the economies of the world.
Dp
Based on how much money I would make from this being true, how badly I want this to be true, how much fun this would be if its true, HOW RIGHT I WOULD BE IF IT WAS TRUE...
Its not going to be true...
Cheers,
CKF
Maybe this was some stealth debt forgiveness to keep the whole Chimerica machine going for a little while longer.
Confucius say, sell low, buy high? - Zhou go, bye-bye.
The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved.
Yeah, about 4:1 that this story is vapor emitted from some CPC blowhole.
If it was true,the PM's would already be OFF the charts.
China's Inter-Company Lending Ponzi Dynamics
In China, domestic companies often borrow from other companies. (They can be affiliated or unaffiliated). It is a standard practice, and most of these inter-company borrowings are done in private accounts.
This loan practice is called a “Trust loan”, and is different from “trust products” or “trust investment products” that are sold to retail investors by the banks. The interest rates on these loans are very high, and often are more than a 15 percent annual rate. But compared to the shark loans that are carried out in private, the 10-15% annual interest rate of the inter-company “trust loans” is very low.
Besides the shark loan practices that are carried out between China's domestic SME’ and, Chinese residents there is a massive amount of "inter -company loan trusts” that are made between (often listed) companies. The funds are often channeled through banks, listed companies, and Trust companies and then reach real estate developers.
Fantastic Dan22! I had to cut a paste a lil snippet for all to read in case they don't understand how to click on the BlueHighlighted sentence above... I Love Alpha, I found Tyler there a while back... it was only when he stoped showing up in my emails from them that I had to search and find this site... maybe you can appreciate that lil tid bit. any who, THANKS! and Great! Read!
Be Well Dan22, JW
this is not true! Ming Pao already apologized. Me Zhou just hosted a meeting yesterday.
2010?8?30?????????????????????????????????????????????????????????????? ????????????????????????????????????????????????2004???????????????????? ???????????????????????????????????????????????????????????????????????? ???????????????????????????????????????????????????????????????????????? ???????????????????????????????????????????????????????????????????????? ????????????????????????????
fake
More to come. Who was on the otherside of that trade?
Golly.
Who was that masked man boarding that Goldman Sachs' Gulfstream 550?
I find that the news of China losing on UST (which means they were somehow short) is the interesting tidbit. Could that large short been the real reason why the UST were on a straight line up lately? Could have Mr Ben and little Geithner been squeezing the chinese on their position as part of a financial war? Plus why would China short UST? Were they trying to kill the economy totally by running up the yields? Many Many interesting questions ...
"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."
Dis-information, Power Struggle, Bitchez!
What we're witnessing is round 1 of a cold war. At stake is the relative value of the Dollar vs the Yuan. China is the creditor and the US feels on the defensive. As I've warned for many months, the dynamics of the Double Whammy Economy are killing US middle class and main street. If China flexes its financial muscle and squeezes down the trading value of the dollar (and it has made several major moves in that direction since 2008), then all of the Fed's horse and all of it's men will never put the US economy back together again.
Trying to hide from Chinese government? Good ruck!
You guys sure run a long way with an obviously false rumor. I mean the $430b Treasury loss. Give me a break. Clearly invented by somebody who didn't know how to invent a plausible rumor.
The rumor might have some significance to Zhou's future, but it really depends on who the real source of it was and whether this was really an officially condoned rumor as Stratfor portrays. This could just be a prank by some totally un-influential Chinese-language writer located anywhere in the world, and Stratfor could just be grabbing attention with a nothing story (they do that from time to time).
Hedge Fund trying to get out of treasuries and a better position on Chinese equities? That is my guess...maybe it was Leo.
...there you go, blame me for everything!
Speaking of which, it is your fault that I got drunk the other night. It had absolutely nothing to do with the large quantity of alcohol I consumed. It was just you.
My tomatoes won't bear fruit-->Leo.
That is one solar investment that is not paying off!!
But my watermelons are doing great. I have seven, three full size already. Score-->Leo
Should your comment be turning me on?
It was a fruity post. Someone junked it already.
