The Chinese Central Bank Just Pulled A Martin Shkreli
Something very dramatic happened overnight to currency traders who were short the offshore Yuan, or the CNH: they were crushed by the Chinese Central Bank. Specifically, as we reported last night, the overnight HIBOR, or deposit rate in the offshore currency, aka the cort of borrowing Yuan in Hong Kong went from almost nothing to... 66%!
Using very colorful terms, a Rabobank strategist told Bloomberg that "a 66% rate is murderous for others being swept up in this who are not speculating." Earlier in the day, a PBOC advisor warned that short selling the yuan "will not succeed," adding that "it is pure imagination that the Chinese yuan will act like a wild horse without any rein."
Indeed, the PBOC quickly "reined in" the wild horse, but what is most interesting is how it did that.
Think Martin Shkreli and Kalo Bios.
Recall how the worthless stock soared from almost nothing first to $10, then to $20 before finally peaking in the mid-$40s: the reason for that is that Martin Shrekli, since arrested, proceeded to buy ever more of the KBIO float, making shorting first prohibitively expensive, and ultimately, impossible when he owned virtually all of the float.
The PBOC did just that overnight when it made the cost of shorting the CNH so high that every short had no choice but to cover and run, leading to the biggest squeeze in the CNY in recent history, and a parity between the onshore and offshore currencies.
to patirty
Still confused? Here is Axiom's Gordon Johnson explaining what happened in more detail:
First... see this chart (i.e., 1 week HIBOR up a WHOOPING 200% overnight… WOW!!!):
What the Chinese government is doing is restricting access to the CNH market to bring the CNH back in line with the CNY.
How? Well, draining liquidity from the CNH market by selling dollars and buying CNH… then not providing any new CNH for the banks to lend (since the PBOC is the one who CREATES CNH, they can simply restrict the supply). On top of that, they are ordering commercial banks not to lend any of the remaining CNH they may have to short sellers.
Thus, as stated above, this has the side effect of making the currency totally unusable… so presumably they won’t allow this state of affairs to continue for long.
But their immediate priority was to bring the CNH back into line with CNY (I mean, their whole pitch for SDR inclusion was that the CNH would track the CNY, so even though the currency isn’t fully convertible, investors/central banks/whoever could own something that was the equivalent of owning the currency – before this recent experiment, THIS IS NOT THE CASE).
So, in our view, now they will oscillate back and forth between draining liquidity (when the CNH weakens vs. the CNY) and adding liquidity back (to make the market function).
They hope, I guess, that there’s some magical point they can find where the CNH doesn’t sell off but the market still functions? We are taking the “other side” of this bet.
How does it all end? Well, we know that despite Martin Shrekli's attempt to manipulate KBIO stock higher, the company - which had no fundamental value - went bankrupt just one month after Shrekli's manipulation. As for Shrekli, he is arrested pending charges of fraud, and could spend many years in prison.
As for China's attempt to repeat what Shkreli (and Volkswagen management before him) did, we doubt the ending will be any happier.
(8 votes)
»
- Login or register to post comments
- Printer-friendly version
- Send to friend
- advertisements -
One day the Chinese government might realize that it is not fighting 'speculators' as much as it is fighting its own 'bankers'.
"this has the side effect of making the currency totally unusable… so presumably they won’t allow this state of affairs to continue for long."
Everyone must be so happy the Yuan got included in the SDR basket just before they started pulling this kind of shit. This is the kind of stability and transparency that's needed for SDR inclusion.
Who loves 'ya, baby? Not the Chi-Coms.
so you see the inclusion of the Yuan as negative for the SDR? at which point I would have to ask: who has a problem with that?
So, China will not be leading the world out of this economic thrash heap? But all the pundits said they would be the worlds savior. What a bunch of buffoons.
China will be leading the world out but not before it crashes and burns hard........how's that for making things a bit clearer.
The problem is who crashes and who burns and if there is any learning curve for the future. Govenments keep replaying the same same mistakes. China is ham-handed in it's market interventions which, while good for short term fixes actually make longer term investments seem more unattractive.
