Currency/Trade Wars, Begun They Have
We have written extensively over the course of the last few weeks on the increasing rhetoric from Asia over currency fluctuations and furthermore how China was playing the US and Europe off against one another in a quasi-trade-war gambit. A flurry of headlines today/tonight via Bloomberg reminded us to revisit what is also a very worrying trend in Chinese CDS (and more broadly Asian sovereigns), as perhaps sophisticated investors look for the cheapest low cost long vol trades on a non-decoupled world devolving to its lowest common denominator.
Between Carney's 'substantially undervalued Yuan' comments, record slides in Dim Sum Bonds, growing concerns over growth longevity, Japanese retail sales, Aussie home prices, Sony's troubles in currency-land, and Barclay's warning of a restart to the Yuan peg in the case of global recession - contagion and transmission channels appear alive and well in global trade.
Via Bloomberg, this morning:
*CARNEY SAYS ADMINISTRATION `REVIEWING' CHINA CURRENCY BILL
*CARNEY SAYS CHINA CURRENCY `SUBSTANTIALLY UNDERVALUED'
followed quickly by:
Yuan Drop Spurs Record Slide in Dim Sum Bonds: China Credit
Yuan-denominated (Dim-Sum) bonds in Hong Kong are headed for record monthly loss, erasing gains for the year, as worsening outlook for global economy fuels concern China will slow pace of its currency’s appreciation.
which was 'helped' by this evening's comments:
*CHINA MAY RESTART YUAN PEG IN GLOBAL RECESSION, BARCLAYS SAYS
*STRONG CASE TO PEG YUAN TO BASKET OF CURRENCIES, BARCLAYS SAYS
And growing concensus that growth in China will slow significantly:
In the latest Bloomberg Global Poll of investors, most global investors and analysts, or 59 percent, foresee China will register economic gains of less than 5 percent annually by 2016.
that were around the same time as Sony's headlines hit:
*SONY SAYS EURO WEAKNESS TO HAVE `HUGE IMPACT' ON EARNINGS
*SONY SAYS IT HAS NO COUNTERMEASURES AGAINST WEAK EURO :6758 JP
...noting that "Sony doesn’t buy many components from Europe, limiting its ability to benefit from euro weakness"
Which leaves Chinese CDS (denominated in USD remember) hitting their highest levels since early March 2009 as the spread between 5y and 10Y Chinese CDS rises to record wides of 74bps
While we suspect much of the steepening and widening of China sovereign CDS is speculative revaluation/global-recession bets, Chinese CDS still has a long way to go to meet up with the other global majors in terms of its risk relative to government bonds (since CDS have the implicit currency/devaluation premium and not just technical default).
Charts: Bloomberg
(5 votes)
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4th Turning....BITCHEZ !!!!!!!!
A strong currency used to be a good thing.
the u$ and euro are vulnerable to china still believing it is.
Perhaps more simply, Chinese Credit Default Swap prices are rising because of an increased risk of inflation default.
how can you speak of "increased risk of inflation default" for china when the us is flirting with 3% on the 30yr.
the swiss didn't peg their currency to battle inflation. the chinese don't need to truely be safe to attract global currency inflows. every decision is made on a relative basis.
in terms of cds, the entire globe is gonna feel this malaise. anywhere that the cost of insurance on securities is not rising is a good place to be buying. that does not mean china will not attempt to emerge from it as the dominant state(currency).
Have you ever lived through a complete and total worldwide bond market collapse?
I'm looking forward to my first.
I'm not. I kind of like civilized life. The Dark Ages were no fun - not even for the lords in their castles.
All Fair Isaac data should be expunged for everybody as a prerequisite for the Epic Reset.
When, and only when, the Chinese government:
i) does not have foreign reserves measured in Trillions of USD, and
ii) does not have to worry about its people overthrowing the government
then will I worry about a Chinese economic collapse. If their economy slows significantly, their central planners will throw away their money building bridges to nowhere and cities in the sand to keep revolution away. Yes, it'll all be a massive misallocation of resources, but it'll keep the wheels of commerce spinning. And once they've depleted their reserves, and barely expanded their productive capacity, we will see the mother of all collapses there.
