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Currency Wars Reignite As Yuan Tumbles Most In 2 Months And Chinese Bond Market Freezes
Did China just re-enter the currency wars? The Chinese Yuan dropped 0.29% overnight - its biggest drop since September and 2nd biggest devaluation since March - as the currency tumbles back in line with the PBOC's fixing for the first time in over 3 months. Despite 'hopes', S&P confirms the recent (and reconfirmed) rate cut doesn’t signal renewed government intentions to resort to aggressive stimulus to prop up economy. More troubling is the fact that China's huge corporate debt market appears to be freezing as over $1.2 billion in bond sales were scrapped or delayed last week suggesting wall of maturing debt will find it increasingly difficult to roll-over and keep the dream alive (especially in light of Haixin's bankruptcy last week).
CNY dropped notably overnight, now back in line with the PBOC fix for the first time in 3 months...
As Bloomberg reports,
PBOC will probably push USD/CNY fixing higher amid expectations for a weaker yen and euro, as well as the need for looser policy at home, according to Richard Iley, chief economist for Asia at BNP Paribas.
“China is losing the currency wars, steadily increasing the risk of another engineered bout of CNY weakness,” Hong Kong-based Iley says in interview today
Financial conditions are “uncomfortably tight,” and more easing will be required if real GDP growth is to “have any hope of being propped up close to politically mandated levels next year”
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And the fundaraising strains appear to be showing up in the Chinese corporate debt space (as Bloomberg reports)
China’s companies scrapped or delayed at least 7.55 billion yuan ($1.2 billion) of bond sales since Nov. 20 as borrowing costs jumped, flagging fundraising strains even as the central bank eased monetary policy.
The yield on AAA rated corporate securities due in three years rose 17 basis points last week, the most in a year, to 4.43 percent. The increase comes as investors held more cash ahead of planned new share sales this week, with initial public offerings to lock up at least 1 trillion yuan, according to Australia & New Zealand Banking Group Ltd.
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but but but, QE and rate cuts and stuff...
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Yes, it is happening, tired of waiting for next phase of this global clusterfuck.
If you'd like to offer your bonds, you can offer your bonds.
Don't worry... the shadow banking system will absorb it.
I know alot of Zero hedged, have been saying we are going to crash soon!
But the only crash we are experiencing right now, is a CRASH UP => check out the chart ==> http://bit.ly/1fMcakI
when will the pain for the bears end. Been going on since 2009. Oh dear.
Bears drink seldom, but drink from a fire hose when they do.
If you want to die in your mass grave, you can keep your mass grave.
https://www.youtube.com/watch?v=DI7pPVJTeSY
The Black Swans have migrated east for the winter.
Oh, I don't know,... I think a few of them are fixin' to crap all over Ferguson tonight...
Cop: 1, Constitution: 0
We don't need current news anymore. Everything is so easy to predict even my dog could write tomorrow's headlines.
- China's economy struggling
- Draghi might do QQE (quality quantitive easing)
- yen down
- Bullard might suggest doing another round
- dollar up
- oil down
- stocks record highs
You want Wednesday's ?
We can predict the market too...
In today's market news, the spx sets another record high
You didn't build that Great Wall.
"You didn't build that Great Wall."
It didn't keep the Barbarians out either.
I read the bribed their way through.
What? Bond market freezing? The P.L.A. will require Foxconn workers to buy the corporate debt in the name of "patriotism".
...with initial public offerings to lock up at least 1 trillion yuan... Hory crap!
The falling value of both the yen and euro have the potential to reek havoc through contagion. For months the major world currencies had traded in a narrow range this allowed people to think was on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently several major currencies made multi-year highs or lows depending on the match-up .
Because of weak demand for goods and most of this freshly printed money flowing into intangible investments inflation has not been a major problem, but the seeds for its future growth have been planted everywhere. John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. More on why this may be a signal that currency trading is about to get very wild in the article below. Please note, this may also be sending a signal that the whole system is unstable and the stock market could drop like a stone due to contagion.
http://brucewilds.blogspot.com/2014/09/caution-alert-currencies-may-get-wild.html
The Japanese are begging for war. I only care about the PRC in so far as if they're backed into a virtual corner, the Forbidden City is likely to react in a way that effects the entire world.
China will keep squeezing until we start acting like investors and buying gold with essentially fraudulently priced financial assets. Once we do, it will let the RMB appreciate because it doesn't want to sell gold for USD... it is just using our trader dominated markets to accumulate at a discount.
“We’re running out of nations to plunder. We’ve plundered Syria. We’ve plundered Libya. We’ve plundered Ukraine and stole their Central bank gold. By plundered I mean steal the central bank gold in all those nations. We plundered Tunisia and stole theirs. We plundered Cyprus, confiscated money. Now we’re turning to our allies and plundering them.”
http://sgtreport.com/2014/11/jim-willie-climax-events-stealth-qe-currenc...
Over an hour of the Jack-Ass’s strong reasoning ... based on logic. The whole world has become a floating dice game.
