# Chinese currency pegged to USD



## Timmy (17 October 2009)

No, its not 'news' ... but I think this guy is right on the money:

''I still think,'' he said, ''that the single most destabilising decision of the last 10 years was the Chinese peg.''

Weak Dollar? Not So Much in China from the NY Times

Same article in the SMH

Don't know how the resolution is going to come about, or when.


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## Timmy (22 October 2009)

Allowing some adjustment is better than nothing, but a float would be best.

Chinese Yuan Forwards Forecast A Much Needed Dollar Peg Adjustment


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## Timmy (24 November 2009)

Escalation of commitment, confirmation bias, selective quoting, justification, and just plain pig-headedness.  Look around.  All rampant.

Let's try to offset all that a little.
Here is an article arguing that the next adjustment in the Yuan will be _down _against the USD!  Totally contrary to my view.

Should I try to obfuscate and denigrate?  Or maybe try to learn something?  Great article.

_"I think the next 18 months will see major ructions in the financial markets. The consequences of a double-dip back into recession next year require some lateral thinking. If the carry trade unwind results in a turbo-charged dollar, any collapse in the China economic bubble will be doubly destructive to commodity prices. A surging dollar, coupled with China moving into sustained trade deficit through 2010, could prompt the Chinese authorities to acquiesce to US pressure for a more flexible exchange rate. But why does no-one expect a yuan devaluation?"_
Source: Albert Edwards Calls For The Next Black Swan: Expect Yuan Devaluation Following Deep 2010 Downturn


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## Temjin (24 November 2009)

Timmy said:


> Escalation of commitment, confirmation bias, selective quoting, justification, and just plain pig-headedness.  Look around.  All rampant.
> 
> Let's try to offset all that a little.
> Here is an article arguing that the next adjustment in the Yuan will be _down _against the USD!  Totally contrary to my view.
> ...




That is something I actually subscribe to at this moment. The massive carry trade with selling USD and buy practically anything else will eventually rewind sooner or later. It's a heavily crowded trade and bearish sentiment on USD is all time high. Both quantitatively and subjectively. 

Yuan will most likely to devalue from the USD perspective.


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## Timmy (24 November 2009)

Temjin said:


> The massive carry trade with selling USD and buy practically anything else will eventually rewind sooner or later. It's a heavily crowded trade and bearish sentiment on USD is all time high. Both quantitatively and subjectively.



I agree with you that it is a crowded trade, I think where I may differ is that I see a snap-back in the USD happening later rather than sooner.  There will be rallies, and very big, nasty ones (good for traders though ), but I don't see a sustained change in trend until just before the signs of interest rates in the US are about to reverse become evident (so 6 months away, give or take).




Temjin said:


> Yuan will most likely to devalue from the USD perspective.



  It is a probably a failure in imagination on my part, but I cannot see this happening.  Of course, if the global and US recovery falters sharply (which I don't expect, and that's not to say the path will be without setbacks and justified pessimism) then all bets are off I suppose.

Hope this makes sense?


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## Whiskers (24 November 2009)

Probably not the best time to unpeg or change value atm. Let the global recovery stabalise some more.

But I'm sure the Chinese are well aware of the power they have in that regard and will play it to their best advantage. May be the next major factor to re-shape the world economy dynamics.

"A devaluation in the renminbi relative to the dollar will likely short-circuit all the millions of FX algos that expect a perpetual peg if not outright Chinese currency appreciation." ... from Timmys last link.


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## Timmy (16 February 2010)

Chief economist of Goldman's, in a Feb. 15 Bloomberg report: 



> "I have a strong opinion that they're close to moving the exchange rate,"



http://www.bloomberg.com/apps/news?pid=20601087&sid=awBSw.3x_gAo&pos=7

More:


> A 5 per cent hike in the renminbi's value would not only address those concerns but would help slow the economy and tackle inflation fears, says O'Neill, who reckons China's economy is currently growing between 12 and 14 per cent. His estimates for growth this year, at 11.4 per cent, are significantly above the World Bank's 9 per cent estimate.



http://ftalphaville.ft.com/blog/2010/02/15/148881/jim-oneills-big-call/

Easy call to say that this 'should' be done; much, much harder to put yer nuts on line and say _when _... kudos Mr. O'Neill.


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## doctorj (16 February 2010)

Timmy said:


> Easy call to say that this 'should' be done; much, much harder to put yer nuts on line and say when ... kudos Mr. O'Neill.



Massive call, but then Goldman have never backed down from a headline.  Remember what they said back in 2005 about $100 oil?

So what's the play? Short Walmart, long BHP?


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## Timmy (16 February 2010)

doctorj said:


> So what's the play? Short Walmart, long BHP?




It would have to be a positive development for commodity exporters etc. ... Australia & Brazil spring immediately to mind.  A positive for global growth too ...?


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## Timmy (21 June 2010)

*Re: Investment/Finance/Economics breaking news*

This is big news, effects happening now.

*China to ease yuan-dollar peg; any weakening to be gradual*
http://www.marketwatch.com/story/china-loosens-yuans-peg-to-dollar-reports-2010-06-20

*Yuan Unshackled May Strengthen China's Shift to Domestic Demand for Growth*
http://www.bloomberg.com/news/2010-...na-s-shift-to-domestic-demand-for-growth.html

*Australian Stock Futures Rise; S&P Futures Advance After Yuan Policy Shift*
http://www.bloomberg.com/news/2010-...-futures-advance-after-yuan-policy-shift.html


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## Trembling Hand (21 June 2010)

*Re: Investment/Finance/Economics breaking news*



Timmy said:


> This is big news, effects happening now.




I don't think so. we only follow the dow ??


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## Timmy (21 June 2010)

*Re: Investment/Finance/Economics breaking news*



Trembling Hand said:


> I don't think so. we only follow the dow ??






Oh yeah ... my bad.

LOL


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## Trembling Hand (21 June 2010)

*Re: Investment/Finance/Economics breaking news*



Timmy said:


> Oh yeah ... my bad.
> 
> LOL




China Stocks don't like the announcement. Everything that was up on the news has now taken a bit of a hit on the news that China's punters didn't like the news. :


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## skc (21 June 2010)

*Re: Investment/Finance/Economics breaking news*



Trembling Hand said:


> China Stocks don't like the announcement. Everything that was up on the news has now taken a bit of a hit on the news that China's punters didn't like the news. :




It appears that they like the news now afterall?? What a confusing day.


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## UBIQUITOUS (21 June 2010)

Any thoughts on the effect on the AUD:USD - short, medium and long?


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## prawn_86 (21 June 2010)

UBIQUITOUS said:


> Any thoughts on the effect on the AUD:USD - short, medium and long?




We saw a gap up over the weekend which is very rare, however it looks as though it will drift off and fill the gap. If they do actually change the peg (which they didnt they just said they might) it will increase risk appetite causing the AUD to gain


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## Trembling Hand (21 June 2010)

prawn_86 said:


> We saw a gap up over the weekend which is very rare, however it looks as though it will drift off and fill the gap. If they do actually change the peg (which they didnt they just said they might) it will increase risk appetite causing the AUD to gain




Yep Prawn agree. This gap Monday has a nasty habit of filling by Wed. Though its probably more of a game changer than last time it happened, which was that dud EURO 1 trill bailout fund.

As far as medium to long term its clearly a positive for AUD and actually any risk asset. Pile in boys its all safe  (we just need whiskers to disagree with the above and we will be fine )


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## skc (21 June 2010)

prawn_86 said:


> We saw a gap up over the weekend which is very rare, however it looks as though it will drift off and fill the gap. If they do actually change the peg (which they didnt they just said they might) it will increase risk appetite causing the AUD to gain





When Chinese says "We might" it most usually means "We will".

That is one advantage of the communist system... amongst its many faults.

Take the opposite - when Kevin Rudd said "We will" it means "we might" or "we will try, waste some money and abandon it later ourselves or until we lose the election".


