Dow Futures Plunge 170 Points After Yuan Crashes To 5-Year Lows As PBOC Loses Control
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.
Yuan is in free-fall... Offshore Yuan is down over 400 pips from intraday highs, testing 6.6800
CNH-CNY spread is now over 1320 pips - as it appears The PBOC is losing control.
And although Chinese stocks are "stable" thanks to some National Team play...
US equity futures are tumbling off the bounce close, trading back near the day's lows...
It appears Kyle Bass was right:
"Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."
And it is - sanctioned by The IMF...
Charts: Bloomberg
(15 votes)
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You forgot Fast and Furious for Mexican Freedom Fighters too.
https://www.youtube.com/watch?v=kXgKAcSb7PI
There is no plunge that the PPT can't levitate. None. Get used to it. A few key strokes of deposits into the Elites accounts....and we're going Green. BTFD Mother Fuckers.
Yuan deval = us multinational China profits reduced by FX . Stocks tank.
Many multis looking at 15-20% reduction in ebitda due to FX depending on size of international business.
Accounting/finance 101.
strong dollar with a weakening yuan means more great stuff on walmart's shelves to help that ebt card stretch a little further.
china is going to beat the strong dollar because it can if only because no one knows anything for sure about their monetary system.
the chinese play go, you dumb fucks. there ain't no dreidels in china.
Walmart succeeded because the average person doesn't give a fuck about anything but the lowest price. I'll bet 90% of ZHers love shopping at Walmart, aka they are part of the problem.
Wrong: I despise WALMART.
(but nice try)
i buy high quality things all the time...
i buy from Germany, france, Italy and things made here in the usa
i seldom buy shit
isn't worth it.
I go there for for the people watching and the occasional ammo bargain.
At least give credit tot he largest ammo retailer in America.
"At least give credit to the largest ammo retailer in America."
True, but when was the last time you were able to pick up .22WMR or .22LR? Well, anywhere else for that matter.
As the late, great Joe Granville used to say: "You can't be invested in the markets if you want to see what they're going to do."
With that in mind I appeal to the few uninvested writers and editors here (and not the scores of 'economists' here who are invested 200% in the S&P long) to make my case.
Don't forget. This comment is for the uninvested. And for the short.
agree
"Joe Granville"
Bernanke's stock market juicing killed off Grandville.
Well, yeah.
But he didn't kill off Granville's advice that you can't be a good predictor of where the market is going if you're invested to the tits.
Your hopium gland gets too spunky to see where things are going.
and rendered all prognosticators and financial news outlets obsolete . . . until they're not.
Bass doing alright on this one so far.
The biggest red-light-flashing "economic collapse" is Obama's "heroic" actions on gun control.
https://www.youtube.com/watch?v=kXgKAcSb7PI
Yep, like a real hero. First he promised to save the girl, now he's fucking her everyday...
Good vid, Sully. Thx
Excellent video.
According to Macquarie Research:
https://app.box.com/s/ju6d0ren3gfg4m3dbr2o3qx09q9dp0tn
China’s savings dilemma
In our latest commentary, we ask whether China’s economy can be re-balanced.
China savings dilemma. It is a truism to state that China’s investment and debt fuelled economic formulae is ultimately unsustainable and could lead to severe consequences for China and the global economy. Indeed it has become one of the most consensus themes and hence mechanisms by which China can rebalance and the likely time-frame have emerged as the key points of debate.
In order to understand what is ailing China one needs to appreciate the underlying causes that drive overinvestment and rising debt levels. Whilst there is nothing new in China’s model of suppressing consumption and re-directing funds towards investment and trade (mercantilist model that over centuries has been used by countries as diverse as Germany, Russia, US, Japan and Korea), the global impact of China makes all other transitions pale into insignificance.
Arguably the best way to illustrate China’s challenges is to examine its sectoral balances (given that all sectors must ultimately balance to zero, it precludes arguments that do not take into account consequences of changes in one sector on others). The key problem is that all of China’s sectors (household, corporate and government) are significant gross savers. As a result, gross national saving rate (~48% of GDP) is the highest in the world and is responsible for ~30% of entire global flows. The high level of savings can be either utilized domestically in fixed asset investment or it can be exported to other countries (via current account surplus). Indeed, China has been doing both, with high investment rates (~45% of GDP) and CA surpluses. The challenge however is that China is starting to run into constraints in both domestic (high ICOR rate, declining ROE and debt addiction) and foreign utilizations (declining ability of other countries to absorb China’s surplus, in the global economy that lacks growth; trade and liquidity). Hence, an urgent need to unhook China from its investment and debt fuelled model and move towards lower savings and higher consumption.
Unfortunately, “iron logic” of sectoral balances precludes simple solutions. The ideal outcome would be: (a) spontaneous rise in household spending at a rate much faster than investment and concurrent (b) strong recovery in global trade, allowing China to further reduce investment via higher CA surplus (as other countries would have greater capacity to accommodate China when global trade expands). We view chances of either outcome coming to pass at almost zero.
Hence China has to settle for sub-optimum choices, such as: (a) relying on long (decades) demographic transition to lower savings; (b) attempting to accelerate consumption through higher fiscal spending (eroding precautionary savings); (c) transfer of surpluses from corporate sector to households (lower prices; higher dividend and capital distributions); and (d) lower currency (stealing growth from other countries). All of these choices have side-effects and do not yield quick results. The pace of China’s re-balancing is now too slow to make much ST difference and therefore it has no choice but to continue with investment growth fuelled by debt, until it is either exhausted (under weight of excessive debt) or global and local (reforms) factors converge to assist this transition. The jury is still out on which outcome is more likely. We continue to prefer quality private sector players that offer protection if reforms stall and benefit if they accelerate.
How did we do in 2015? “Quality & Stability” portfolio delivered ~8% relative performance; outperformance since Mar’13 is ~24%. “Sustainable Dividends” finished inaugural year with ~10% outperformance whilst “Thematic Leaders” is up by ~7-8% since launch in Sep’14.
Thank god for Bitcoins!!! I am so disconnected from this that I hope it all blows-up!!!
I do not know why you would wish for it to all blow-up, but the human suffering that will come with a blow-up will be great as it is in many places around the world. If you do not know that is part of the consequences, then you speak from ignorance, but if you do you know it, then you speak from the same mentality as the people who have put us in this situation, a place of evil.
Food for thought only.
This is far from over! Most Of us know little of what is really going on because China is far away from our shores with an economy that is very controlled by a government that acts as its puppet master and has allowed corruption to flourish. The bottom-line is we often have a difficult time getting real information, but to many of us it has become clear that China is in a situation similar to what America faced in 1929 following a period of rapid growth and credit expansion.
This is written not to diminish the accomplishments of China or to question their progress, but to point out much of what we have witnessed is the result of one time factors that have largely played out. Several factors have drastically changed politically, socially and from a military perspective since the days when America fueled China's growth. The article below looks at some of the reasons for doubting China.
http://brucewilds.blogspot.com/2015/12/chinas-veiled-economy.html
China has no external debt and they have over 28K tonnes of gold (not disclosed publicly); they and the Russians are in the catbirds seat. This will be revealed in due time; they are patient.
Remain calm, all is well.
The PBOC has not lost control; unlike the US, they have NO external debt. It is the very reason that what happens in China is making the PPT's job a little more difficult in levitating the markets. They are already out and ready to roll and will have to fight all day, but the last 30 minutes will bring it back to parity.
Are we being set up for the January effect or is this the manifestation of the BEAR? Guess we will know in a week or two.