But not yet.
Comments, please.
What will the mother of all collapses look like from the pile of rubble that used to be Wall Street?
Rayna,
Check China's inflation rate and its M1, M2 etc.increase of the money supply
Strong dollar will force unemployment up a few % higher. See what happened post WWI in non-German countries.....stronger dollar discourages exports due to higher prices compared with others.....result is higher unemployment.
Ugh.
Bullshit a strong currency
1.stimulates domestic demand (For foreign AND domestic goods)
2.defends resources against voltures
3.Stimulates manufacturing (through lower costs of foreign resources AND Domestic resources)
4.Stimulates SMALL BUSINESS (big business runs on credit and small business runs on Cash savings)
of course a strong currency in this enviroment implies higher interest rates and default for alot of the bigs through the need of paying back overbloughted debts with stronger money then was borrowed and therefor to big to fail would fail....But to be honest FUCKEM YOU DECIDED TO OFFSHORE THE JOBS BITCHEZ PAYBACK TIME!!!!
The way I see it is...who are you going to sell to in this enviroment trying to STIMULATE EXPORTS...what you want to throw the whole country under the bus so foreigners can get cheap goods? sounds pretty fucking retarded to me....
Ain't never seen a country in all of human history rigorously devalue it's currency take on ahitload of debt and survive in the long run....they go bankrupt from destroying the somestic economy and then become 3rd world resource stripping mines for the stronger currency countries....ever wonder why the IMF/World bank advocates 3rd world countries taking on craploads of debt and then blowing their currencies to smitherenes? you just read why...look at belarus modern example of the stripmining of the keynesian fallacy sort...
Please explain this to Philipp Hildenbrand, the SNB CEO...
Government intervention in the value of a currency helps some people, and hurts others. It's as simple as that.
Take a country whose currency gains in value. If the economy has 'sticky' wages - ie, where employees expect (or are mandated by government) to earn the same units of a currency, even if that currency buys more goods, then exports will rise in price because labor costs will rise. As this 'stickiness' is the rule rather than the exception, a strong currency will hurt the exports of pretty much any country where labor is a significant component of whatever it is being exported.
However, if this situation has arisen because of trade surplus, then it means consumers in that country have greater buying power, and encourages consumption of imports. This acts as a natural balancer of trade between nations.
Now... if you weaken a currency, stickiness in wages means that exporters get a 'leg up' because there is a lag between prices going up due to inflation, and wages rising. So exporters gain at the expense of their workers' wages' value.
The USD's strength is complicated by the fact there is 'artificial' demand created for it because it is the world's reserve currency, and foreigners need it to buy oil. Oil is not only priced in USD, but most exporters demand it in payment. So (given the huge amount of money involved) the USD is much, much stronger than the country's exports would suggest, because, in effect, everything exported ANYWHERE in the world, paid for in USD, acts like an export from the US itself (at least in terms of its effect on the dollar's value).
This artificial strength is a double-edged sword, however. It gives US consumers enormous buying power; but it also makes many of its exports uncompetitive, particularly if they have a high (un/semi-skilled) labor component. Job 'offshoring' is a natural result of this; if the jobs hadn't been offshored, the companies would have eventually gone out of business anyway due to their inability to compete with countries whose currency is not being artificially inflated by payments in USD for oil (and other commodities).
It's this artificial strength that enables the US to borrow so much, incidentally, and is why TPTB in the US and its western satraps will move heaven and earth to ensure the USD remains the world's reserve currency. When a Western consumer borrows money at cheap rates to fund his lifestyle, or buys stuff for a day's wages that would cost a foreigner a week's wages, he is essentially leveraging the toil of people all over the world who produce goods sold for USD.
"stimulates domestic demand (For foreign AND domestic goods)"
LOL. I do want a stronger dollar, but that statement is only half true.