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## MRC & Co (21 June 2010)

Yeh, saw the potential for that, but didn't think it would be so swift!    Luckily the damage was extremelly limited!  This is going to be a BIG wk I believe, lots of volatility!  US data should disappoint and confirm their recovery is hitting the skids, UK has its emergency budget and G20 meeting should see a lot of push and pull amongst the various political and economic powers that be!  Without a showing of political unity, this Chinese news may simply provide some excellent fills for shorts over the coming days to run right up and into October.


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## prawn_86 (21 June 2010)

Trembling Hand said:


> Yep Prawn agree. This gap Monday has a nasty habit of filling by Wed. Though its probably more of a game changer than last time it happened, which was that dud EURO 1 trill bailout fund.




Yeh i put an order in on my personal account when i got to work. Short term looking to fill the gap, got out with 30 pips profit (about 1:1RR) as it dropped off suddenly when they said they didnt actually do any adjustment. Took that move instead of holding a bit longer than i originally anticipated.


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## Trembling Hand (21 June 2010)

I wouldn't be surprised if we just seen the high for a few days


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## baby_swallow (21 June 2010)

just when the DOW is in topping formation and maybe ready to sell off and then...BANG! out the good news!..... 
Chinese Central Bank to Tim Geithner: "OK Timmy, we'll loosen the Yuan just to make you happy...when do you want the announcement?"
Tim Geithner:  "That's great...could you make the announcement this weekend, I'll just alert my buddies from Goldman Sachs...."


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## skc (21 June 2010)

MRC & Co said:


> Yeh, saw the potential for that, but didn't think it would be so swift!    Luckily the damage was extremelly limited!  This is going to be a BIG wk I believe, lots of volatility!  US data should disappoint and confirm their recovery is hitting the skids, UK has its emergency budget and G20 meeting should see a lot of push and pull amongst the various political and economic powers that be!  Without a showing of political unity, this Chinese news may simply provide some excellent fills for shorts over the coming days *to run right up and into October.*




Do you may be mean run down?

If Fib ratios are ever to be credible tools, the current levels for ASX and HK markets are just perfect for a top.

The positive thoughts are that Chinese internal consumer demand will rise as a result of the re valuation upwards...  but I think that effect will be more medium term than immediate.


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## satanoperca (21 June 2010)

> Steady yuan surprises markets




http://www.theaustralian.com.au/business/news/steady-yuan-surprises-markets/story-e6frg90x-1225882329000

No rise this time, chinese whispers.

Cheers


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## Trembling Hand (21 June 2010)

satanoperca said:


> http://www.theaustralian.com.au/business/news/steady-yuan-surprises-markets/story-e6frg90x-1225882329000
> 
> No rise this time, chinese whispers.
> 
> Cheers




Clearly the trillions of dollars that have flow into markets since then, 11:30 am, consider todays peg not the news. Its all about the future settings.


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## Timmy (21 June 2010)

inscrutable


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## prawn_86 (21 June 2010)

Trembling Hand said:


> I wouldn't be surprised if we just seen the high for a few days




Still confident on this call TH? Its looking pretty 50/50 as to what way from here imo


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## MRC & Co (21 June 2010)

skc said:


> Do you may be mean run down?




Sorry yes, down.

The really big thing now is whether the response out of the US tonight is positive.  If they still don't find this move acceptable, no doubt Congress will still want to push forward with their protectionist bill, and the only thing stopping it then is an Obama veto of the bill based on Geithner in his ear chirping.  Will Obama do this and how will it be viewed by his American audience?  Lot to be answered still, cautious stepping until then I think, definately no leverage on this one for me.........


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## Trembling Hand (21 June 2010)

prawn_86 said:


> Still confident on this call TH? Its looking pretty 50/50 as to what way from here imo




 nope!

Gaps up on Mondays have a poor records of holding. Europe trading after the decent first pull back will be a good tell. But on a level that china comes out and says 
"OK guys were are clearly having trouble controlling inflation and growth seems to not be the problem we are lifting the currency" 

If the market takes that line then shorts watch out, risk trade is back on, swing away.


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## Timmy (22 June 2010)

Article here is a reasonable summary of the perceptions re this announcement:

naked capitalism http://www.nakedcapitalism.com/2010/06/is-chinas-renminbi-announcement-mainly-optics.html

Also, timing of this, ahead of the G20 meeting, is helpful for the Chinese and US officials (mentioned in article too).

Plenty of grist for the mill.


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## MRC & Co (22 June 2010)

Problem is the Europeans, both Mirkel and Trichet, aren't in the US boat of stimulating growth with fiscal expansion!  Sure to cause some rumblings at the 20.

Not to mention, China didn't actually raise the Yuan, imagine there will definately be more noises out of congress about this!


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## prawn_86 (22 June 2010)

From Reuters about 15 min ago:



> The Yuan has been fixed around 0.4% higher, which has taken the market by surprise, causing a knee jerk bounce in the AUD/USD from 0.8765 to test 0.8834. Resistance starts at yesterday"s 0.8860 high and all eyes will now be on how the local bourses respond. The AUD/USD trades 0.8803/06.




Sure did a few of my clients over who booked in rates this morning


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## Trembling Hand (22 June 2010)

prawn_86 said:


> Sure did a few of my clients over who booked in rates this morning




i was expecting that move at 11:00 .............. had given up on the trade when it played out 20 mins later .... :homer:


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## Trembling Hand (22 June 2010)

interestingly its killing the EURO.. New low..... How do ya play this game........  ......


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## Aussiejeff (22 June 2010)

Trembling Hand said:


> interestingly its killing the EURO.. New low..... *How do ya play this game........*  ......




I suspect if you are a Chinese multi-billionaire with deep enough Forex pockets, you can set gameplay on the run and kick winning goals at will.

A fun game indeed!


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## prawn_86 (22 June 2010)

Trembling Hand said:


> i was expecting that move at 11:00 .............. had given up on the trade when it played out 20 mins later .... :homer:




Why were you expecting it TH?

Is it going to be a daily announcement or just when they feel like screwing the markets over?


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## Trembling Hand (22 June 2010)

prawn_86 said:


> Why were you expecting it TH?
> 
> Is it going to be a daily announcement or just when they feel like screwing the markets over?




Each day at 11:00 am our time they set the daily range that the Yuan is allowed to move in. They didn't adjust it yesterday which knocked the market around a bit but was no real surprise. I was expecting a reaction to the rate today, whether it was up or flat the market was always going to kick. My thinking was it would be up in line with their weekend announcement, a bit of a catch up, I was right but will have to look into the time its announce. I may have that wrong.

Expect 11:00 -11:30 time slot to be hot in the markets for a little while yet


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## MRC & Co (22 June 2010)

Trembling Hand said:


> interestingly its killing the EURO.. New low..... How do ya play this game........  ......




Yeh, interesting they said though the CNY will rise appropriately against the USD, but dependent on the EUR.

So if EUR continues to fall, they are basically saying, they won't be letting USD/CNY fall...........


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## prawn_86 (23 June 2010)

Trembling Hand said:


> Yep Prawn agree. This gap Monday has a nasty habit of filling by Wed. Though its probably more of a game changer than last time it happened, which was that dud EURO 1 trill bailout fund.




Looks like you were bang on with this TH. Freak :

You can let me know info like that anytime you want, my clients love it


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## sinner (23 June 2010)

The reason for the depeg is simple enough: during the recent decline in the Euro the Chinese insistence on a hard peg caused the SSEC to be ground up against the wall as the CNY rose with the USD against the EUR. In case you weren't watching, Chinas biggest export destination is now Europe

http://investmentwatchblog.com/euro...ng-up-20-percent-of-its-total-overseas-sales/

So a 10+% currency move is sure to effect equities, just like ASX:GOLD went parabolic for a little while in '08 due to AUD volatility.

By widening the trading band they are essentially providing room for the CNY to move a maximum of 2.5% in a straight line every week or a roughly 130% straight line every year.

Now the next time Euro plunges against the USD and CHF the Chinese can easily step in to stop their equities market getting ground against the peg. With Japanese exporters selling the USD during Tokyo hours every single day now as they can't seem to catch a break on the overnight fix or even the weekly fix that fits with their supply chain models
http://news.bbc.co.uk/2/hi/technology/10366102.stm
and combined with BoK USDKRW intervention occurring during similar hours as well as the normal diversification of USD by PBoC occuring during Hong Kong hours I think they have just made official some policy they were acting out through back channels previously (like buying the EUR during Tokyo hours).

