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Weekly Chartology, And Goldman's Ruminations On CNY Revaluation
You say you need a catalyst for the next leg up to Dow 36,000? Heeeeere's Goldman, proclaiming that a CNY revaluation is virtually a certainty. Of course, should that happen, the previously linked USD will take a solid and material step up in the currency devaluation race, which would set AJ Cohen's (and replacement David Kostin) hair all aflutter with irrationally exuberant hot air.
The potential appreciation in the Chinese currency, the CNY or RMB, has moved to the forefront of many client discussions since the start of 2010 and has accelerated following recent policy tightening in China. Concerns regarding the pace of China growth and administrative actions necessary to keep inflation and growth in balance have weighed not only on EM equities, but also on the most globally exposed parts of the US market – the Information Technology, Energy, and Materials sectors.
A gradual or one-off appreciation in the CNY would be broadly supportive of risky assets and globally-exposed US equities, in our view. We would view a revaluation as a positive move from a sentiment perspective. It would likely be interpreted as sign of confidence on the part of the Chinese government and as the next step in what has to-date been a somewhat opaque and sporadic tightening process.
A CNY appreciation could serve as a headwind for domestically-focused Consumer Discretionary companies. The Consumer Discretionary sector – which we are currently underweight – is likely to be adversely impacted by a stronger CNY as input and production costs rise. Higher energy prices and production costs would put pressure on Consumer Discretionary margins, particularly for firms that do not export into emerging or Asia markets but manufacture in the region. Domestic retailers that generate 100% of their revenues in the US include Target (TGT), Saks (SKS), Nordstrom (JWN), Dollar Tree (DLTR), and Family Dollar (FDO). The recent string of better-than-expected consumer data, such as payrolls and same-store sales results, could serve as an offset to these cost-based risks.
Of course, all of this is merely Goldman wishful thinking. Although if Goldman is somehow responsible for the 70% of Chinese debt that does not appear on the country's books, as Victor Shin pointed out, then the firm may just have enough leverage to dictate Chinese currency policy. Certainly, this allegation would have been ridiculous up to about a month ago, when it was disclosed that Goldman almost single-handedly was responsible for determining the "adjusted" debt levels of virtually all countries in Europe over the past 10 years.
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If sovereign CDS is banned, will it affect new sales or ban all CDS still in existence.?
See tulip mania. Eventually the mess becomes so great the government will throw out all the contracts.
All bubbles return whence they came. We will see DOW 2-4k. When not if.
"Mark it zero Dude!"
Tulip mania was the example that helped my mom understand FIAT. "Mark it Zerohedge, Dude."
Washington, D.C., March 4, 2010 — The Securities and Exchange Commission today charged a self-proclaimed psychic who fraudulently raised $6 million after telling investors he could predict stock market highs and lows.
Does Abby Joseph Cohen have a legal defense fund set up? I'm kinda feelin' sorry for the ol' gal.
http://www.sec.gov/news/press/2010/2010-34.htm
That chick has earned an aggregate hundreds of millions over her career for doing one thing: Predicting the stock market will be ten percent higher than where it is when anyone asks the question.
If Washington uses trade protectionist measures as a tool to pressurize Beijing, it would jeopardize its own interests, they said during the ongoing sessions of the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC).
Sun Zhenyu, China's ambassador to the World Trade Organization, said Washington's demand for currency revaluation is aimed at deflecting attention from its domestic woes.
"It is not right for the US to blame China for its economic problems," Sun, a CPPCC member, told China Daily.
http://www.chinadaily.com.cn/china/2010-03/05/content_9539981.htm
Japan (and the U.S.) pressuring China in Summer 2007 was the proximal cause of our whole current mess. China called our bluff and choked off the JPY carry trade ~ 8/07 and credit availability dropped precipitously. The last thing we need to do is piss China off even more.
We will, of course. That just serves to help China and hurt us even more.
pressure them to raise the yuan then start selling them tons of cali weed...
I find it incredible that the waters have not cleared to a less murky picture on the inflation/deflation debate, after now almost two years. I guess that's the best arguement for hyper/stagflation. Truth is the daughter of time I suppose.
I'm still where I was over a year ago, inflation in what we need(food,fuels)deflation in what we own (stocks, bonds, houses)
Well said - but a couple of adjustments are in order:
First off, move houses out from the stock-bond group into the category of: non-essential goods and services.
Then, since we acquire stocks and Bonds to the tune of the savings rate, that's a small slice of the pie.
Things we need is a larger slice but, the biggest slice is the non-essential one.
