Monday, February 1, 2016


I signed off last week with the thought of waiting to see what Monday was to bring.  Monday didn't bring much except for some stinko manufacturing numbers out of Chicago which really didn't have much of an effect, and mood changes in commodities (read, oil--that's all that counts) which means the equities were up and down all day ending slightly lower.

However, one of the things we talked about last week was the anticipated assault on world-wide currencies, particularly those in Asia.  Over the weekend into today a really strange scenario began playing out which I confess in all the years I have been around this business was new to me.

Traders are a paranoid bunch; everybody is out to get them...or at least learn their positions.  In the good old days, no one would speak as to one's plans other than the occasional "I own and therefore recommend" hyping of one's position, but for the most part secrecy reigned.  Not today; this is a whole, new breed out there, in-your-face people who could care less and are happy to brag about their positions.  It got to the point today where you wanted to ask, "If there is anybody long the Yuan out there, would you please hold up your hand!"  Had you done so I suspect nary a hand would have risen.  To listen to these guys, one would think the entire world is short the Yuan and that may be the case.

Now to be sure, China has problems reflected in the tremendous out-pouring of currency about which we have spoken which is going to continue for a bit as we approach the lunar New Year which is when every Chinese where ever located takes to the road with all the cash they can carry.  I don't think that even this band of thugs running things would dare mess with that.  But that will be over in a couple of weeks and then, after a reassessment of the reserve position, it will be interesting to see what stance is taken by the Bank of China, if any.

Shorting a nation's currency is always a bit risky; shorting it with one way traffic in the trade is even more risky.  Shorting it when there is only one real source of the currency which in this case is Hong Kong, is downright scary as we discussed last week.  The BOC still has around $3 trillion to play with which is a hell of a lot of money with which to go to war.

This is all hedge fund action.  As far as I can tell the banks, whilst probably short as well, are hardly so in size.  The guys that run these funds are very, very smart guys and very, very big risk takers.  The Chinese think they run the world or will so shortly.  It is a classic match-up and one whilst being written about is seemingly being ignored to a great extent.  The stage--unless these guys are simply making open boasts--is set for one of the great financial battles of all time..or not.  It's China after all and who knows what's really going on.  An emerging crisis or a rather clever way to devalue without getting jumped on by the rest of the world?  Do they have a firm or firms working on the "inside" or will they go after one of the shorts rather than setting up a broad defense simply to create an example in the hope of ending this once and for all?  Can they do that in this new age or have the rules of the game been changed forever by new strategies and new instruments?  This could make the Super Bowl look like the Pop Warner League.  Is there an over/under on this one?

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