So, Martin Shkreli and the CCB get blasted for swallowing the float....but, big money fund mgrs collude to do this perpetually with their high percentage holdings and no one says a thing. As long as the marginal value (i.e. "market price" [we love low volume!!]) of their darling stock keeps gettting squeezed higher everyone like's the game. And yes, the entire world's look-how-much-money-I-have-because-my-paper-monthly-statement-says-so wealth, is one gigondo ponzi musical chair fiasco.
Don't care what it does to the SDR. The Yuan was included primarily for political reasons. They wanted to look like a wold power and SDR inclusion is a big feather in their cap. I can't otherwise explain how one would justify including a currency in the SDR that is pegged tightly to another currency in the SDR (the Dollar). They want the status and trappings of a "world reserve currency" but still with the ability to peg it wherever they want it on demand. The whole thing is insane.
Even your Euro (as fucked up as it is) free-floats in exchange and doesn't have this kinda shit done to it for a short term overnight stick save.
did you notice that one point of the original political request was the blocking vote of the US Treasury? as the whole rebalancing theme? but keep that thought about the EUR as fucked up well in mind. keeping that bitch down costs a lot of effort. we don't want Draghi to suffer terminal jawbone collapse
I wish this SDR dumb idea would get lost, it's going nowhere, no one's going to accept it, it has zero merit.
IMF Prepared to Bless Yuan As Reserve Currency; Reason to Celebrate? (No) Any Real Significance? (No)
http://globaleconomicanalysis.blogspot.com/2015/10/imf-prepared-to-bless...
So, if capital controls don't work, scaring the living bejeezus out of anyone who dares to short the currency will? They might be right about that one.
This is the point of autocracy. Official state policy is "Markets only go up!". Anything less is unpatriotic and possibly prosecuteable.
When your Uber driver starts giving you stock tips, you know it's time to get out.
"When your Uber driver starts giving you stock tips, you know it's time to get out."
Of the car, or the market?
Never fuck with a totalitarian state.
This looks like someone who starts to go off the road in a car, then sees a ditch and overcorrects.
Not going to end well.
pods
Actually this is like the point where the driver has over corrected once already and has noticed that he is rapidly approaching the ditch on the other side of the road but never let up on the gas.
Gold will work, but the Chinese politburo isn't done buying it on the $cheap from the U.S. and Australia. It's on sale after all...
I never thought I would ever live to see the day when gold and silver became the cheapest assets on the planet (in USD terms) as the world burned down all around us.
It's what the guy above you posted: because of the effing Chicoms.
They're not just screwing their own.
Yeah, its all their fault. Nobody at the UST, NYFED, COMEX, SEC, CFTC, CME, TBTF banks have done anything to manipulate PM prices lower and boost the USD. Ask people in South Africa, Brazil and Russia right now how much gold they wish they had bought just a couple of years ago. Throw Canada in there too as gold is now back up to $1550 an ounce and has totally decoupled freom the USD in gold terms (35% in less than 3 years).
All the alphabets you listed are in the USSA.
Like them, I'm here too. And all I see is AU at $1100.
My late father was right: To protect yourself from inflation, own RE and PM. To protect yourself from deflation, own Cash. If you're smart, you'll have all three in the right balance.
Why are you blaming the Chicoms then? I don't know what you're trying to imply as to who is to blame. And holding cash has been disastrous for the people in the countries I named above. Inflation is killing them, not deflation and gold is near all time highs.
communism strikes again. LMFAO!!!
They seem intent on blowing up their own economy, can you imagine the effect on businesses that this will be having? Hope they can make payrolls, this is going to dislocate everything.
Like things are great anywhere else. Ukraine, Syria, Greece, Saudi Arabia, Japan, Canada, the EU, etc...
Oh, and America....things are just fuckan peachy here on the USS Titanic.
Five years out trenchant global stagnation is the best case, with bail-ins, and even that will be increasing a situation of extreme social crankiness, resentment and anti-establishment aggression. Maybe we can round up MMT theorists, economists, TBTF and CB staff and execs, especially Bernanke and Greenspam, and feed them all to crocodiles on the end of a chain within a giant Colosseum and broadcast it globally, live? That could relieve tensions a bit. Then a grande finale with the yes-we-can clown and a Bengal tiger.
