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Bernanke – I Want to Bust the HKMA

Bruce Krasting's picture




 

 

 

The Hong Kong Monitory Authority (HKMA) was forced to intervene in the currency market again last night. This is the second time in a week that the upper end of the USDHKD peg has been tested by speculators.

 

 

 

 

There are two aspects to the attack on the HK$ that are worth noting:

 

1) This is a “celebrity trade”.

 

2) Ben Bernanke is responsible for the run on the currency.

 

 

Bill Ackman has made a very well publicized bet on the HK$. I find this interesting as it reminds me of George Soros, in 1992, when he took on the Bank of England and forced a devaluation of Sterling Vs. the Dollar.

 

Bernanke has his hands all over the run on the HKD. On October 14, he flew halfway around the world to deliver the message that specs should take on the HKMA.

 

 

I was surprised at how strong Bernanke’s words were at the IMF confab in Japan. At the time, I thought that he was guilty of economic saber rattling (Link). It was clear that Ben was addressing his strong language at Mainland China and its currency, the CNY. It appears that the FX markets have listened to Bernanke, and are now taking a run at China’s other currency, the HK$.

 

The HKMA has not been forced to intervene in support of the peg for more than three years. Five days after Bernanke spoke, it is forced to enter the currency market on a near daily basis. If you believe this timing is just a coincidence, think again. Everything in FX is connected.

 

I’m not smart enough to know if the following chart is going to be broken anytime soon. But the pot is boiling at the moment; big bets are being made. I believe that the HK$ story will be in the press a fair bit in the coming days. Who knows, maybe this time the specs will topple the HKMA.

 

 

 

Consider the implications of this:

 

- The head of the Fed has launched an economic attack against a sovereign state. If Ben is successful in toppling the peg, there will be many angry folks at the HKMA. If the HK$ ends up getting revalued, the HKMA will lose billions on its reserve holdings.

 

- It’s impossible for other CBs not to take notice of what has happened. Is Brazil the next country to get strong-armed by the Fed?

 

- If the HK$ goes, Ackman will get his pic on all the front pages. He will be touted as the next Soros. The guy who “toppled” a central bank. That “rep” may be deserved, but the fact is that Bernanke is the guy who will make it happen. That is just too much theater for me. Bernanke is pursing policies that make hedge funds rich, but this is over the top.

 

 

- If Ackman has a big win, there has to be consequences. Other central banks will speak up. After all, Bernanke has triggered a run on a major currency. That’s a very big deal.

 

- If the HKMA is forced to revalue its currency, then other peg currencies are going to come into speculator's cross hairs. The Korean Won and Swiss Franc come to mind. The HK$ outcome is not the only factor that will decide the fate of other pegged currencies, but once money starts moving, it is very hard to stop. What is happening today in Hong Kong, could easily result in global capital market disruptions.

 

 

Just a point here. Toppling central banks is a messy business. This will be a “reval” versus a “deval” so it is different than what Soros did to the BOE, but messy and unforgettable none the less.

 

Watch out for the HK$ over the next few weeks. If it goes, it will not be a “risk-on event”, and Bernanke will get egg on his face for having started it.

 

 

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Tue, 10/23/2012 - 12:58 | 2913116 Orly
Orly's picture

A dagger pointed straight at the heart of all those Chinese mainland billionaires?

Hmmmmmmmm...

Tue, 10/23/2012 - 12:56 | 2913111 RagnarDanneskjold
RagnarDanneskjold's picture

Where is the money really coming from? I bet a lot could be from Chinese Mainland investors. U.S. dollars are being accumulated by Chinese investors, and if you are bullish USD, why not take a flier on HKD, which at worst is USD?

Tue, 10/23/2012 - 12:06 | 2912969 Captain Willard
Captain Willard's picture

Great stuff Bruce! I think you have this one absolutely right.

I think the HK$ peg is a "demonstration project" for the Fed. They are encouraging speculators to try to break this peg to encourage others not to fight the Fed and to let their pegs float.

But I'm curious about your thoughts on the Korean Won. Doesn't it look under-valued to you vs. the $ by more than the HK$?

