* * *
One month ago, we first revealed that for one prominent winner from the subprime crisis, Hayman Capital’s Kyle Bass, “the greatest investment opportunity right now” is to short the Chinese Yuan: as he explained “given our views on credit contraction in Asia, and in China in particular, let’s say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there’s one thing that is going to happen: China is going to have to dramatically devalue its currency.” He even went so far as to give a timeframe: “we think it’s going to be in the next 12-18 months.”
Then, during the Davos boondoggle, none other than the man who broke the Bank of England, George Soros, noted that he too is shorting the Yuan, which in turn prompted China’s communist party mouthpiece, the People’s Daily to officially warn Soros to back off adding in a petulant, schoolyard bully-ish voice “You Cannot Possibly Succeed, Ha, Ha.” Yes, China really said that.
– It’s Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington (ZeroHedge, Aug 27, 2015):
As Bloomberg reports, “China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter. Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales.”
– Yuan Strengthens Most Since March, China Unveils New Bailout Source After Rescue Fund Runs Out Of Fire-Power (ZeroHedge, Aug 27, 2015):
Update: China readies new bailout mechanism – pooling CNY2 Trillion of Pension funds for “investment”
A busy night in AsiaPac before China even opens. Vietnam had a failed bond auction, Japanese data was mixed (retail sales good, household spending bad, CPI just right), Moody’s downgrades China growth (surprise!), China re-blames US for global market rout, and then the big one hits – China’s bailout fund needs more money (applies for more loans from banks) – in other words – The PBOC just got a margin call. China margin debt balance fell for 8th straight day (although the short-selling balance picked up to 1-week highs). China unveiled some economic reforms – lifting tax exemption and foreign real estate investment rules. PBOC fixesds the Yuan 0.15% stronger – most since March, but even with last night’s epic intervention, SHCOMP looks set for its worst week since Lehman.
– China chooses her weapons (Gold Money Aug 20, 2015):
China’s recent mini-devaluations had less to do with her mounting economic challenges, and more to do with a statement from the IMF on 4 August, that it was proposing to defer the decision to include the yuan in the SDR until next October
The IMF’s excuse was to avoid changes at the calendar year-end and to allow users of the SDR time to “adjust to a potential changed basket composition”. It was a poor explanation that was hardly credible, given that SDR users have already had five years to prepare; but the decision confirming the delay was finally released by the IMF in a statement on Wednesday 19th.
– No SDR For You: IMF Tells China To Wait At Least One Year Until Reserve Basket Inclusion (ZeroHedge, Aug 19, 2015):
If there was any confusion as to whether the recently devalued Chinese yuan would be landing in the IMF SDR basket on January 1, the Fund just cleared it up.
– Chinese Devaluation Extends To 3rd Day – Yuan Hits 4 Year Low, Japan Escalates Currency Race-To-The-Bottom Rhetoric (ZeroHedge, Aug 12, 2015):
The “one-off” adjustment has now reached its 3rd day as The PBOC has now devalued the Yuan fix by 4.65% back to July 2011 lows.
The PBOC seeks to reassure…
– Dollar Tumbles As Fed Rate Hike Suddenly Looking Very Uncertain To Goldman, Bank Of America (ZeroHedge, Aug 12, 2015):
After China’s shocking currency devaluation, which some more conspiratorially-minded observers have concluded was China’s retaliation to the west for the IMF’s recent snub that pushed back China’s evaluation for inclusion into the SDR to some indefinite point in 2016, the only question on everyone’s mind is whether the Fed will delay or outright cancel any imminent “data-dependent” rate hikes as a result of the implicit tightening of monetary conditions thanks to China, and the dramatic appreciation of the USD which would not have taken place without China.
– This Is Not A Drill: India, Russia And Thailand Prepare For Currency War (ZeroHedge, Aug 11, 2015):
When China sneezes, the world catches a cold. Alternatively, when China devalues, the rest of the (exporting) world scrambles to not be the last (exporting) nation standing, and to do so next, before everyone else does.
Case in point, at least three major emerging market nations announced they are bracing for currency war.
First India, where NDTV ask rhetorically “How China’s Devaluation of Renminbi Impacts India” and answers:
– China Enters Currency War – Devalues Yuan By Most On Record (ZeroHedge, Aug 11, 2015):
Update: The Chinese currency complex is collapsing… 12 month NDFs just hit a new 5 year lows against the USD – biggest plunge since Lehman