Good luck to them. Mish has always said the Chinese let their currency float it will go *down* not *up*. My father is a macroeconomics professor and the last paper he wrote on the issue was that the CNY is undervalued. I am probably siding with Mish on this one. Who wants to bet we come back in a year to find the USDCNY ~100% up from Mondays price?


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## Timmy (23 June 2010)

sinner said:


> Who wants to bet we come back in a year to find the USDCNY ~100% up from Mondays price?




Monday's fix was at 6.8275 (from the link provided by satanoperca, above)
http://www.theaustralian.com.au/bus...urprises-markets/story-e6frg90x-1225882329000
A 100% appreciation of the USD against the CNY would put the rate at 13.655 Yuan to the USD.  Are you really expecting that over the next 12 months sinner?


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## Trembling Hand (23 June 2010)

Play for the next hour seems clear. they adjust up again we go green. No adjustment watch out bellow.

Stay turned.....


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## skc (23 June 2010)

Timmy said:


> Monday's fix was at 6.8275 (from the link provided by satanoperca, above)
> http://www.theaustralian.com.au/bus...urprises-markets/story-e6frg90x-1225882329000
> A 100% appreciation of the USD against the CNY would put the rate at 13.655 Yuan to the USD.  Are you really expecting that over the next 12 months sinner?




Don't you mean the other way? i.e. ~RMB 3.5-4 to 1 USD...

Something on top of the Chinese minds is that the Japs let the Yen appreciate too much and it killed their economy for 25 years and counting... so I would bet against 100% rise in 12 months... May be 15% in my books...


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## Trembling Hand (23 June 2010)

sinner said:


> Who wants to bet we come back in a year to find the USDCNY ~100% up from Mondays price?




So if you are looking for a fall then you will take the bet that in 1 year its 100% lower


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## sinner (23 June 2010)

Err what? You guys are so confusing.

How hard is it to understand? All I stated was that Mish is of the opinion that if the CNY was to freely float it would not go up (as all those claiming it to be undervalued would assume) but rather it would go down.

That means, USD goes up relative to CNY.

The PBoC has provided a mechanism for the price to essentially straightline 130% a year by allowing it to move a max of 2.5% per week. This isn't exactly a free float, but if market forces are strong enough (they are certainly pent up enough in the CNY futures) we could easily see a yearlong trend in the CNY.

If you are like my macroeconomic father (who btw, refused to buy gold at 680USD/troz) then you would be betting USDCNY to go down as you believe the CNY is undervalued. Contrarians who wish to bet against Timothy Geithner, my father and a bunch of US Congresscritters would be betting USDCNY to go up as you believe the CNY is overvalued.

There is a macro trade in this mess somewhere, probably using DAX, NASDAQ-100, USDJPY and USDCNY but I am still trying to think it through.


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## Timmy (23 June 2010)

sinner said:


> Who wants to bet we come back in a year to find the USDCNY ~100% up from Mondays price?




Sinner, you seriously expecting the USD to appreciate by 100% against the CNY within the next year?

A 100% appreciation of the USD against the CNY would put the rate at 13.655 Yuan to the USD.


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## Trembling Hand (23 June 2010)

sinner said:


> Err what? You guys are so confusing.
> 
> How hard is it to understand?




WTF?? Have you blown up your account sinner? You're getting more and more delusional by the post. We get the play. What we don't think is very smart is the 100% move is the only outcome for CNY bulls. 

carry on,


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## sinner (23 June 2010)

Timmy said:


> Sinner, you seriously expecting the USD to appreciate by 100% against the CNY within the next year?
> 
> A 100% appreciation of the USD against the CNY would put the rate at 13.655 Yuan to the USD.




Why not? 

Have you run the numbers for Chinese banks, money supply, balance sheets, liabilities, lending rates etc? What is so great about the CNY that would stop macro traders selling it in return for USD after performing such due diligence? Do the Chinese Government and PBoC want a stronger CNY? What would happen to the value of Chinas huge foreign currency reserves in a CNY appreciation? Do any of the reasons touted for an upward revaluation in the CNY make sense to the market?

For 2009 (Jan-Jan) the M2 increase registered by the PBoC was approx 22%. For 2009 (Jan-Jan) the M2 increase registered by the US Fed was approx 3-5%.

2009 being the latest money supply data available on the pbc.gov.cn website. If you look at 2010 M2 data from the fed you can see it has barely moved an inch.

Anyone can go look and compare bank credit, loans/liabilities, lending etc between the US and China. In fact you would think anyone putting down my thoughts here in the way that has occurred today would have already done so.

Worth pointing out though, that I never said we would go in a 100% straightline from A to B, I simply noted that the possibility exists now whereas last week it did not, gave two opposing viewpoints on the issue and picked which one I feel is most valid. I gave my opinion, the difference between trolling and a discussion is where you provide your thoughts and viewpoint rather than what has transpired in the last page. Trust me, I won't cry if you have the opposite viewpoint.



> WTF?? Have you blown up your account sinner? You're getting more and more delusional by the post. We get the play. What we don't think is very smart is the 100% move is the only outcome for CNY bulls.




Delusional? Which delusions are you speaking of now? You said "if you are looking for a fall then you bet in 1 year it's 100% lower" and skc quoted 3-4CNY/1USD and now you're speaking of CNY bulls it confuses me what you all mean. 

I've previously stated to you that I sometimes have trouble understanding your statements and requested that you be understanding in this regard with helpful clarification and civility. Instead you denigrate. Not the first time you have behaved in this way even though your views are treated with respect even in disagreements.

My account is *FINE* thankyou very much for asking. In fact I am just about finished preparing my paperwork for the tax man visit next week. I am still waiting for your reply in the tick volume thread by the way where you said that large range bars *always* have a higher tick volume than low range bars. Also a reply for your claim in the gold thread that futures *never* represent the underlying in any market would be nice. Because, you know, sort of getting sick of  trying to have discussions which you keep derailing with your all-or-nothing statements never to be covered again.


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## Trembling Hand (23 June 2010)

Oh god here we go!!







sinner said:


> Delusional? Which delusions are you speaking of now? You said "if you are looking for a fall then you bet in 1 year it's 100% lower" and skc quoted 3-4CNY/1USD and now you're speaking of CNY bulls it confuses me what you all mean.




My point is your 100% bet is just dumb. You're trying to shoe horn everyone into a binary bet. As skc pointed out 15% moves in currency is significant enough.



sinner said:


> I am still waiting for your reply in the tick volume thread by the way where you said that large range bars *always* have a higher tick volume than low range bars.



OMG!! how long have you been carring that pain for mate?? I still stand by all I said. Therefore you must either be wrong : or have been on a search to find a marginal example. FULLSTOP.



sinner said:


> Also a reply for your claim in the gold thread that futures *never* represent the underlying in any market would be nice.



 WTF!!! Since you seem to have a chip on your shoulder mate let me try and help ya. The only thing I can imagine that you are talking about is my comment that open interest doesn't match physical in futures. If that's it and you think it does well then find the post and we will have a great discussion about it.


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## Timmy (23 June 2010)

sinner said:


> Worth pointing out though, that I never said we would go in a 100% straightline from A to B, I simply noted that the possibility exists now




Well, anything is possible.  I could get to root Miranda Kerr (I have taken a close look at her assets) some time in the next year, that is possible too.  Not bluddy likely though.




sinner said:


> Who wants to bet we come back in a year to find the USDCNY ~100% up from Mondays price?




So, OK, yeah I will take that bet.  I say, no way.  Happy to keep it friendly at $10 ... but if you are serious I can go up from there?


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## sinner (23 June 2010)

Trembling Hand said:


> Oh god here we go!!
> 
> My point is your 100% bet is just dumb. You're trying to shoe horn everyone into a binary bet. As skc pointed out 15% moves in currency is significant enough.




I am not trying to shoe horn anyone into anything. How exactly did you get that idea from my posts? Why would I possibly care what you think other than as a topic of discussion which interests me?



