We had a somewhat surprise visit from dear, dear friends from Over There this weekend, hence the absence of a Monday report. Facinating sets of conversations about Here--they are following this election very closely, and There with the referendum coming up June 23.
These are bright, sophisticated remarkably well-traveled middle aged folks. They've been together for donkey's years and both had successful careers before retiring. And yet whe the question is put to them in the simplest of tern; are you voting "in" or "out," neither have an answer for the same reasons. "Bloody Europeans," is the phrase. "Trying to run everything and doing a lousy job at it," is the gut feeling. But, "if we go. does that make everything worse" is the "undiscovered country" that ol' Will had the young Dane speak of in that most famous of stage moments. If I were to guess, they will split their votes and that it appears is just how close this thing is.
That is a bit of a cause for consternation on the part of all but a bit of a life line for our Janet as well. Clearly having been gob-smacked by the truly awful jobs number of last Friday Janet had the BREXIT uncertainty to throw out as a reason why the once-certain June rise wasn't so certain anymore without having to put the change in outlook on the shoulders of a lousy job market and a possibly sinking economy. Certainly not in the face of her pal, Hiliary's increasingly bumpy road to her coronation which could become a lot rockier if he opponant could ever learn to keep his mouth shut. If they don't move in June, and I do not think they will, they must move in July otherwise bye, bye rate hike until next year. It appears that in all things financial and political world-wide, uncertainty rules---except at the ECB where Mario is still set on scooping up all the corporate debt he can find starting in a couple of weeks. So, the Fed tries to go North, the ECB is going South, the Bank of Japan has really no where to go and the Bank of China has seemingly figured out how to devalue it's currency without anyone knowing (and possibly not caring). What is amusing, however, is the similarity in the statements of the Fed and many of the announcements by the Chinese )not all are in sync) first indicating satisfaction with the status quo and then those which follow taking a 180 degree turn apparently indicating a return to more "standard" policies. Then, out of nowhere, a flop back to...if not increased stimilus...a clear desire not to upset the growth scenario...assuming there is one...as we saw yesterday by the Fed and over the past couple of weeks in China. Only Mario has been consistant..."it's Lousy out there gang and we are going to fix it!" Of course, depending on what happens on June 23, there my be not much left to fix.
Showing posts with label Bank of China. Show all posts
Showing posts with label Bank of China. Show all posts
Tuesday, June 7, 2016
Monday, February 1, 2016
NOT MUCH
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?
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?
Friday, January 29, 2016
WHEN ELEPHANTS DANCE
...But before we get to that, today's economic numbers were dismal in regard to GDP with the fourth quarter coming in at 0.7%, considerably below earlier estimates. Depending on whether you are an optimistic or a pessimistic economist, comments were all over the lot. One optimist blamed it on lower oil prices and the weather, promising an uptick as both change. Of course thanks to El Nino the weather in most of the country was the mildest it could be and oil ain't going no where, but I guess that's what makes markets. On the other hand, manufacturing figures, while not great, were better than expected surprising many people including me, and Consumer Sentiment held relatively steady.
In the face of all of this equity markets went screaming upwards everywhere. Overshadowing all the economics was the fact that the Bank of Japan stunned almost everyone by introducing negative interest rates overnight, mirroring the ECB, Switzerland and independent Euroland countries. The move leaves the Fed hanging out to dry as it is the only Major--heck, the ONLY--central bank in the world whose stated policy is to gradually increase interest rates; whether they follow through with this is another story, but I wouldn't look for another upward move in March as has been suggested.
The move is clearly designed to stimulate the Japanese economy by encouraging the banks to take money out of the central bank and put it to work in the economy. (Curiously, in the classic Japanese manner of consensus and compromise, not all deposits were made subject to negative rates). Now some may question whether this is going to work or not--it hasn't worked anywhere else save Denmark--but what cannot be questioned is that it will certainly reduce the value of the Yen and aid Japanese exporters who, by the by, have been doing rather nicely, thank you very much. Japan is a big, BIG Export nation. In Asia it is the second largest next to...China.
The Chinese have yet to comment on the BOJ's move but they cannot like it one bit. However, if the Chinese are disturbed, think of the rest of the Asia. The fear is of course that the Chinese will once again move to devalue the Yuan in order to stay competitive which will force competitive devaluations across the region, loss of markets, inflation and currency collapse. But those are not the greatest fears. At some point, some currency is going to become a target of the George Soroses of this era---or Georgie himself--and with the resources available to this lot these days no smaller county can withstand a concerted attack. China, yes. Japan, probably, but they are the elephants and if they dance the "Bugger your neighbor's currency polka," someone is going to get crushed.
