And then there were 21. Hours ago on Saturday, the country whose currency is largely pegged to the dollar which itself is now anticipating a rate hike in the coming months, surprised the world by confirming its economic slowdown yet again following a recent rate cut just this past November when it lowered its benchmark rate by 40 bps, after it again cut benchmark lending and deposit rates by 25 bps starting on March 1. Specifically, the PBOC will lower the one-year lending rate to 5.35% from 5.6% and its one-year deposit rate to 2.5% from 2.75%. It also said it would raise the maximum interest rate on bank deposits to 130% of the benchmark rate from 120%.
US stock markets reached record highs last week. Question: does that make them riskier, or less risky? We think the former.
The signals are clear: the world has already entered a downturn in economic activity. Therefore we can expect accelerated money-printing and the imposition of more negative interest rates in a forlorn attempt to avert economic reality.
Everything has to come to an end, sometime...
Very few, it seems...
There is a bull market developing in gold and few are aware of it...
To say that the PBOC is confused at this moment is a very big understatement: on one hand, yesterday the PBOC moved its reference rate for the yuan outside the daily trading band for the first time in 21 months, forcing the currency to strengthen as authorities seek to limit volatility in capital flows. And then just hours later, as reported first thing this morning, the same PBOC announced its broad RRR cut - the first one since May 2012 - an attempt to ease ongoing, and thus tightening, capital outflows, and pushing the currency lower in the process. In short: unlike other central banks who hope that institutional and retail investors figure out their FX intentions and help them out by "frontrunning" their moves (which may never come) in what is now a clear and global currency war, China is certainly not making it easy for FX traders to figure out what will happen next.
The "big" move in the USD we have witnessed over the last 6 months is only just the start of a major move
We won't go into the specific details of China's burst housing bubble, the shady underworld of its pyramid scheme wealth-management products, the fact that any hard asset in China is rehypothecated literally a countless number of times, the nuances of its deflating shadow banking system, or even the complexities of its alleged capital controls (alleged, because as a reminder, they only exist for the common folks - the really wealthy Chinese are naturally exempt from any capital flow constraints). We will point out something even more disturbing. The Offshore Yuan just hit a two-year low, reaching a level not seen since September 2012.
As central banks rush to depreciate their currencies and push yields into negative territory, what's becoming scarce globally is real yield in an appreciating currency.
The Japanese fire at the Europeans. The Europeans fire at the Japanese & Chinese. The Chinese fire scattershot at everybody else in Asia. England & America prep to teach those they consider muppets not to play with guns. It's World War Money, if you know what I mean...
In 2013 when he started dumping his Chinese property holdings he was being ridiculed and criticized. Everyone was bullish on China’s real estate market... and we know what happened next. It turns out you don’t want to bet against a man with a track record like Li Ka-shing's - the richest man in Asia. So when Li gets a second passport and creates a Plan B by restructuring his investment companies, moving his money and his assets far away to safe, stable locations so that no single government has control over him, it is perhaps time to pay attention.
It will be even more disruptive if some among them decide that the only reason for the failure of their collective delusion of grandeur is that they have not been deluded enough and that even more wild-eyed palliatives are therefore needed. Disruption on such a scale is not what the budding entrepreneur wants to contend with as he contemplates whether to risk both his capital and his reputation in launching or expanding a business, in ordering new equipment, or hiring new staff and so fostering a meaningful recovery. Disruption on such a scale is not something we should wish to inflict upon a system we have been both unable and unwilling to fully repair. Either way – damned if they do, damned if they don’t – disruption seems to be what we will get in the months ahead.
... things like a 50%+ drop in oil prices happen. Which at some point will lead more people to wonder what the real numbers are. For emerging nations, those numbers will not be pretty for 2015. They’re going to feel like they’re being thrown right back into the Stone Age. And they’re not going to like that one bit, and look for ways to express their frustration. Volatility is not just on the rise in the world of finance. It also is in the real world that finance fails to reflect. At some point, the two will meet again, and Wall Street will mirror Main Street. It will make neither any happier. But it’ll be honest.