> OMG!! how long have you been carring that pain for mate?? I still stand by all I said. Therefore you must either be wrong : or have been on a search to find a marginal example. FULLSTOP.




Err sorry, not wrong. I actually posted intraday examples which show your claim to be simply incorrect using two retail brokers on the day you made your claim and can show similar examples any trading day of the week. So, no not wrong. If you still stand by what you said, which was "using tick vol, high range bars will always show as higher vol and low range bars as lower vol" you should be able to explain away my examples in 2 seconds. Generally speaking on the internet, when you make a claim and refuse to discuss it that is called trolling.



> WTF!!! Since you seem to have a chip on your shoulder mate let me try and help ya. The only thing I can imagine that you are talking about is my comment that open interest doesn't match physical in futures. If that's it and you think it does well then find the post and we will have a great discussion about it.




Actually here is your quote word for word:


> Explode how many more time does it have to be rammed down the gold bugs dumb brains that futures contract traded NEVER = physical in ANY market.




I raised the counter-example of JP Morgans contango trade on Crude, to which you never replied. In that case, futures contract traded certainly does equal physical. I doubt JP Morgan hired a bunch of supertankers to store their futures contracts.

Maybe these cases seem like marginal examples or chips on the shoulder to you but to me they just seem like more examples of your attitude towards others on this forum. 

To keep it on topic:

The Chinese didn't have to pick a trading band. They could have picked a one-off or near one-off revaluation. Instead they chose a mechanism which will allow the CNY to move 130% a year. Why?

When it comes to forex trading, IMHO, monetary aggregates do not lie. If anyone thought the Fed was bad, they need to look at the practices of the PBoC.



> So, OK, yeah I will take that bet. I say, no way. Happy to keep it friendly at $10 ... but if you are serious I can go up from there?




How about if I'm right you owe me 1USD otherwise I owe you 6.8CNY


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## Trembling Hand (23 June 2010)

sinner said:


> I raised the counter-example of JP Morgans contango trade on Crude, to which you never replied. In that case, futures contract traded certainly does equal physical. I doubt JP Morgan hired a bunch of supertankers to store their futures contracts.
> 
> Maybe these cases seem like marginal examples or chips on the shoulder to you but to me they just seem like more examples of your attitude towards others on this forum.




Oh Fine Sinner. I just bought 10 SPI contracts can you do a ring around to all the ASX 200 companies and tell them to issue 1 mil extra in shares as I just increased to the OI. But wait last night the Open interest decreased by 400 mil so at the same time get them to cancel 400 mil worth of issued shares. Then call NCM and get them to put a few 100 oz of gold back into the ground as I closed out another trade.

Just lol you are ridiculous. Not worth the time.


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## sinner (23 June 2010)

Yuan overvaluation? Am I the only one singing this tune? Surely not. Mish has been calling the CNY worthless longer than many if any. The strong numbers out of China in the last 30 days has pushed the concept of CNY devaluation to the background.

But right before that, it was an idea gaining support:
http://ftalphaville.ft.com/blog/2010/03/25/187316/devaluing-the-yuan/

China was running deficits, for the first time since early 2004. SocGens Albert Edwards has been talking this line for some time now, and rightfully so IMHO. You can click the link for analysis and thoughts. Was last months Chinese data an anomaly in a new deficit trend or were deficits the anomaly in the longer running surplus trend?

Some academics were even pointing out the incorrect nature of the "undervalued CNY" claim spouted by US and Canadian politicians in the early 2000s and as the political call heated up in 2007:
http://www.asianresearch.org/articles/1737.html
http://tr.tulips.tsukuba.ac.jp/dspace/bitstream/2241/91137/1/JIMF_26-5.pdf

Economists in China agreed very recently:
http://www.reuters.com/article/idUSTRE65G0C520100617
Hell, I even remember Goldman posted advice earlier in the year that claimed the BRIC currencies were overvalued using some long term productivity model.


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## MRC & Co (23 June 2010)

Sinner, the problem with all these articles, is they don't account for stockpiles, only current flows.

The US is trying to reverse decades worth of deficits, not simply a few months here or there.

Then one article (the guy from SocGen) talks about moving the flows from the capital account and onto the trade balance by instead stockpiling resources (something no doubt congress has taken into consideration).

G20 is sure to be fireworks with all the financial regulatory mess and China/US rhetoric!  Geithner and Obama will probably be happy with the Chinese measures to date, but I highly doubt lawmakers will be!  Obama can of course veto any bill, but a lot will also depend how the American public take the news.......


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## sinner (23 June 2010)

MRC & Co said:


> Sinner, the problem with all these articles, is they don't account for stockpiles, only current flows.




Hi MRC,

I disagree with your statement because the academic papers deal with the long term data and picture in mind. What do you mean by stockpiles? As in, stockpiles of US debt? Isn't it safe to say that if USDCNY goes down significantly, China will be buying proportionally less Treasuries at each auction and in fact become net sellers of US debt? 

If someone owes you $20,000 they are in trouble. If someone owes you $2trillion you are the one who is in trouble. That is to say, I do not believe China will be buying any less US govt debt than it is now without significant repercussions to their current holdings. That and the huge fact that *they don't want to buy less or none, they want to buy more!*.

Confirmation of this theory comes in the form of Chinas most recent disclosure of US debt holdings:
http://www.bloomberg.com/news/2010-...asury-securities-rising-3-to-900-billion.html



> “If history’s any guide they will keep buying,” Nomura’s Goncalves said. “Global imbalances don’t turn on a dime. We don’t know how robust this recovery is. There are only so many places China can put its money.”




The pandas have fallen headlong into the long end of the curve to keep US rates low. They almost had a hernia when the Fed monetised $300b in debt as the "buyer of last resort". Does this look like a country to you that is looking for a more expensive local currency? 



> The US is trying to reverse decades worth of deficits, not simply a few months here or there.




Sure they have a trade deficit (of their own making), but USD going down in relation to CNY is more likely to shift productive capacity to a cheaper 3rd currency or basket of currencies - not reinvigorate the US manufacturing and production sectors which have been gutted for LIFE thanks to the Unions. It is safe to say that Congress is aware of *this*, not *that*:


> “If we don’t boost our national savings rate, with trillion dollar deficits as far as the eye can see, the Chinese piece of our multilateral trade deficit just goes somewhere else,” Roach said. “It goes to a higher-cost producer and that taxes the American people.”



 (from the above Bloomberg article)

In fact, if you look at the manufacturing numbers and predictions for the last 2 years, the US was supposed to lose its place as #1 manufacturing output (not per capita) in the world last year. What has actually happened is that since April '08 the USD has been cyclically strong (even in '09 it didn't go below 75 on the DX) and US manufacturing became more resilient during this period!

It's also worth pointing out the Chinese have all sorts of well-papered-over budget deficits of their own, through local government enterprises, state owned corporations, banks who lend on command of the PBoC, etc.



> Then one article (the guy from SocGen) talks about moving the flows from the capital account and onto the trade balance by instead stockpiling resources (something no doubt congress has taken into consideration).




Actually his point is (and it is very valid) that China does not have to buy US Treasuries. It just so happens to be a market liquid enough to take their bid. 


> “I don’t think it’s really in China’s economic interest to distance itself from its economic ties with the U.S.,” said Carl Lantz, head of interest-rate strategy in New York at primary dealer Credit Suisse Group AG. “We borrow pretty cheaply from them, we buy their goods. Our country, despite some of the turmoil, still offers deep and liquid capital markets.”



China has to buy something with those USD but as long as the asset is priced in USD the purchase can be whatever from AUDUSD contracts, spot gold, copper, etc to retain the same monetary effect. The Chinese carry out diversification of their USD into spot FX markets almost daily. Usually into anything that can hold the bid for a few hours. I am sure the pickup in commodity stockpiling recently is all to do with less Euros, Pounds and Francs being bought by PBoC.

Nonetheless, I have procured an article for you which discusses not just current flows but also historical trends. It is written by the well known China bear, Andy Xie: 
http://english.caing.com/2010-04-12/100134074.html
It is a long article, but a good read.