Not me !!
Bet the money is sitting in Swiss Bank
Swiss Banks aren't what they used to be.
Bet the money is sitting in Swiss Bank
Good call. No doubt that many "losses" end up there.
I used to be a Stratfor subscriber - started because Mauldin recommended it (who I respected back then). Stopped subscribing once I realized they are often just plain wrong! This sounds like a crock of shit.....start a rumor and then morph it into' news'. Stratfor is probably trawling for new subscribers.
If true, at least Cramer can have another co-host now on "Stop Trading" and they can toss plastic bulls at each other.
Cramer Yoda says buy or buy not, there is no sell.
Well, folks, sorry to rain on your party but the liquidity is not there to short that amount of T-notes + T bonds Would have fun, though...
Might be some form of leverage, or the selling of options, ostensibly to the Fed. I don't know much about Treasuries, as I stay right the fuck away from them. I have no idea how transparent that market is, outside of long positions by nations and central banks.
If true, Gov. Zhou is eminently qualified to take over economic adviser duties in place of Larry Summers when he is forced to resign.
Remember we did have a near doubling in rates on the ten yr from the late 2008 bottom. Were they long to much duration then and over hedged at the wrong time?
You know Gold Sacks is their "advisor".
Did uncle Ben throw them another gift after bailing out their MBS/CDO disastrous positions in 2008/9 with QE2?
well, QE2 would not be a gift but a war declaration as it would squeeze them even more
in a geo political thriller, you could imagine the FED squeezing them until they relent on USD / Yuan parity
but the sad fact is there are not enough counterparts to put on such a trade /
This what he was doing this morning... According to th PBoC
"August 30, 2010 morning, party secretary of the People's Bank, Governor Zhou Xiaochuan of the People's Bank hosted enlarged party, Premier Wen Jiabao conveyed and studied law at the national meeting of the administration of the important speech, to discuss "the State Council on Accelerating Promoting Law Construction view "
http://translate.googleusercontent.com/translate_c?hl=en&sl=zh-CN&tl=en&...
I get the feeling that his trial will look like this: http://www.youtube.com/watch?v=91EjRnGOZ2Q&feature=related
But what we see here will look more like this: http://www.youtube.com/watch?v=F-ReoBPl4mM&feature=related
Funny stuff. Enlarged party must be fat. If he hosted, did he let them eat him? Administration of the Important Speech, is that Obama + staff? I could go on. Google translator can be used to write a comedy routine.
Or the basis of very plausible denial.
Follow the money. This isn't about trading losses (PBOC is not a trading firm).
This is about global finances. The dispute is starting to simmer, just after the end of Jackson Hoe (quelle coincidence).
Supra sovereign currency bitchez! Hang on to yer gold.
Tyler's math is right. To lose $430b you would have to have a notional position of many Trillions.
So something is wrong with this story. On the other hand look at the bonds today. The ten year up a big figure. Someone is buying.
Want a nightmare scenario?
This story is 10% right and the losses are $50b. Who ever did it walks and the these derivatives don't pay. Who is the the other side? Generally speaking it would be the world. But it would be centered in the money center banks.
Kaboom.....
Greek News Sources Report that Plan B on Debt Restructuring May Be Taking Shape
Maybe something is lost in translation here. Like was pointed out earlier that they have ~2T in GSE's, possible that maybe the loss was on GSE debt?
So far, not a peep of this on Bloomberg...early April Fools' joke?
The news paper has official deny its rumor was spread from them
but i read something even more interesting
The US gov is forcing the Chinese government from punishing Zhou Xiaochuan by threatening to publish the top 5,000 Chinese Sweden bank accounts in detail.
Link? I can't find it.
Sorry The article is in Chinese, I couldnt find where it is now
I found it funny because during the summer the US government was forcing UBS to provide US citizens account information and now they have the Chinese bank info, will that kill the reputation of the swedish bank as well.