It's there that there is absolutely no pricing power. And its there that the "Balance of Power" tips toward deflation.
Were it not for competitive devaluation, deflation would have NO doubters.
Wow, what a day yesterday....
It is the current seas, thats all...and oligarchs wanting to make some dough in energy. Retail? Real estate? Pshaw! Gs up, does down!
PCX MEE SUN all had a really really nice week
http://www.youtube.com/watch?v=Jb6eMEVJ_jo
ain't nothin like that 'ol timey!
Henry Liu a few years ago before the so called GFC
How Currency Devaluation Destroys Wealth
By Henry C K Liu
In today's financial world, a liquidity boom produces rising nominal or face value in return on investment (ROI) with an increasingly hollow economy in two ways: (1) by devaluing all currencies against real assets and (2) by keeping down wages and worker benefits around the globe.
Thus while all currencies devalue steadily but not at the same pace, all of them devalue faster against real assets and slower against labor cost, because wage adjustments tend to lag behind both real and nominal inflation rates. This translates directly into low real valuation for labor, structurally constraining growth of demand to fall behind growth of supply. This in turn leads to an overcapacity economy of declining consumer purchasing power. Neo-classical economists call this the business cycle, which Keynesians assert must be countered with demand management through full employment supported by deficit financing.
http://www.onlinetradersforum.com/showthread.php?t=19180
"Although if Goldman is somehow responsible for the 70% of Chinese debt that does not appear on the country's books...."
Goldman Sachs is not responsible for the local debt bubble: China has seen this before in the 1980s when the state-owned commercial banks created "trust companies" to increase their leverage. The local debt problem is symptomatic of excess liquidity at every level of government and not, I think, foreign financial advisors offering the latest financial innovations.
We've seen the problem before and the end was not pretty.
Thia is a very limited view in a very limited fashion,or may be it is more or less like an upgrade for consumer discretionary stocks,instead of coming outright with an already repeated broken record of analyst recommendation. Here is what I see in a Chinese currency reeavalution:1- It might worth an in depth research of unit labor cost equivalent,but does anybody think that a doubling of the CNY would make US international run back to move their manufacturing to the US?. I don't think that somthing like this would happen,and rather instead we will see a higher rate of inflation. 2-would everybody seems to ignore,is if the Chinese decide to unpeg,then all that capital that has been flying for the last year between US-EUR-JPY-GBP,running away momentarily from who is printing more,to the imaginary less "bad",will finally find a destination that is still virgin. No high debt to GDP ratio,and no danger of printing for the forseable future. Vast country with vast population where there are endless possibility for capital for new finances. Now that would be the biggest blackhole that would suck capital frrom western (may be to a lesser extent Japam)countries. And then would the real printing and hyperinflation kicks in. But by no mean,that would be a home run for any stocks or bonds in that case(CNY unpegging).
Goldman is a bucket shop.
Buyer beware.
your consistency on this matter, Fritz, is amazing and accurate.
I had recently upgraded Goldman from "clear and present danger to the USA" to "clear and present danger to the world"
Consider today's comment my first reiteration on my CONVICTion list.
Goldman
correction: Federal Reserve Bank
Congressman Ron Paul exposes Federal Reserve drug running, among other things:
http://www.youtube.com/watch?v=cX47MLn_NjA
Equities are about to make a higher high. Ben rocks! Nothing to see here...move along.
Treasuries would get absolutely pummelled. Debt service costs would skyrocket. Uh-oh, time to recalculate that 10 year bugdget deficit as debt service starts looking more like a trillion bucks a year. But, Goldman's dreams of an export led boom are a joke. Does anybody believe that foreign governments are going to allow the US to beggar our neighbors via currency depreciation. Sorry, we'll have massive trade wars first. Oops, that's more inflation. Screw 'em, we can just produce more of what we need right here at home, right? Ah, now there's some real inflation. Get your Pelosi GTxi now, before GM's unions renegotiate their contracts based on a captive market.