These things rarely end well. The crash of '87 if one recalls had its genesis in mass over-liquidity followed by currency collapses. Funny, those two element are here today along with a good deal more worrisome signs which have been around for a while. Emerging markets, which have been dreadful for the past year may become positively toxic and there is little doubt that capital flight will accelerate. The 10 year closed today at 1.92% with the price of the Note moving up a full half point. That is an enormous move...a true flight-to-quality move...an 'I'm scared as hell" move. The surge in equities--about which I say again I know nothing--had to have had a goodly element of short covering. And so comes the weekend. 50 degrees in the fly-over zone. Down-right tropical for the end of January. Grass is green, water holes are full. A lovely time in the middle of the veld. One can almost hear the sound of trumpeting. Be interesting to see what Monday brings.
In the face of all of this equity markets went screaming upwards everywhere. Overshadowing all the economics was the fact that the Bank of Japan stunned almost everyone by introducing negative interest rates overnight, mirroring the ECB, Switzerland and independent Euroland countries. The move leaves the Fed hanging out to dry as it is the only Major--heck, the ONLY--central bank in the world whose stated policy is to gradually increase interest rates; whether they follow through with this is another story, but I wouldn't look for another upward move in March as has been suggested.
The move is clearly designed to stimulate the Japanese economy by encouraging the banks to take money out of the central bank and put it to work in the economy. (Curiously, in the classic Japanese manner of consensus and compromise, not all deposits were made subject to negative rates). Now some may question whether this is going to work or not--it hasn't worked anywhere else save Denmark--but what cannot be questioned is that it will certainly reduce the value of the Yen and aid Japanese exporters who, by the by, have been doing rather nicely, thank you very much. Japan is a big, BIG Export nation. In Asia it is the second largest next to...China.
The Chinese have yet to comment on the BOJ's move but they cannot like it one bit. However, if the Chinese are disturbed, think of the rest of the Asia. The fear is of course that the Chinese will once again move to devalue the Yuan in order to stay competitive which will force competitive devaluations across the region, loss of markets, inflation and currency collapse. But those are not the greatest fears. At some point, some currency is going to become a target of the George Soroses of this era---or Georgie himself--and with the resources available to this lot these days no smaller county can withstand a concerted attack. China, yes. Japan, probably, but they are the elephants and if they dance the "Bugger your neighbor's currency polka," someone is going to get crushed.
These things rarely end well. The crash of '87 if one recalls had its genesis in mass over-liquidity followed by currency collapses. Funny, those two element are here today along with a good deal more worrisome signs which have been around for a while. Emerging markets, which have been dreadful for the past year may become positively toxic and there is little doubt that capital flight will accelerate. The 10 year closed today at 1.92% with the price of the Note moving up a full half point. That is an enormous move...a true flight-to-quality move...an 'I'm scared as hell" move. The surge in equities--about which I say again I know nothing--had to have had a goodly element of short covering. And so comes the weekend. 50 degrees in the fly-over zone. Down-right tropical for the end of January. Grass is green, water holes are full. A lovely time in the middle of the veld. One can almost hear the sound of trumpeting. Be interesting to see what Monday brings.
Tuesday, August 11, 2015
BIG NEWS DAY
International financial junkies rejoice! Today was a red letter day! The Greeks and the EU have reached an agreement in principle on a new 86 billion Euro bail-out package. All the usual stuff including fiscal deficit targets which are unattainable, asset sales--not on--governmental restructurings --when there may not be a government and on and on. It short, it is a nonsense but it will be agreed and the ECB will get paid as will everybody else this month and when it is realized that the thing isn't working we will revisit the entire situation around March. Which is exactly what should have happened, allowing the Euro to stay around, the EU to remain intact and Greece to remain as a member of the same until a better time comes to either face up to the inevitable (D*** F*********) or the unthinkable G*****. See you in March.
The really big news was the decision by the Chinese to devalue their currency, the Renbinbi (let's call it the Yuan, it's easier). Down went everything except for the U.S. Dollar and the Euro with shock and surprise on the faces of all the talking heads.