I didnt try to make it sounds like it is a fact, it is just a speculation more than anything
It would have been a hedging loss since they hold $1T and thought bonds would be worthless, but they appreciated in value. IF this is true, doubtful, his hedge blew up and the $430B is a notional figure, not an actual figure. If they were long $1T there is no way they could be at a loss when the long bond returned, what, 10-12% this year???
Chinese media is trying to kill this story.
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.
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 PBOC 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.
Is Zhou trying to slip into Switzerland from Italy with 2 Japanese tourists?
Ok, so they were (are?) 25% hedged on their US Treasuries and it lost. Isn't that a good thing? If I'm 75% long / 25% short, I'm better off if the 25% short loses (as long as the long gains are somewhat proportional).
Paging Paul Harvey, pick up a white courtesy phone. Paging Paul Harvey.
maybe they didnt lose it in US TREASURIES..but in other things like real estate or empty factories..or plain stole it..but its always the best bet to blame it on another entity...1984..here we come..running to you at a faster pace than ever....
What's the secret? How come some rumours gain traction and others don't?
Some get posted on ZH, and others don't.
I will admit that we are an excitable bunch. The upside of this is it made us all think a bit, and think about what another black swan might look like.
Black swans are old hat. Cyan swans - now you're talking.
ZH quoted on Barrons now:
http://blogs.barrons.com/stockstowatchtoday/2010/08/30/runaway-central-b...
WOW i guess this isn't all my own fantasy. that is good to see. days and days go bye bye without much ¢'s in my life. but WOWweeWOW.
More on this by Stratfor:
How do you defect to an ally?
Where's Goldman Sachs in all of this? Nobody can lose that much money without their involvement.
+1
See if the Chinese insert a 'stunt double' to make an appearance. Someone check with the Italians..I think they supposedly saw him last. If it turns out to be false STRATFOR really jumped the gun on this....they usually don't.
One could only dream of such an event given the implications for that "non-bubble bond bimbo" called The US Treasury market.
This "announcement" is all part of the game. There is a shred of truth in there....see if you can find it.
Don't they own enough treasury debt to steer the market and ensure their bets, especially on the short side, are winners? This would be like a boxer betting against himself and then winning the fight.
Theres more disinformation than information in this story. Trying to formulate a coherent trading strategy around such news is pointless. Its like debating global warming. China and its UST holdings.... next...
edit for double post.
China has purchased $400b in US Treasuries... and lost all of it because they were short US Treasuries? Huh? anyone wanna make that make sense to me?
Why buy $400b of something if you are long a short position? if the guy Zhou lost the money he was not hedging...
$400,000,000,000.00 plus dollars gone? based on a short position? who had the other side of that? there is only 2 companies that could cover... Morgan Stanley and Rothschild's... that's it, unless some sovereign wealth fund wanted the action.
It does not pencil out... the loss and thusly the running over US Treasuries... IMHO!
If I'm Nick Leeson, I'm feeling pretty darn good about myself now. Hey, at least it wasn't half a tril, buddy.
Shorting treasuries when they are long treasuries is hedging, right? So if you lose that much scheckel I would suspect they levered their long to go short. They also sold last month a substantial amount- maybe trying to crater the market and start the fun. But then the PPT had to let the market go down to sell more treasuries and drive a flight to quality with internal purchases and prevent auction failures.
Only last week did the treasury market begin to fold- and then it's back since the stock market puked.
If they are short, weird, they first hedged and then went for with everyone else(who gambles) on the short side of the bond market. I bet they borrowed cash in their long position to put on the shorts and were squeezed. Did they then sell on the market more long positions and had to buy them back to cover? am I smoking crack ?
Thanks for the great comments guys- they is an eyeopener!
This is why you talk to your friends about what you are doing if you are a central banker, right?
I look forward to more on this story, we don't know it all yet...
They were over-hedged ? By a 1/2 a tril !! That's flukin crazy..
With that track record Zhou should be given a job immediately at the Fed.I,m sure PRC will accept compensation for the loss of his unproffessional services.
I may be wrong, but I think China is 'saving face' before doing a mass deinvestment from UST.
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Interesting to read all the new responses, thanks for all the current news and updates. Hope to read more very soon.
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