Meanwhile. this is about China being in the process of taking a massive sledgehammer to its own markets and businesses, and thus to the whole economy, and its people.
George Santayana wrote:
"Those who cannot remember the past are condemned to repeat it"
So,
Is this the key to eternal life, “don’t remember nothing”?
bored i guess?
Damn, Joe Campbell was short the Yuan trying to recover his KBIO short.
Fundamental stupidity and it's horribly naive.
Once you kill all the shorts you remove the down elevator brakes.
Shorts can get squeezed like this ONCE then no one will short your currency. All you really accomplished was to exterminate the largest buying pool you have that is shorts trying to cover.
Without shorts trying to cover all you're left with is......
Sellers.
Hubris knows know bounds. You can't create real value by dictate.
You can't create real value by dictate.
You can't create real value by dictate.
so then you outlaw selling!
Duh...
You can't create trust and confidence by dictate.
The biggest mistake the West makes, is believing that the East is the same as they are.
The East plays by different rules, hell, they're playing an entirely different game.
No they aren't they have to create value just like everyone does.
The biggest mistake everyone makes is thinking they can control this. The West PROVED how to do it best and everyone just keeps insisting that was a MISTAKE.
IT WAS NOT!
You can't create value by dictate.
You sound like me from 10 years ago. Back before I realized nobody cares about creating value any more. They care only about EXTRACTING value. And how fast they can get to a point of absolute control. That they will fail is irrelevant. They will chase those goals anyway.
You can do that only so long. There is only so much value to extract before you find there is no more to extract, or that you have destroyed the very value of what you have extracted.
You could own 90% of the gold in the universe, that does not make you 'rich'. If you were the last human on earth you could claim to own everything, you're poor. Without the ecology of a vibrant society and economy, you have nothing. A well to do retiree of today if far, far wealthier in most real terms than the richest men of olden times. Extractions kills the ecology and value of your own wealth if taken too far.
Just one simple question. Who does all the manufacturing these days?
communists running capitalism, yeah everything will be fine. Cue music... Everything is awesome.
Chinese Communism and the current Western Capitalism are just forms of Fascism.
If it looks like a duck, swims like a duck and quacks like a duck it's probably a duck regardless of what you call it.
LOL!!! Does it rall matter if no one is actually allowed to sell?
If you aren't ever allowed to sell something would you ever be a willing buyer?
It really causes an insane incentive to avoid BUYING at all costs.
You don't need any retail buyers if the government/central bank is buying and all 401k sheep are also being forced to buy.
Of course this means that you don't really have a market after all and eventually get the Soviet Union all over again...
Hedge accordingly.
at least they dont try to hide the fact they play in the markets...
The East is an ancient society that thinks wrongly that it can tell people what to do and make that work.
It hasn't worked for generations what did work was to let in just a little freedom and that worked wonders but they just couldn't let it flow to it's own path no then they thought that it would be fine to start monkeying with it.
They are going to cause a revolution.
They are playing with forces they have no comprehension of.
What happens when monkeys have guns and printers and greedy egos...
Just look at the hubris of the ivy league eCONomists...
roll the motherfucking guillotines, NOTHING changes otherwise.
That's right. Hanging them is the only thing that will work.
imho it's better to refer to China as such, not as "the East". and imho the Chinese Communist Party is well aware that they ride a dragon holding for dear life. authoritarian one-party regimes usually do
I bet confucianism, which long predates communism, outlives communism. Confucianism is also pretty authoritarian, imho, but also includes much wisdom.
When regular people pull of a scam its jail time, when governments do it its party time...Humans what a waste of fresh air.
Where is Martin now?
Eggsfuckinzactly.
They will be assimilated, resistence is futile, We are the Borg.
They are being played, the end game is take our debt based system, bend your knees, or your own people will cut off your heads.
THAT IS THEIR END GAME.
They have been played.