QUESTIONS, QUESTIONS

The Yuan tried to crash today, or so I am told, but the Bank of China was in all day and made sure that nothing precipitous happened according to Mad Max.  Max was  not quite clear-headed as he was up since 1:00 a.m. watching the action in Asia but despite claiming to know nothing about equity markets he predicted that the DOW would rally in the afternoon to close flat after being down over 200 points in early trading.  It was something to behold, but a sign of confidence?  A sign of total confusion I think agreeing with Max on that view which is always a good thing to do.

The 10 year was relatively unchanged as well as the odds on a September move have risen above 50/50 against, indicating that Janet et Cie. is--and should be--increasingly concerned in light of the past few days of doing anything that will strengthen the dollar even more from its inevitable path given what is clear as to Chinese intentions.  I have as you know been in the no movement chorus for other reasons but this situation has only strengthened my view.  For the equity guys, as soon as they figure out that free money is still the game in town, we will probably rally as to be honest the Yuan trade while not helpful, isn't as damaging to U.S. corporates as it is to the Euros.  The one's who will really get hurt are the Asian emerging (and post-emergent) markets and the commodity boys although of all things, oil rallied today.  A dead cat bounce?  Could be.

So, if Max thinks the world is confused, I wonder what he thinks of his buddy, Charlie?  Don't answer.  I have no idea what the hell is going on, which I guess is obvious.  There is one thing I do know, however, and it is that the Chinese are not yet ready for prime time despite the IMF jumping up and down.  They will get their Yuan SDRs, but a reserve currency status?  Only if the rest of the world has gone mad which I doubt has occurred.  You would indeed have to be nuts to hold your reserves in Yuan, not because of valuation reasons but because there is not an open, viable, accessible market to underpin the currency.  Then again as some guy once stated, "There's one born every minute."

The Chinese are going to try to gut this one out and they may be able to do it.  The real fear, however, may be that the growth rate for which just about every other country in the world would kill to have may not be there as anticipated.  Suppose it's not 7.00%?  What then?  Suppose its waaaay lower...and you can bet that the official numbers are really going to get massaged this time around which has not really been the case.  What then is the market reaction?  More importantly, what would that portend for global economic well-being?  Questions, questions.  We may wind up with some answers we may not like quicker than we thought.