The Chinese dropped their previous support for the Yuan and announced that at the new level, their would be a new trading band of 2.00% Remarkably, the general view was: how clever. The Chinese had accomplished two things at once. They had made their exports (which had been down over 8.00% for the year) much more competitive and they had "listened" to the IMF and its promise of creating Special Drawing Rights in the Yuan by making their currency more "market sensitive." Allow me to comment if I may: pure and utter crap. The Chinese have in fact admitted failure in their attempt to transform their economy into a consumer oriented one and have fallen back on the export, export, export model making sure everybody has a job. They are in a spot of bother. Things ain't working as well and may be worse than we realize for as far as the eye can see their are bubbles of one sort or another. One good thing is that there is a hell of a lot less saber rattling since things started to go south. The People's Liberation Army ("PLA") which has a finger and sometimes a fist in everything that makes money in China may have realized that to gain the world and lose all your Yuan isn't the greatest of strategies and may now be paying a bit more attention to what's going on at home rather than in the South China Sea. And then there is the newly "market sensitive" Yuan.
Boys and girls, this is what is known as "Lowering the Peg." If the Chinese wanted to make their currency market responsive, they would have gotten rid of the peg. To impose a 2.00% trading band on an artificially created price is a nonsense. It can be 2.00% or .002% at any point in time depending on the whim of the Chinese leadership. That is not to say it, from a Chinese standpoint is not a useful step, but for pity sake let us recognize it for what it is, pure, naked currency manipulation. The IMF will praise it of course because nobody but the Chinese wants them around anymore but to look at it in any other way is a joke. The currency market opens at about 2130 EDT in Asia. Let's wait until then to see just how "freely traded" is the Yuan tomorrow morning.
As for the rest of the world...well, there are a few questions. And for Central Banks, including the Bank of China which for quite a while now had achieved mystical stature, one might well ask, "Is this the best you can do?" Throw scads of money at economies and when that doesn't work, bugger thy neighbor? Even the Smartest Guy in the Room admitted over the weekend that nobody is really quite sure as to how to deal with the problems of today. Far be it from me to offer advice to Dr. Fisher but might it be wise to stop doing what hasn't worked and try something different? Or better yet, stop doing anything at all, especially bailing out the gutless politicians of the world of which every country has a surplus? Just a though, Stan, just a thought.
More tomorrow.
The really big news was the decision by the Chinese to devalue their currency, the Renbinbi (let's call it the Yuan, it's easier). Down went everything except for the U.S. Dollar and the Euro with shock and surprise on the faces of all the talking heads.
The Chinese dropped their previous support for the Yuan and announced that at the new level, their would be a new trading band of 2.00% Remarkably, the general view was: how clever. The Chinese had accomplished two things at once. They had made their exports (which had been down over 8.00% for the year) much more competitive and they had "listened" to the IMF and its promise of creating Special Drawing Rights in the Yuan by making their currency more "market sensitive." Allow me to comment if I may: pure and utter crap. The Chinese have in fact admitted failure in their attempt to transform their economy into a consumer oriented one and have fallen back on the export, export, export model making sure everybody has a job. They are in a spot of bother. Things ain't working as well and may be worse than we realize for as far as the eye can see their are bubbles of one sort or another. One good thing is that there is a hell of a lot less saber rattling since things started to go south. The People's Liberation Army ("PLA") which has a finger and sometimes a fist in everything that makes money in China may have realized that to gain the world and lose all your Yuan isn't the greatest of strategies and may now be paying a bit more attention to what's going on at home rather than in the South China Sea. And then there is the newly "market sensitive" Yuan.
Boys and girls, this is what is known as "Lowering the Peg." If the Chinese wanted to make their currency market responsive, they would have gotten rid of the peg. To impose a 2.00% trading band on an artificially created price is a nonsense. It can be 2.00% or .002% at any point in time depending on the whim of the Chinese leadership. That is not to say it, from a Chinese standpoint is not a useful step, but for pity sake let us recognize it for what it is, pure, naked currency manipulation. The IMF will praise it of course because nobody but the Chinese wants them around anymore but to look at it in any other way is a joke. The currency market opens at about 2130 EDT in Asia. Let's wait until then to see just how "freely traded" is the Yuan tomorrow morning.
As for the rest of the world...well, there are a few questions. And for Central Banks, including the Bank of China which for quite a while now had achieved mystical stature, one might well ask, "Is this the best you can do?" Throw scads of money at economies and when that doesn't work, bugger thy neighbor? Even the Smartest Guy in the Room admitted over the weekend that nobody is really quite sure as to how to deal with the problems of today. Far be it from me to offer advice to Dr. Fisher but might it be wise to stop doing what hasn't worked and try something different? Or better yet, stop doing anything at all, especially bailing out the gutless politicians of the world of which every country has a surplus? Just a though, Stan, just a thought.
More tomorrow.
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