I wanna buy some "ghost city" bonds. Housing prices only go up especially when not in use!
http://www.comstockfunds.com/default.aspx?act=Newsletter.aspx&category=MarketCommentary&newsletterid=1790&menugroup=Home
We, at Comstock, were shocked at the praise given to the Fed when we don’t believe the Fed rescued the U.S. from the ravages of a “liquidity trap” at all, but even more shocking to us was the response of the interviewers. We are sure that there were not many people watching on TV that understood the definition of a “liquidity trap”. Yet the economist was never asked to explain it. Hopefully, in this comment we will explain what a “liquidity trap” is, and why we don’t think the Fed avoided the “trap”. We will also explain why we think the Fed painted themselves into a corner and will have to keep rates very low, continue increasing their balance sheet, and maybe even resort to QE 4. We are skeptical that going back to the same old fashioned government subsidies used by the Fed over the past six years will work any better than they did for the past six years.
A “liquidity trap” as defined by BusinessDirectory.com, is a situation when bank cash holdings are rising and banks cannot find a sufficient number of qualified borrowers even at incredibly low rates of interest. It usually arises where people are not buying and firms are not borrowing (for inventory or plant and equipment) because economic prospects look dim, investors are not investing because expected returns from investments are low. People and businesses hold on to their cash and thus get trapped in a self-fulfilling prophecy. Wikipedia agrees that a liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Thus, if an economy enters a “liquidity trap”, further increases in the money stock will fail to lower interest rates and, therefore, fail to stimulate.
We believe that this country and many other countries across the globe are intertwined in this “liquidity trap” presently. It is clear that the Fed has tried to pump as much money as possible into the U.S., but for the past 50 years M1, M2, and M3 have grown at around 7.5% and this past year the Ms grew at 1.5%. According to the Federal Reserve figures and Moebs Service the average checking account balances have averaged about $2,000 for most of the post WW II period, but now they have grown to $3,700 in 2011, $4,400 in 2012, $5,000 in 2013, and $5,800 now.
We are clearly in the same “liquidity trap” that Japan has suffered from for the past 24 years. This is the main reason that this economic recovery from the “great recession” is so weak. We understand that the 3rd quarter GDP came in at 3.5%, but the U. S. has been growing at around 2.2% over the past 6 years. The average recovery from recessions since WWII has been closer to 5%. That is just about double the recovery rate we are experiencing today following the worst recession since the “great depression”.
There was a lot of trepidation in the U.S. stock market as investors were concerned about QE 3 ending. Many investors were worried about the ending being similar to the 12% and 14% declines that followed QE 1 and QE 2. Instead, the markets handled that fairly well, which surprised us.
Then the news came out of Japan! The Bank of Japan (BOJ), the Ministry of Finance (MOF), and the Government Pension & Insurance Fund (GPIF) decided to do even more than our Fed. The BOJ raised its goal for the monetary base to 80 tn. yen from 65 tn. yen. The central bank’s governor, Haruhiko Kuroda, stated that this was aimed at “ending Japan’s deflationary mind-set.”
This past September, the GPIF was supposed to invest in more Japanese equities (going from 12.5% to 25%), but postponed the move until year end. They surprised most global investors last Thursday by not waiting until December. They announced that they would double their positions in Japanese equities to 25%. But, they were so concerned about deflation they also raised their positions in international equities exposure from 12.5% to 25%. They raised the cash to make these investments by trimming their domestic bonds from 60% to 35%. This announcement drove up all international markets significantly this past Friday (including a 7% upward move in the Nikkei).
We suspect strongly that this outrageous surprise move will not help the Japanese market over the long term and be just as ineffective as all the other moves the Japanese made over the past 24 years. Remember, they tried our form of QE about 20 months ago with no apparent inflationary results. Their latest quarterly GDP was down about 7%. They will keep trying to offset the deflation in Japan by exporting it to their trading partners by driving down their yen in relation to their trading partners’ currencies. This is called “competitive devaluation” and we have been stuck for years on this part of our “Cycle of Deflation”(which is attached). Soon, many countries that are caught in the “Cycle” will be forced to move down the “Cycle” to “protectionism and tariffs” and then next to “beggar-thy-neighbor” (an example of this is Saudi Arabia lowering the price of oil today in an attempt to gain market share from the U.S.). They are doing this in an attempt to export their deflation.
This global deflationary environment has resulted in a Central Bank “bubble” that we believe will end badly both here and abroad! The reason for this difficult deflationary environment all over the world is explained very well in The Geneva report titled "Deleveraging, What Deleveraging?" It explains that, most believed that the 2008 crash (caused by the debt explosion) would result in deleveraging. But, instead, due mostly by government spending, worldwide debt grew rapidly. According to the report, global debt as a percentage of GDP has risen 36 percentage points since 2008, to a record 212%.
The Cycle of Deflation
http://www.comstockfunds.com/files/NLPP00000/581.pdf
There are two inflection points of insolvency for a central bank; one based on asset values, and one based on cash flow. The asset based valuation is the value of the assets held by said central bank. This can be disguised by financial repression by holding rates below market levels. The cash flow model reflects the comparison of interest payments to tax receipts. By either model the Fed is fucked, but the second gives them another year or so.