Escape velocity has failed...
"This Is Much Larger Than Subprime" - Here Are The Legendary Hedge Funds Fighting The Chinese Central BankSubmitted by Tyler Durden on 01/31/2016 21:57 -0400
Who are the brave souls who have decided to very openly fight the People's Bank of China? Here is a sample: Soros, Bass, Ackman, Druckenmiller, Tepper, Schreiber, Einhorn, Scogging, and Carlyle, Nexus and many more.
Many believed that the NOK was backed by oil, not requiring a gold reserve. However, oil is no longer a scarce resource but an abundant commodity. Switzerland, Germany, America and other first world nations have gold reserves. Norway should have one too.
"If I don’t issue more loans, then my salary isn’t enough to repay the mortgage, and car loan. It’s not difficult to issue more loans, but lets say in a years time when the loan is due, if the borrower defaults, then I wont just see a pay cut, I’ll be fired, and still be responsible for loan recovery."
What’s a Keynesian monetary quack to do when the economy and markets fail to remain “on message” within a few weeks of grandiose declarations that this time, printing truckloads of money has somehow “worked”, in defiance of centuries of experience, and in blatant violation of sound theory? In the weeks since the largely meaningless December rate hike, numerous armchair central planners, many of whom seem to be pining for even more monetary insanity than the actual planners, have begun to berate the Fed for inadvertently summoning that great bugaboo of modern-day money cranks, the “ghost of 1937”.
Having recently explained his "greatest investment opportunity for the next 3 to 5 years," Kyle Bass expands on his China discussions to focus on Emerging Markets more broadly and specifically The BRICs. As Benzinga summed up, Bass Warns "we still have three tough innings to go, maybe four," he warning that emerging markets will "see a lot more pain before things are okay."
Today, another Texas-based hedge fund manager who just like Kyle Bass correctly predicted, and profited from, the subprime crisis, Corriente Advisors' Mark Hart, has not only reiterated Kyle Bass CNY devaluation call, but has gone as far as quantifying by how much the Chinese currency will have to fall. Cited by Bloomberg, Hart has said that "China should weaken its currency by more than 50 percent this year."
Foreign Central Banks Furiously Dump US Treasuries: Record $47 Billion Sold In First Two Weeks Of 2016Submitted by Tyler Durden on 01/17/2016 19:58 -0400
According to the latest Fed data, after a drop of $12 billion in the first week of the year, another $34.5 billion in Treasurys held in custody was sold in the week ended January 13, bringing the total to just $2.962 trillion, below the previous recent low recorded in early November, and at levels not seen since April 2015. Adding up the flows from the first two weeks of the year reveals the worst and most custody holdings "outflowing" start to the year in history.
"Oil goes below $40, it’s frightening for geopolitical behavior. Guess what, folks? It’s below $40 and this frightening political behavior is upon us.... We could be looking at a really ugly situation during the first quarter of 2016... I think we're going to take out the September low of the S&P500."
"... what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China's banking system loses 10%, you are going to see them lose $3.5 trillion."
Once China set the Yuan fixing some 0.5% lower, the biggest drop since the August devaluation, all hell broke loose and unleashed a global selling panic after China's stock market was promptly shut down less than 30 minutes into trading, then European shares dropped the most in more than 4 months as Asian equities plunges, as did US stock futures, the dollar weakened against the euro and the yen; crude plunged to fresh 12 year lows. Gold rose.
Surely, The PBOC will step in at some point and save the collapsing currency? Nope - not if options traders (and Kyle Bass) are to be believed. The odds of the yuan breaking beyond 7 to the greenback by the end of March more than doubled to 12% (from 5.8% at the start of December). Ironically, Bloomberg reports only 1 of 39 analyst predicts Yuan to trade beyond 7 by the end of 2016. The market's extremely strong conviction, and apparent PBOC loss of control is "a dangerous situation for policy-makers" according to one Asian economist.
- Today’s fixing was a big surprise, and impression is that upside risks to USD/CNY have grown
- PBOC’s actions are conflicting: there was suspected intervention yesterday and sentiment stabilized, but it set such a low fixing today
- Will help loosen monetary conditions; still, risk of capital outflows could increase concurrently
- Expect 5%-10% depreciation by end of the year, though this depends on the pace of PBOC’s intervention and health of macroeconomy
Before we go into details of the overnight carnage, this is where we stand currently: S&P futures now down 33 points or 1.63% while 2Y Treasury rallies pushing its yield back below 1% as EU stocks extend their drop after China weakened its currency, North Korea says it tested a hydrogen bomb; Brent crude falls to lowest level since 2004.
Dow futures are down over 170 points from the cash close, testing the lows of the day following carnage in the Chinese currency markets. Despite the biggest drop in onshore Yuan since August devaluation, Offshore Yuan has collapsed to its lowest since September 2010. What is more worrisome (or positive for Kyle Bass) is that the spread between onshore and offshore Yuan has blown out to 1250 pips - a record - indicating dramatic outflows and/or expectations of further devaluation to come.