I guess we'll have to fall back on good old Ben Bernanke to keep interest rates low. Printing up a few more trillions to keep those mortgage and treasury rates low should do the trick. Yeah, I'm beginning to see the bullish case for stocks already. Apple computer could see a billion bucks a share in the next 10 years, as long as the non-equity holding class doesn't burn down the factories first.
blah blah slam the auto unions blah blah but let health care run amok into the moon...
auto union have been taking pay cuts for forever.. so basically your point boils down to: we don't mind paying a lot for american health care but we are ok with foreign cheap labor.. why not just import cheap health care too ???
start with pharma.. let's just buy drugs from other countries for awhile---oh wait, we aren't allowed!! but that is ok, we all accept that as safety measures.. like the rest of the world is dying with every pill they take. Love that forced monopoly I guess.. since we all just swallow it
"so basically your point boils down to: we don't mind paying a lot for american health care but we are ok with foreign cheap labor"
Not sure how that became my point, since I never mentioned health care at all in my post. But, since you bring it up, there are lots of costs that could be wrung out of healthcare. We could start by stripping every last penny that the tort lawyers make out of the system; they drive up costs tremendously. Then we could make health care more like a free market, where costs are advertised and consumers are incentivized to hunt for the best price. We have to make drug pricing subject to free market discipline, because the drug companies, biotech in particular, have engaged in an insane price escalation resulting in drugs that cost half a million dollars a year or more.
But, there is one factor that supercedes all others. We will have to have a multi-tier system or quality must decline. The US government (or any other government) can't afford premium healthcare for everyone, not in the long run. It's too labor intensive. If we decide that everyone must have the same level of care, then the level of care for everyone will be worse than it is now. I understand that is the option on the table, but the debate should be honest.
Goldie sure is pounding the table with this theme. Two weeks ago it was the chief economist, now this. How visable is Goldman? Enough to get a response from the Chinese government. This from bloomberg earlier:
March 6 (Bloomberg) -- Chinese central bank governor Zhou Xiaochuan said the nation should be careful in exiting anti-crisis policies, suggesting that the government may not let the yuan appreciate soon against the dollar.
I just read today's WSJ article on the speech.....the hedging and "maybe", "maybe not" "depending on global recovery" blah, blah, blah reminded me of a typical American politician or Fed Chairman.....a person could read into it any perspective they want. i'm usually wrong, but I don't see where a yuan appreciation delivers benefits to China that outweigh costs, particularly for a relatively young economy.
"Of course, all of this is merely Goldman wishful thinking." Yes well, every god forsaken econ professor will tell you the Doelarr needs to be DEVALUED to increase exports. What exports? I have no idea.
"Although if Goldman is somehow responsible for the 70% of Chinese debt that does not appear on the country's books, as Victor Shin pointed out, then the firm may just have enough leverage to dictate Chinese currency policy. Certainly, this allegation would have been ridiculous up to about a month ago, when it was disclosed that Goldman almost single-handedly was responsible for determining the "adjusted" debt levels of virtually all countries in Europe over the past 10 years."
Fascinating...what does this mean? The Chinese current sea apprieciates, and goldman makes hand over fist? OOOOOOOOOHHHHHHH! Goldman sets economic policy for the world, and they are not going to hide it? Shall we enthrone them now, and elect Lord Blankcheck Supreme Chauncilier?
'if you want to crown 'em, then crown em!!
I say lead 'em into the White House, then we tear da roof off, and watch them squirm as we burn it down!
"They (Gold Man Suchs) are who we thought they were, and we let 'em off the hook!"
My sentiments exactly...now where the hell is that red paint?
http://www.youtube.com/watch?v=llew3kAqev8&feature=related
Self-fulfilling prophesies are first, and foremost, fulfilled.
It is interesting to notice how in their last week report they were advertising their clients doubts regarding the feasibility of their 1300 forecast. They advertised the doubts and justified them just prior the beginning of one the biggest weekly gains in the last few months.
no RMB revaluation, trust me.
China is not ruled by a/the banking cabal.
As Premier Wen has just pointed out, the pressure to revalue RMB comes from the trade surpluses. So China is going to address the root of the revaluation call: to reduce China's trade surplus to a more or less balanced state. How? not revaluation, but to push up the prices charged for MADE IN CHINA, and to increase imports by enlarging domestic economy. And these two birds can be killed by one great stone: implementing a higher wage standard, increase social security spending (a 10% rise in pension for all enterprise retirees is on the table now).
The benefits of RMB revaluation go to currency speculators but largely bypasses the Chinese masses. On the other hand, higher minimum wages and increased social security spending benefits the Chinese society as a whole, helping to narrow income gap, reduce social tension, and enlarges the domestic economy. This is what Premier Wen has just prescribed. Revaluation of RMB? forget about it, for the time being anyway.
The equities rally should continue for a bit longer before the main downtrend resumes.
Weekly charts are bearish/neutral.
http://www.zerohedge.com/forum/market-outlook-0
mmmmm.....we will find out this week! If PMs/Energy continue to crush, then, HYPE!
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