Tue, 10/23/2012 - 13:53 | 2913277 Water Is Wet
Water Is Wet's picture

LOL, not to "fight the Fed" i.e. let the Fed trash the dollar.  Ben is going to win!

Tue, 10/23/2012 - 11:56 | 2912932 q99x2
q99x2's picture

The chaos masters of the NWO are about to get physical with hit squads. Interesting.

Tue, 10/23/2012 - 11:37 | 2912880 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

It's all about the labor gradient. Jobs cannot continue to flow out, it's costing the US Govie too much to support and social discontent is rising. It's going to cost Barry the White House.  Inflate the debt, devalue the USD. Walmart will be importing from minimum wage factories closer to home. Like New York State and other 3rd in the 1st world enclaves.

Tue, 10/23/2012 - 11:16 | 2912811 swissaustrian
swissaustrian's picture

This will be a “reval” versus a “deval” so it is different than what Soros did to the BOE

That's a very huge difference. reval can be suppressed much longer in a fiat system.

Tue, 10/23/2012 - 11:00 | 2912764 b_thunder
b_thunder's picture

Bruce,

Perhaps you're giving this Princetonian money printer too much credit?  The dude couldn't see the RE bubble,  thought that subprime would be "contained", didn't see (or didn't want to see?) Bear and Lehman?   The man who literally freaked out over the weekend in 2008 and cut 75bps after Kerviel lost a few large ones for the big french bank?  Really,  75bps cut becasue a bank was unwinding some trades?  And you seriously thinking he's successfully scheming agaisn another currency?  Than he must have soem very smart traders working "behind the curtain."

I really think Bernanke can't think/act as tactical as you're describing... 

 

Tue, 10/23/2012 - 11:38 | 2912879 Winston Churchill
Winston Churchill's picture

Don't thibk anyone could be as dumb as Ben appears and get so far.

Apart from Krugman of course

Or its just the Peter principle in action.The best of mediocrasy in action.

Tue, 10/23/2012 - 11:11 | 2912799 Ghordius
Ghordius's picture

I disagree. forecasting is a very difficult business, nearly everybody that engages in it has problems

attacking a foreign currency is a completely different matter, that's the craft in which some central banks excel

Tue, 10/23/2012 - 10:47 | 2912700 Winston Churchill
Winston Churchill's picture

Currency wars are heating up nicely. Bring to boil, and simmer untill real war breals out.

Tue, 10/23/2012 - 10:40 | 2912668 malikai
malikai's picture

Personally, I find pegged currencies to be rediculous in the first place. If HKD unglues, then it will at least have some semblence of a market determined value.

As for Benocide attacking another CB, well, I guess he's just doing the bidding of his masters.

Tue, 10/23/2012 - 11:06 | 2912770 Ghordius
Ghordius's picture

ridicolous because it's not "free market" or because you'd like to trade this pair? It's their (foreign) IOUs they sell in unlimited amounts against Ben Bernanke's IOUs. they don't come to your home and tell you how to trade and price your stuff, do they?

a peg of a fiat currency to another fiat currency is not a lack of free market, it's a form of it. they enjoy their freedom to promise as much as the next CB and sell their promises to whoever wants to exchange them with other promises. pure market making.

just realize that a global fiat reserve currency gives the printer of it the power to export inflation.

"our currency, your problem"

meanwhile Stuck on Zero has an even shorter - and better - counterquestion

Tue, 10/23/2012 - 12:20 | 2913015 Freegolder
Freegolder's picture

Hello fellow Euro-fan.

Nothing much to add, but liked your comment, and agree with your astute observation on the gold-backed question.

Thankfully soon the dollar will be no more as the global reserve, Bernanke's machinations are upsetting far too many trading partners, but he doesn't care, and to be honest, he has no other option. If he doesn't print the base money the US banks need to buy the USTs, then the whole thing collapses tomorrow, so he is doing what he can to prolong their exorbitant privilege.

Of course, the result will be the collapse of the dollar and the wiping out of all US debts. Neat plan really.

And then the Euro, with its marked to market gold comes to the fore, and the world can move to a far better system.

I wonder if you have a different handle elsewhere by the way, fell free to PM me.