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## MRC & Co (23 June 2010)

Hey Sinner, 

Don't have time to generate a proper response (nor read and grasp all the information in this thread) at the moment, but will get back to it at a later date (hopefully before G20 and what should be crunch time).

That being said, one thing is certain, if USD/CNY does actually appreciate, there is going to be a guaranteed trade war (whereby 'double dip' may begin to be talked about as 'lower low').  

On another note, Soros talks on the Eurozone crisis at a University in Germany tonight I believe, should be an interesting speed to read in the morning.......

All the best with the trades everyone.


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## sinner (24 June 2010)

http://israelfinancialexpert.blogspot.com/2010/06/end-of-yuan-peg-china-is-desperately.html



> With everyone focused on the dead and buried Spanish interbank market (no, no STD is the healthiest bank in the world, for realz) is the real liquidity threat elsewhere... about half a world away to be precise? Since June, the Chinese 1 Month Repo Rate has exploded and is not looking back. After trading in the 1.5% area for years, in the past 3 weeks, this has nearly tripled, and today traded at a 52-week (and close to all time) high of 3.8%. While for many Chinese banks, flush to the gills with money due to a tapering in consumer lending, this is not an issue, we are fairly confident there are various banks that will be impaired by this spike. And it certainly did not occur in a vacuum - there a distinct, and extremely levered, correlation between the CNY fixing and the 30 Day Repo. Should China go ahead and reval the renminbi, must we expect a complete lock up of the Chinese lending market?




I saw an article on ZH about the repo rate, but there was no context. This article puts it to full light. 

Even more bearish than I anticipated.


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## MRC & Co (24 June 2010)

Sinner, I've read through your posts (haven't had time to read all the articles) but they seem to jump from bit to bit without much connection (or at least I cannot connect it all ).  

Can you explain for what reasons, USD/CNY will appreciate over the coming year?  Just a simple paragraph which links the cause(s) and effect(s).

My understanding of this situation is not close enough and I have no reason to believe the USD/CNY will definately depreciate, just trying to grasp your take of why it should appreciate?


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## sinner (24 June 2010)

MRC & Co said:


> Can you explain for what reasons, USD/CNY will appreciate over the coming year?  Just a simple paragraph which links the cause(s) and effect(s).




Hi MRC,

1. Monetary aggregates (specifically M2 in this case) show a huge expansion in the money supply for China and a proportional drop in the bucket when examining US money supply. To me, this is the big one. You can confirm by working out the comparative 2008 stimulus package by each government as a % of GDP. You will notice the Chinese package is roughly 3 times the size of the US package using this comparative measure.
2. Purchasing Power Parity Theory indicates the Yuan is overvalued. 
3. Huge Chinese overcapacity in every single sector, especially the most leveraged ones and those now reliant on Chinese "LGE" or Local Government Enterprise.
4. Despite a steep incline in the EURCNY rate during 2009 due to the USDCNY peg the SSEC still underperformed the SPX as well as the broader market. This shows underlying weakness in the SSEC and Chinese economy as a whole.


5. China is well known for its trade surplus - but there is a much larger historical trend going on. This from HSBC:


> March's trade deficit is likely to be temporary, but it reveals an underlying trend that the market has overlooked; that is, China's trade (and current account) surplus has already been falling at a rapid pace since 2007…China's trade surplus to GDP ratio had reached a historical peak of 7.5% in 2007, then it dropped to 6.5% in 2008 and further to only 4% in 2009. Meanwhile, China's current account surplus to GDP ratio had almost halved to 5.9% in 2009 from the spike of 10.6% in 2007. We expect this trend to continue with the trade surplus to GDP ratio falling below 3% and the current account surplus to below 4% by 2011. This is mainly because growth in China's imports is likely to continue to outperform exports growth in the coming years.



6. Despite attempts by the Chinese government to spur domestic demand, the Chinese still *rely* on export demand for their entire economy to function correctly. Europe being Chinas number 1 export economy now, closely followed by the US. I am having trouble seeing any possibility of Chinese export *growth* to Europe especially, but also the US. The official figures confirm this (COMI, BDI, etc). If you look at the US numbers you can see they are just regaining 2004 ground now.


> China International Capital Corp. cut today its estimate for China’s economic growth this year to 9.5 percent from 10.5 percent, citing property tightening measures and overseas “uncertainties.”





> Yuan gains would be “a disaster,” Song Zimin, an executive in the import and export department of apparel maker Shanghai Dragon Corp., said in an interview at China’s biggest trade fair in Guangzhou on May 3. “If the yuan rises 3 percent, where’s our profit? Many, many factories will close.”



and articles like this: http://www.ft.com/cms/s/0/cb5f1956-6d35-11df-921a-00144feab49a.html
7. The very concept of CNY appreciation is a political not monetary concept. Therefore it is extremely unlikely to be translated to the markets in any meaningful sense as the matter of what politicians want means nothing to the market at large. I will let a pro put it best:


> …The saying that “undervalued yuan leads to global trade imbalance” cannot stand up to close scrutiny. Zhao Qingming, a researcher with China Construction Bank stressed that imbalance of an economy’s deposit and investment was the fundamental reason for trade surplus or deficit. Exchange rate has only minor influence.



High savings rates in China coupled with extremely low levels of investment (real estate being one of the few vehicles which Chinese savers can attempt a capital gain on) are the cause of surplus. The savings rate is not about to decrease significantly nor will the investment rate increase rapidly unless everyone is waiting to buy those new C300 futs. The US would do better to spur its own savings rate.
8. I believe we are fast approaching a trade war through protectionism, currency devaluation being the nuke. Mish has been covering the growing fight in articles like this one http://globaleconomicanalysis.blogspot.com/2010/02/china-announces-105-tariffs-on-chickens.html
(which thankfully covers many of his other articles on the same issue)
I think it is safe to say, this is a trend and it will not stop yet. Thus, competitive devaluation by the PBoC is possible. Especially if Geithner and Obama step on the Chinese hornets at G20.

9 and 10 are sort of iffy macro factors so I won't bother covering them but it is worth pointing out that if the CNY does indeed appreciate rather than crash through the floor then commodities are gonna go back up bigtime (if 2005 was any example to go by) and crude prices above $80/bbl will start exhibiting limiting factors on the economy again. I believe Andy Xie said something similar: "even a small appreciation could make a crisis inevitable".


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## sinner (25 June 2010)

http://online.wsj.com/article/BT-CO-20100623-714647.html

PBoC has flooded the market with 201 billion CNY this week to paper over holes in liquidity that keep tearing open again. That is roughly 30bio USD at the current rate. In a week.

The Chinese 30 day repo now sits 4.25% being just 1.75% a bit more than a month ago. This is fact after the above mentioned intervention. Take a look at the 7 day repo. Everything is fine with the CNY, expect the USDCNY to drop 15% in a year


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## Trembling Hand (25 June 2010)

Taiwan Unexpectedly Raises Rate in Signal of Asia’s Confidence 



> June 25 (Bloomberg) -- Taiwan’s central bank unexpectedly raised its benchmark interest rate for the first time since 2008, joining Asian policy makers from China to Malaysia in signaling confidence the global recovery will withstand Europe’s debt woes.
> 
> The decision came five days after China, Taiwan’s biggest trading partner, pledged to end a currency peg to the dollar, and after South Korean officials said risks to the economy are now balanced between inflation and threats to growth from Europe’s crisis. The policy shifts also reflect Asia’s role in leading the world rebound, and rising asset prices that could destabilize markets without monetary tightening to avert bubbles.




15 % fall here we come :

< EDIT> and by the looks of it the Yuan has been reset up again


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## sinner (25 June 2010)

Trembling Hand said:


> Taiwan Unexpectedly Raises Rate in Signal of Asia’s Confidence
> 
> 
> 
> ...




Are CB rate rises supposed to be some sort of measure of confidence? Like the ECB rate rise into the all time Euro high at 1.6 during 2008? Or the 6 consecutive panic rate cuts from the RBA after they did the same?

Hang on a sec, let me check the Taiwan Central Bank track record:
"March 27 (Bloomberg) -- Taiwan's central bank raised its benchmark interest rate for the 15th straight quarter to cool inflation and signaled that more increases are likely."