For better or for worse, today, every nation's primary economic strategy is centered around export mercantilism, so strong currencies are anathema.
Probably some of these nations' leaders long for the good old days when one could simply send some stormtroopers into another nation, declare it a colony, eliminate any of the brown/yellow-skinned people that resisted, and extract as much wealth as needed, instead of engaging in lame financial/accounting skullduggery.
That is exactly what this is. I hope everyone outside of ZH world is beginning to pay attention. If not, they will wish they had ...
Indeed they have, this is going to get messy, it already has. Jim Rickards new book about the ongoing currency wars is coming out soon.
http://jimrickards.blogspot.com/
http://www.youtube.com/watch?v=nPqT031SWT4
time to win
http://expose2.wordpress.com
First come the currency wars...
Then come the trade wars....
Then come the world wars....
the tragedy of economic ignorance in the human experience..
War - boosts the economy, puts the unemployed to work (albeit as cannon fodder) and distracts the populace from their real problems by getting them all 'patriotic' and supportive of government.
In the case of the US it allows a country to offset the dropping purchasing power of its currency with blatant force of arms in simply grabbing assets (though that didn't work out so well in Iraq).
The doom is thick tonight. Squeeze your cheeks together gentlemen.
I just made a diamond
Competitive devaluation and all out race to the bottom in terms of currency war has been going on for quite some time now. It is the simple reality of the government having no balls and the central banks having to cheat on the public in their place by cheapening the purchase power of the currency.
What is the point of getting CDS on US Bonds? First, they'll never default, just print the money. 2nd, if they default, whoever you bought the CDS from has long since blown up.
I should set up a company that does nothing but sell treasury bond and satellite crash insurance.
The Senate is also taking up the issue. This was also posted on MW yesterday. No one seemed to notice.
http://www.marketwatch.com/story/senate-tees-up-vote-on-china-currency-b...
Great, now instead of having one room full of crazy Westerners dictating their domestic inflation rate, they will have several.
Just like Europe! Yeah!
And then this war with Harold and Kuhmar...
http://www.foxnews.com/world/2011/09/27/iranian-navy-plans-to-send-ships-near-us-waters/
I hope they send those ships near Florida / Bahamas.. cause I am telling you that the salvage business is SO VERY PROFITABLE!!
They have NOTHING that I can NOT personally sink!
http://en.wikipedia.org/wiki/Islamic_Republic_of_Iran_Navy
and their "new" radar jamming missle that can do nothing, LOL!! 2 words goal keeper and its out dated, nowa dayz!
http://presstv.com/detail/201732.html
maybe when Iran builds Aircraft Carriers! LOL!! http://presstv.com/detail/201620.html
these BIG, Slow Ships in shallow waters are FUCKED!
OK, JW, you have my personal blessing to take out whatever Iran cares to send our way. Do check on maritime law, though re salvage. Maybe you should sink it/them in international waters...
That would make you a PIRATE however! Obama might not like you much after your, well, executive action re the Iranian Navy, LOL...
+ a big fat green
Dont underestimate the inventors of the Magic Carpet and Lantern.
The US Navy should pull a 'Pueblo' on them. Wouldn't it be nice for the US to have Iranian hostages for a change?
I mean, if we say they were intruding within US territorial waters, it's their word against ours, right?
Near US Waters does not mean in US waters. As long as they stay within bounds... well unless after an incident it becomes a he said she said kinda thing with either side saying they were/were not in territorial waters.
Also though - this event is pressure + fear. Someone will start saying omg... these boats may have missiles on them!
Lot a USN Aircraft on the Atlantic coast. Nice to have the Iranian Navy within range.
There must have been 10 times in the last six months that you declared the currency war started...
Now I shall declare war on you sir!
How long was it between the Reichstag fire and the invasion of the Sudetenland, or Poland, or the start of the Blitz... when does a war actually begin?
If you're referring to the war with Eastasia, we haven't decided when it began. We only know that we have always been at war with them.
If you know what's good for you, you won't get too snoopy.