Wed, 10/24/2012 - 06:08 | 2915194 Ghordius
Ghordius's picture

hi Freegolder, sorry for the late answer

no, ZH is my only online hobby. I have to post a few caveats to your comments: 1. I'm not yet that sure that the dollar is going to die (meanwhile: stacking) 2. I'm grateful for people like FOFOA making some mechanics better understandable, but I'm not yet sure that the EUR will keep this course - it might be expended, for political reasons.

And that's my whole point: lots and lots of financial gurus, including FOFOA and the Tylers, have not the political understanding they think they have, IMHO.

Tue, 10/23/2012 - 10:54 | 2912737 Stuck on Zero
Stuck on Zero's picture

Isn't a gold backed currency pegged?

 

Tue, 10/23/2012 - 11:22 | 2912827 malikai
malikai's picture

I guess most of the implementations throughout history have been. Gold backing of fiat in and of itself does just what Ghordius mentions above, thanks to the continuation of centralized authority.

I live my life 'on a gold standard', but I don't force anyone else to. I store wealth in PMs and other hard or productive assets. But I, like all of us, trade in fiat. The point being that as there is a market in gold where it is traded freely, there should also be one in fiat, where it too can be traded freely.

Price fixing in any form is prone to failure and abuse. And Benocide is most assuredly a member of the price fixing cartel. So his whole premise is complete bullshit from my perspective.

Tue, 10/23/2012 - 10:39 | 2912666 LongSoupLine
LongSoupLine's picture

Great stuff again Bruce. Unfortunately, 99.9% of America doesn't have a fucking clue what any of this means, or that it's even happening. Their bigger concern is gay marriage, abortion and who is dating Justin Beiber.

We're fucked as a whole, but by all means, please keep pounding out this awesome info for us ZH'ers.

Tue, 10/23/2012 - 12:54 | 2913101 Aegelis
Aegelis's picture

Or to break down the 99.9%, 3% concerned about gay marriage, 40% abortion, and 56.9% who is dating Justin Beiber.

Tue, 10/23/2012 - 11:03 | 2912768 DeadFred
DeadFred's picture

Don't forget that someone is going to be voted off Dancing With the Stars tonight, and all of them are great dancers. The suspense is killing me!

Tue, 10/23/2012 - 13:21 | 2913183 TonyCoitus
TonyCoitus's picture

Who cares about the friggin HK fooey peg, we gots the friggin World Series starting tomorrow! 

 

That's a big fucking deal, especially if you're from a city formally know as Detroit!

Tue, 10/23/2012 - 11:06 | 2912781 LongSoupLine
LongSoupLine's picture

lol Fred...funny shit.

+1

Tue, 10/23/2012 - 10:33 | 2912645 Counterfiat
Counterfiat's picture

So does this make BB a rearry rice guy

Tue, 10/23/2012 - 10:31 | 2912632 Gene Parmesan
Gene Parmesan's picture

All roads lead to war.

Tue, 10/23/2012 - 10:28 | 2912619 asteroids
asteroids's picture

Ben is making a lot of rich folks i their home countries poorer. This tends to piss them off. As last nights debate showed. America really doesn't appreciate foreign policy consequences of their actions much.

Tue, 10/23/2012 - 10:41 | 2912673 Vince Clortho
Vince Clortho's picture

America's foreign policy is whatever the Central Bankers want it to be.

Tue, 10/23/2012 - 10:16 | 2912561 MillionDollarBoner_
MillionDollarBoner_'s picture

Mafia v Triad.

Place yer bets !;o)

Tue, 10/23/2012 - 10:05 | 2912524 WALLST8MY8BALL
WALLST8MY8BALL's picture

MANBERNKRUG!

Tue, 10/23/2012 - 11:09 | 2912788 vast-dom
vast-dom's picture

and one wonders why there's terrorism....

Tue, 10/23/2012 - 11:56 | 2912933 NotApplicable
NotApplicable's picture

All I see is fake, state-sponsored terrorism. I've yet to ever see an attack on soft, elite targets, even though there's plenty of them. Nope, it's always politically charged targets full of "collateral damage" designed to work in the state's favor (aka "we need more power").

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