...that's March 27 2008, mind you.

Let me mark that day on a TWDUSD chart for you TH...



Looks good for TWD rises from here then


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## Trembling Hand (25 June 2010)

sinner said:


> Let me mark that day on a TWDUSD chart for you TH...
> Looks good for TWD rises from here then




Please...... all I want you to do for me is work on smoothing that chip on ya shoulder off. just a bit..... 

Just a note because you seem to get very upset & carry on for months when I go away and don't respond to your ever so important request. Thankfully I'm not around for the next 2 months.


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## sinner (29 June 2010)

I have been arguing with my Dad about this one for ages! China is not growing, plain and simple. Now even the bigwigs have revised down their silly numbers:

http://www.bloomberg.com/news/2010-...eading-index-for-april-with-smaller-gain.html


> The Conference Board corrected its April gauge for the outlook of China’s economy, saying its leading index for the country rose the least since November, rather than registering the biggest gain in 14 months.
> 
> The gauge compiled by the New York-based research group rose 0.3 percent, less than the 1.7 percent gain reported on June 15. The Conference Board said in an e-mailed statement today that the previous release contained a “calculation error” for total floor space on which construction began.
> 
> ...




"Calculation error" yeaaaa right. The Baltic Dry Index is a way better gauge still:


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## sinner (1 July 2010)

CDS traders have pushed China into the top 3 Gov/state/muni for the first time in a long time.




Either everyone and their bigdog is buying CNY and hedging with PRC CDS or (more likely) CDS traders know something the rest of us don't. Todays PMI for China was a miss with the HSBC China PMI 2 points lower than that again. Below 50 is supposed to be contraction, so we are toying with an important level here.


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## Aussiejeff (1 July 2010)

sinner said:


> CDS traders have pushed China into the top 3 Gov/state/muni for the first time in a long time.
> 
> 
> 
> ...




Interesting stuff, sinner.

Keep it coming!


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## sinner (1 July 2010)

Aussiejeff said:


> Interesting stuff, sinner.
> 
> Keep it coming!




Alright Aussiejeff, I've got a bit more of "it" to keep coming...

Here's a great one from today:
http://www.bloomberg.com/news/2010-...-for-bad-asset-company-extended-10-years.html


> Bank of China Ltd., the nation’s third-largest lender, said China Orient Asset Management Corp. will extend 160 billion yuan ($23.6 billion) of bonds expiring today by 10 years.
> ...
> China’s government set up Orient, Huarong Asset Management Co., Cinda Asset Management Corp. and Great Wall Asset Management Corp. in 1999 to help rid the banking industry of 1.4 trillion yuan of non-performing loans. The firms issued bonds to banks as part of payments for assets they took over, and were given 10 years to recover the soured debts.




So let me get that one right. PBoC set up HAM, CAMC and GWAMC (sounds like the Chinese equiv of Freddie, Fannie, Maiden Lane, etc doesn't it) to essentially take 1.4 trillion yuan (206bn USD) of bad assets off their books. About a tenth of those bad assets are about to expire today *unpaid* so the PBoC is going to not only extend the bond duration but actually (click the article to read on) provide support payments for these bonds at the current yield. If this bond issue was even remotely market influenced, investors would be demanding huge increases in yield to hold another 10 years till maturity!

I mean, if you thought the US Fed was good at these sort of shenanigans then you just got schooled by some real pros. Paul Krugman would be so proud.

So, weekly attempts by the PBoC to paper over cracks in their financial system aside, what else is going on?

Well. According to the Chinese Commerce Minister in May of this year, the average profit margin for Chinas export oriented companies is roughly 1.8%.
http://english.peopledaily.com.cn/90001/90778/90861/6936424.html

What does that mean to me and you? It means that companies like Foxconn and Honda (which are in the news almost daily now) can definitely not afford any meaningful pay rises to their extremely low paid employees. But this is exactly what industry analysts are predicting will be demanded by those employees:
http://www.bloomberg.com/news/2010-...toothless-unions-fueling-wildcat-strikes.html

Which is why companies like Foxconn are up and moving out of the industrialised south and into the cheaper north of China. Gee Foxconn, I thought you just doubled the wages of your factory workers?
http://www.marketwatch.com/story/fo...o-north-china-2010-06-30?reflink=MW_news_stmp

This shows me two very obvious things:
1. Export manufacturers in China are in such a high competition environment that there is really no room for more competition or any slippage. Any deviation on profit margins or volume of sales will completely destroy the business model.
2. A significant upward revaluation of the CNY against the EUR and USD will destroy whatever profit margins are left to be had. Take a look at Japanese companies like Toyota (which generates roughly 70% of its income from exports) who were ground up against the wall by USDJPY and EURJPY cross rate in 2008 and 2009.
http://online.wsj.com/article/SB125448498910659227.html


> TOKYO -- Toyota Motor Corp.'s president on Friday warned that the rising yen will make it harder for the company to return to profitability, illustrating the effect of the strengthening Japanese currency on the nation's key exporters.
> ...
> "We understand that we are facing a tough situation" because of the yen's gains, he said.
> 
> He added, "As we [already] have excessive production capacity, it will be hard to return to profitability...just by increasing sales volume."




Do these comments in Oct 2009 from Toyota head Akio Toyoda sound prescient to you? China definitely has excess production capacity in many many industries (especially shipbuilding which supports many vertical industries like steel and coal) and full control of the global market volume. If the "Yuan throws a Yen" against  the USD then expect to see similar statements coming from the likes of Honda and Toyota in China.

This is my point really, something has to give, even if the CNY goes up at first. Because sooner or later a rising CNY will hurt the whole model of the Chinese "growth" economy. 

Andy Xie has more to say on Chinese wage inflation, for inquiring minds:
http://www.bloomberg.com/news/2010-...ng-wage-inflation-commentary-by-andy-xie.html


> While the yuan may not appreciate much, China’s factory wages will rise a lot. Americans will pay more for Chinese goods anyway. When the supply of labor is endless, as in China over the past 20 years, productivity goes to consumers, investors or tax collectors, but never workers. This is why China has had a rapidly growing economy, but stagnant wages.
> 
> When the labor market moves toward full employment, wages will rise faster than the overall economy to catch up with productivity gains. Chinese labor incomes as a share of gross domestic product may rise by more than 10 percentage points in a decade.




Meanwhile, US business groups with their heads screwed on straight try and stop idiot politicians restarting a tit for tat protectionist war with China
http://www.reuters.com/article/idUSTRE65T6RN20100630?type=politicsNews

Lastly, what does Premier Wen have to say about all this today?
http://online.wsj.com/article/BT-CO-20100630-701682.html


> "The current domestic and international economic situation is still extremely complex," Wen said in meetings on Monday and Tuesday with executives and economists, according to the cabinet statement. "(We) need to focus on the current and long-term plan to lay the foundation for stable and rapid economic development for next year and even longer period of time."
> 
> Beijing has so far this year allowed the yuan to appreciate, increased banks' reserve requirement ratio three times and introduced a variety of tightening measures for the property market and industrial sectors such as the steel industry.
> 
> ...




We await the trade figures and monetary aggregates with great anticipation, Premier Wen. It will be of great interest to see what effect (if any) Chinas recent "tightening" measures have had on broad money supply.


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## Aussiejeff (1 July 2010)

Ok sinner! 



> We await the trade figures and monetary aggregates with great anticipation, Premier Wen. It will be of great interest to see what effect (if any) Chinas recent "tightening" measures have had on broad money supply.




Of course, I would suspect Premier Wen has instructed his henchmen - sorry - lawfully elected officials, to "massage" these pending figures to the max in order to rebound the markets.

I suspect "an unexpected rise in the Purchasing Managers Index" to kick things off.


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## sinner (2 July 2010)

Aussiejeff said:


> Ok sinner!
> 
> Of course, I would suspect Premier Wen has instructed his henchmen - sorry - lawfully elected officials, to "massage" these pending figures to the max in order to rebound the markets.
> 
> I suspect "an unexpected rise in the Purchasing Managers Index" to kick things off.