Yes, comrade soldier, WAR IS PEACE, FREEDOM IS SLAVERY and IGNORANCE IS STRENGTH
Wanna meet me at the Chestnut Tree for a glass of Victory Gin after the markets close? :o)
hmmm, and what has gold and silver done in those six months...ballears.
+1 for your avatar -- calgon take me away.
Well, sadly, silver's going to go down now- I just bought some more, and you know how that goes.
Green!
Yeah, I know EXACTLY how you feel. Fortunately it has always been transistory, your PMs will work out just fine.
At least 75% of the time I buy gold, the price goes straight down for a while. But, that's OK, because I never sell. Give it some time, your PMs will take care of you.
I know, or I wouldn't have bought it. :)
I do sell, but only for useful items- never cash. Still have to do the conversion numerically, as people don't price things in oz, but it really comes down to barter.
I don't know that I really care if it goes up or down on the "legitimate" markets. While that does affect how much silver I can buy, it hasn't had much effect on it's relative trading value on the gray markets.
Funny thing is, I generally have tried to avoid gray markets in the past, but I'm finding that I actually enjoy transactions much more and get far better value by avoiding retail outlets these days. Figured I'd better learn to deal with them now, when it's a choice, rather than later, when it's a necessity.
(I had originally termed this as "black market," but that's really not the right thing. I'm talking about private sellers that don't keep records or pay sales tax, not fences and thieves. There are plenty of people who are just fed up, and are willing to sell eggs out of the back door of a farm house, or guns off a card table- not stolen, just not part of the system.)
Good advice,
My friend and sister called me today in a panic about their PM's and they have been in for years and are aware of the fundo's. I have been in the mining shares since 02 but this takedown in shares has me thinking,,,, if the banks go down, who's shaes are they. I have decided to cash in a chunk of the miners and go all in physical silver.
We need to bring gold back up! Stick to the motto. Gold goes up because fiat currency gets printed. We need to make that destiny!!! Let's send Gold up to $13,000 an ounce by 2013!!!! YEEEHOOO we can do it.
The currency war has been going for twenty years. We're losing.
40 years to be exact...1971.. the year we gave it ALL away
Fear leads to anger, anger leads to hate, hate leads to the dark side.
Lucas shot first.
Lucas?
You mean the Brit electrical automotive harnesses referred to as the "Prince of Darkness"?
Motto:"Get home before dark."
The three-position Lucas switch--DIM, FLICKER and OFF. The other three switch settings--SMOKE, SMOLDER and IGNITE.
Ah. Another person with fond memories of their old MGBs and Jaguars. I remember driving through Nebraska when instantly the interior of my MGB filled up with smoke and the car was dead as a door nail. (BTW, did you know that the mosquitoes in Nebraska are even worse than they are in Northern Maine?)
Why am I writing this?
Dark side? Me too, I like my bitchez like my coffee, black and strong!
Lest we forget Chuck Schumer-Hawley's comments today on the CNY peg: "the jig is up"
Just a bunch of dead beat particles we have in power
http://calibratedconfidence.blogspot.com/2011/09/chemistry-of-government.html
But but but according to CNBS all we need is "confidence!"
All together now:
-All you need is confidence..la la la la la
-All you need is confidence...la la la la la
-Confidence is all you need
You made me want hear that song, Caviar!
And booze.
Don't forget the booze.
When the going gets tough, start a currency war for a diversion.
Hopefully it doesn't lead to the real thing.
All bond yields, 3mo, 6mo, 12mo have fallen to zero:
http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
Too bad heating oil is up...biflation you win again
The thirty at barely 3.
That is not a yield curve, that is a yield pancake.
What is shows is that only the US can collect taxes. Taxes are the only thing holding the dollar together. Must have more intrusion. Need for government to know how much change is in your pocket. Must get liquidity wherever it is.
That's because the chart is shit. MW and Google have the same problem occasionally. When the data isn't available they show you misleading garbage. Go to the source:
http://www.treasury.gov/resource-center/data-chart-center/interest-rates...