Still bad news coming out of China as a result of yesterdays PMI:

http://www.zerohedge.com/article/cebm-warns-china-exports-and-imports-decelerate-q3-and-onward


> From the report: "Our CEBM China export leading indicator has already peaked, indicating that China’s exports are likely to peak soon. Our export model suggests that China’s exports may decelerate from 3Q due to weakening domestic and foreign demand."
> ...
> "As the government has unofficially adopted normalization strategy away from the stimulus we are likely to see property, infrastructure, and manufacturing investments lose steam in the second half. The deceleration of FAI may put downward pressure on China’s imports."




Ahuh. The whole CEBM macro report is posted in the link, it provides an in depth macro analysis. Chinese rates have certainly not been immune to the shenanigans occuring in Europe currently.

Meanwhile the USD continues to plummet against the CNY


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## wildkactus (2 July 2010)

sinner said:


> Well. According to the Chinese Commerce Minister in May of this year, the average profit margin for Chinas export oriented companies is roughly 1.8%.
> http://english.peopledaily.com.cn/90001/90778/90861/6936424.html




what is not mentioned in this article is the rebates they give to exporters, the factories I deal with get anywhere up to 12% back on each export order.
the only problem is the time it takes for them to get it back, the gov is rather slow at paying these rebates.

also these companies are making rather good profit on their internal sales.
but things have definatly slowed for most manufactors since 2008, that you can see.

Happy trading


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## sinner (5 July 2010)

wildkactus said:


> what is not mentioned in this article is the rebates they give to exporters, the factories I deal with get anywhere up to 12% back on each export order.




It might not be mentioned in that specified article but Government intervention into many many Chinese industrial/materials markets to keep employment up is well known fact.

Another fact is that China is not the rosy 11%-per-year-growth-forever story that everyone seems to be banking on. This is a fact the Chinese government has been much more willing to acknowledge than its Western counterparts! 
http://www.dailyfinance.com/story/china-finally-admits-its-economy-is-facing-challenges/19541419/


> The Chinese government has finally admitted that the country is facing an economic slowdown. In comments posted at the Central Government website, Premier Wen Jiabao said he was concerned about the short-term prospects for China's growth. The premier warned that China's economy is facing mounting difficulties as a result of the international financial crisis and the unpredictable nature of the global economic recovery.
> 
> ...
> On Friday, Goldman Sachs cut its forecast for China's GDP growth this year to 10.1% from 11.4% citing government restrictions on lending and real estate.
> ...




Government restrictions on lending and real-estate? Can you even imagine Kevin Rudd or John Howard (who both had their hands in FHOG) or the likes of Obama with his fingers in ACORN and similar projects putting restrictions on lending and real-estate! Hah, surely a joke, they are too busy doing the opposite with programs like FHOG and ACORN!


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## wildkactus (5 July 2010)

sinner said:


> Another fact is that China is not the rosy 11%-per-year-growth-forever story that everyone seems to be banking on. This is a fact the Chinese government has been much more willing to acknowledge than its Western counterparts!




yeap your right there, more like 1.1%

was at a steel milling in ChongQing a few weeks back and their stock pile of steel was amazing, it was about 8 months worth of sales, apparently this is common, just keep producing, we'll sell it some time.
Aluminiun is going the same way as well I'm told.

Happy Trading


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## CanOz (5 July 2010)

sinner said:


> Are CB rate rises supposed to be some sort of measure of confidence? Like the ECB rate rise into the all time Euro high at 1.6 during 2008? Or the 6 consecutive panic rate cuts from the RBA after they did the same?
> 
> Hang on a sec, let me check the Taiwan Central Bank track record:
> "March 27 (Bloomberg) -- Taiwan's central bank raised its benchmark interest rate for the 15th straight quarter to cool inflation and signaled that more increases are likely."
> ...




June Taiwan CPI rises.



CanOz


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## sinner (6 July 2010)

CanOz said:


> June Taiwan CPI rises.
> 
> 
> 
> CanOz




CPI up PMI down, weakest PMI in one year. Another economy toying with the <50 level on PMI:
http://online.wsj.com/article/BT-CO-20100630-716813.html

Here is a point from HSBC analyst in the above article:


> "Following surging output over the first five months of the year, the growth of Taiwan's economy is starting to cool. This, however, does not necessarily signal a hard landing. New exports orders are still growing at a decent pace and job growth was broadly unchanged since May," HSBC senior Asian economist Frederic Neumann said in a statement. "Meanwhile, price pressures are easing again, if from an elevated pace, suggesting that recent rate hikes are aimed more at bubbly property prices rather than inflation risks."




WTOs second ever trade policy review on Taiwan still leaves some room to be desired:
http://focustaiwan.tw/ShowNews/WebNews_Detail.aspx?Type=aECO&ID=201007050039

According to that article Taiwan economy is 72% of GDP as exports. 

Good luck with that. Taiwan Business Forecast Q3 2010:
http://www.companiesandmarkets.com/...n-business-forecast-report-q3-2010-317011.asp


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## sinner (6 July 2010)

wildkactus said:


> yeap your right there, more like 1.1%
> 
> was at a steel milling in ChongQing a few weeks back and their stock pile of steel was amazing, it was about 8 months worth of sales, apparently this is common, just keep producing, we'll sell it some time.
> Aluminiun is going the same way as well I'm told.
> ...




Good to have some first hand info, thanks kactus! Stockpiles and overcapacity are huge right now in China. Not just in steel but in *everything*. Overcapacity usually leads to buying strikes:
http://www.theaustralian.com.au/bus...n-bearish-signal/story-e6frg90x-1225873940964


> China imported record levels of copper in 2009. In April, the International Copper Study Group cited “the potential release” of inventories in China as one of the biggest risks copper prices face this year. That month, China's refined copper imports declined 2.7 per cent from a year earlier, according to the country's General Administration of Customs. “They had imported much more than they could use last year, so they may be” tapping inventories this year, said Ana Rebelo, chief statistician of the group.
> 
> After a field trip to China in mid-May, analysts at Macquarie Securities said some end-users of steel, such as auto makers and home-appliance producers, are “choosing to eat into their own inventory, rather than continue to purchase” on the open market.
> 
> It is a typical “buyers’ strike” when prices are falling, the analysts wrote. “Why buy steel today when it'll be cheaper tomorrow?”


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## sinner (7 July 2010)

Well, due to other commitments yesterday I pretty much missed all the action around yesterdays RBA rate decision. But when I hit the wires this morning there was a lot of blather about the commentary being China bullish. So I typed "China RBA" into google news and it came up with this article:

http://blogs.wsj.com/marketbeat/2010/07/06/exactly-what-did-the-rba-say-about-china/


> Despite being cited as a source of Tuesday’s bullish sentiment, the Reserve Bank of Australia’s comments on China don’t look out-and-out bullish to us. The official statement Australia’s central bank offered alongside its widely expected decision to leave its key benchmark rate unchanged offered only one direct statement on China:
> 
> “The expansion remains uneven, with the major advanced countries recording only modest growth overall, but growth in Asia and Latin America, to date, very strong. There are indications that growth in China is now starting to moderate to a more sustainable rate.”
> 
> To us, that doesn’t sound like fist-on-the-table insistence that China’s growth is holding up. Rather, it sounds like an acknowledgement that the People’s Republic is seeing growth cool. But what do we know? The markets seem to be trading on expectations that China’s growth will keep chugging, fueling its seemingly bottomless appetite for commodities.




Fair enough, Mark Phillips of WSJ blogosphere...there doesn't seem to be any particularly bullish reference to China anywhere.