As you can plainly see, the 1 year is at 0.12% Hitting 0.0% after hours is either a mistake or Armageddon really did just happen... Actually, I wouldn't totally rule that out either ;)
"Negative Yields and Nominal Constant Maturity Treasury Series Rates (CMTs). Current financial market conditions, in conjunction with extraordinary low levels of interest rates, have resulted in negative yields for some Treasury securities trading in the secondary market. Negative yields for Treasury securities most often reflect highly technical factors in Treasury markets related to the cash and repurchase agreement markets, and are at times unrelated to the time value of money.
As such, Treasury will restrict the use of negative input yields for securities used in deriving interest rates for the Treasury nominal Constant Maturity Treasury series (CMTs). Any CMT input points with negative yields will be reset to zero percent prior to use as inputs in the CMT derivation. This decision is consistent with Treasury not accepting negative yields in Treasury nominal security auctions."
They don't accept negative nominal interest rates, but they're called for given the huge short term bias in the money markets.
yes sir. the ever elusive bat pattern evealed herself .. foretelling volatility
http://www.hedgeaccording.ly/2011/09/another-bat-in-s-has-been-captured....
US Navy
http://www.navy.mil/navydata/our_ships.asp
Iran
http://en.wikipedia.org/wiki/List_of_current_ships_of_the_Iranian_Navy
no contest period
I am making a run on Iran's war ships in open fishermen's! and I will win! ALL DAY, EVERY DAY!
Salvage..
All we have to do is sink them.. to bring them back up.. but it will be easier if we place the floats first and then sink the ships on the floats, in shallow water.. on a calm day of course.. LOL!
They better stay up the coast around new jersey, in the poison waters of the Atlantic!
if they get near DC they are toast.
Do it in international waters (see my above reply to you JW), but be careful that Obama doesn't tag you as a PIRATE!
Go ahead, Iran, make his day!
but don't forget:
http://debka.com/article/21346/
Russia practices Iranian reprisal
Iran is still flying F-4 Thuds and F-5 Freedom Fighters.
Buy your own damn F-5 and be ready for those bitchez!
http://www.thorntonaircraft.com/body/body.cfm?page_name=mil
Yoda: "The Dark Lord of QE3 soon returns. Buy gold you must, sleep well you will."
Gold, $1000.00/oz, 'coin shops' buying for -20% off spot, or $800/oz - coming to a world near you soon enough.
Yeah, no history or logic to back that up, just blind assertion.
0/10. Go back to troll skool.
hey tmosley I don't post here often but I read all the comments and I thought you might want to know ..that jackass bob_dabolina is a total fraud
check this out
http://www.zerohedge.com/news/jon-stewarts-extended-interview-ron-paul
scroll down to my argument with him in the comments
Well done, sir. I knew it had to be something along those lines. I had presupposed that he had something like 20 or more "play" accounts, and simply posted the winner so he could pretend he was some hotshot trader. No wonder he had all this time for internet chatting and running websites rather than fucking $10,000 an hour prostitutes.
I had strong suspicions, but you did the detective work. Well done.
Well done to both of you, sirs!
I've already disproven your ridiculous theories. I am flattered that you are working so hard in an attempt to discredit me. This happened in the early days of ZH as well.
I like how you cling to the lie. Go down with the ship.
Denial is a strong horse. It can be ridden to death.
"mistadabolina mistabobdabolina mistabobdabolina won't you quit you really make me sick with your fraudulent behavior..."
No one commenting on my blog believed him either. I don't give a shit, if you think it's a big grandiose illusion than don't read it. Everyone else who reads it knows the truth, just look at the fuckin comments.
I've already done two posts on this BS
your racist rants didn't help your standing, either. they just scream how fucking ignorant you are.
i can't even imagine how pathetic you are from behind that keyboard, trolling around ZH desperately for attention.
nigger nigger nigger
STFU with your raycees talk. It's so sophomoric and juvenile. All you can do is call me a raycees, find something new to complain about.