I also spotted this interview of Ken Rogoff on Bloomberg TV which was posted onto Zerohedge:
http://www.zerohedge.com/article/ken-rogoff-china-property-market-collapse-starting


> Tomorrow morning Bloomberg TV conducted an interview with Ken Rogoff in Hong Kong (the same way you land in New York before you take off in London via the now defunct Concorde) in which the Harvard professor recently made famous for his words of caution that overlevering sovereigns always eventually leads to economic slow down, financial collapse, and ultimately bankruptcy, warned, when discussing China real estate, that "you’re starting to see that collapse in property and it’s going to hit the banking system." With this coming days ahead of the massive Agri Bank of China IPO, it is interesting just how much influence the person who has been warning all along that the world is headed on an unsustainable path will finally have, now that the permabullish cackle of the MSM punditry has finally been discredited as futures are about to reenter triple digit reality. Oh yes, and score one for Jim Chanos, and all those who have long been warning about the inevitable Chinese bubble pop. Additionally, in discussing the suddenly prevalent topic of perpetual stimulus, and particularly envisioning Paul Krugman's thesis that the world will end unless another couple of trillion are thrown into the fire of irresponsible deficit spending, Rogoff says "I couldn't disagree more... Just to keep drinking bottles of aspirin because you are worried you are going to get a headache, or it is going to turn into a migraine, it's too much prophylaxis."




Meanwhile, the USD continues to eat **** against the CNY and JPY. I remain bearish on the CNY and JPY.


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## wildkactus (7 July 2010)

not a problem, sinner
will be back up there soon will see if anything has changed

keep up the good reporting

Happy trading


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## Timmy (10 July 2010)

The US Treasury has declined to label China as a currency manipulator in their report:
*US Declines to Say China Is Manipulating Currency*
http://www.cnbc.com/id/38155665/
(I can't believe I am quoting CNBC ... but I am sure there will be a credible source out there too )

There is a longer article, too:
*Yuan Rises as US Says China Doesn't Manipulate*
http://www.cnbc.com/id/38162479
(sheesh, CNBC again...and from the website, at least if I was watching it on TV I would get the pretty presenters).

So, I wonder if this means Congress will be less likely to label China a currency manipulator, how does this work?


This is a link to the Treasury report.  Saves some money on sleeping pills, this does.
http://www.treasury.gov/offices/int...tes/pdf/Foreign Exchange Report July 2010.pdf


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## explod (10 July 2010)

Timmy said:


> The US Treasury has declined to label China as a currency manipulator in their report:
> 
> (I can't believe I am quoting CNBC ... but I am sure there will be a credible source out there too )
> 
> So, I wonder if this means Congress will be less likely to label China a currency manipulator, how does this work?




The US is dependant on China to support thier treasury bills.  The Federal Reserve have been guarded for some time in the rhetoric towards China for some time now.   The US Congress and Senate have not, and in looking for someone on which to lay blame for thier curreent economic situation it has been easy to try and blame China.

This is a very dangerous game for the US right now so *softly softly * is now getting through to even the knuckle heads.  Of course China too is between a rock and a hard place as they cannot afford to offload treasuries too fast or the value will collapse even faster than they have been.  It is also a reason why they are accumulating gold whilst at the same time averring publicly that they are not.   As a cross reference it is worth following a link on this aspect posted up on the Gold thread this morning

My souces are general from reading the "Privateer",  "The daily pfennig", and other similar rags.


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## Timmy (10 July 2010)

explod said:


> so *softly softly * is now getting through to even the knuckle heads.




Yes, diplomacy seems to be winning out ... seems to be encouraging the authorities to allow the exchange rate to move in a direction helpful to the bilateral (US-China) government relationship.  

Explod, did you see the report during the week where the Chinese explicitly stated they are not going to dump their UST holdings?  Bit of a "well d'uh" statement (I thought), but interesting nevertheless that they made it.


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## wildkactus (12 July 2010)

this may interest some of you,

its a credit ratings agency from china, they just released they own soverign dedt ratings, no surprise but china beat the US.

Dagong Credit Rating Agency

Happy Trading


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## Timmy (13 July 2010)

Any thoughts on the huge jump in Chinese exports announced over the weekend sinner (or anyone)?

*jumped 43.9 percent in June to $137.4 billion and the trade surplus more than doubled to $20 billion, the highest in eight months*
http://www.businessweek.com/news/2010-07-11/china-s-exports-boost-sentiment-deutsche-bank-says.html


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## sinner (20 July 2010)

Timmy said:


> Any thoughts on the huge jump in Chinese exports announced over the weekend sinner (or anyone)?
> 
> *jumped 43.9 percent in June to $137.4 billion and the trade surplus more than doubled to $20 billion, the highest in eight months*
> http://www.businessweek.com/news/2010-07-11/china-s-exports-boost-sentiment-deutsche-bank-says.html




Hi Timmy,

Sorry I did not get back to you on this sooner. I have been monitoring Chinese macro stories closely, and in the end I got a little overwhelmed by the amount of information to post any sort of useful redux or analysis on the issue! Will try and compile all the links and articles into something meaningful at some point this week.

However, Michael Pettis, who is no joke when it comes to discussing the Chinese macro picture, has plenty of very very interesting things to say.

http://mpettis.com/2010/07/the-capital-tsunami-is-a-bigger-threat-than-the-nuclear-option/

Probably one of the most insightful articles I've read in a while. Definitely contrarian against both the current bull and bear arguments!


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## Timmy (21 July 2010)

Sinner - thanks for the link to that article.  I am actually a big fan of that blog so had read the article.

Now completely off the China/yuan topic - today's entry on that blog:
*Do sovereign debt ratios matter?*
is an absolute cracker!  
Almost worth printing out and framing (you can tell I am a really boring person LOL).

http://mpettis.com/2010/07/do-sovereign-debt-ratios-matter/


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## sinner (21 July 2010)

When I say it, you could probably dismiss me as a kook. But now a member of the Monetary Policy Committee saying the same thing: Chinese exports cannot stand a strong Yuan, and the PBoC doesn't even *want* a strong Yuan. They will drop the Yuan like a rock to save their exporters if they have to.

http://www.asahi.com/english/TKY201007200499.html


> *China to let renminbi fall if exports drop*BEIJING--If China's export juggernaut falters, the country's central bank will allow its renminbi currency to fall against the U.S. dollar, thereby making Chinese goods cheaper overseas, a key monetary adviser here said.
> 
> Zhou Qiren, a member of the Monetary Policy Committee, an advisory body to the People's Bank of China, also told The Asahi Shimbun in an interview that Beijing's announcement June 19 that it would allow the renminbi to fluctuate more flexibly against the greenback starting June 21 should have been made much earlier.
> 
> ...




Click link for more.


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## Timmy (21 July 2010)

sinner said:


> When I say it, you could probably dismiss me as a kook.




If someone thinks the Yuan is going to depreciate (agst. the USD), I can see the arguments.

So, I don't think that view is kooky.  

Now, no offense, but I only dismiss you as a kook when you insist the Yuan is going to *halve *in value within 12 months (11 months to go now).  Anyway, we will see.  

We made that bet about a month ago, probably time to check its progress, though there is a long time to go.


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## sinner (21 July 2010)

Timmy said:


> We made that bet about a month ago, probably time to check its progress, though there is a long time to go.




Have already posted one update, here is the next as you request


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## Timmy (21 July 2010)

sinner said:


> Have already posted one update, here is the next as you request




Tks sinner.
Started at 6.8275 (for reference, save us looking it up each time), now at 6.7775.

Thats a long way from 13.6 odd, sinner (just winding you up .


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## sinner (2 August 2010)

I have been keeping close tabs on the China story over the last couple of months. However, recently been unable to share my thoughts with those at ASF due to priorities (personal health, income, savings & investment always take priority in hard times). Nonetheless, I thought todays CNY news would be a good addition since we looked a this number as it approached the 50 level.

Remember, as noted last time the number was released: 50 is the +/- level for this index, i.e. above 50 the manufacturing in China is growing below 50 the manufacturing in China is contracting.

Snippet from http://www.bloomberg.com/news/2010-...-economy-enters-slowdown-not-a-meltdown-.html


> China’s manufacturing contracted for the first time in 16 months in July, a survey of purchasing executives showed.
> 
> A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics fell to 49.4 from 50.4 in June. Societe Generale SA cautioned last week that seasonal distortions raised the risk that July PMI readings could fall below 50.
> ...
> ...




And some word on the CNY from PBoC on the wires today:
http://www.bloomberg.com/news/2010-...ing-band-appropriate-century-weekly-says.html


> China’s current daily yuan-dollar trading band is “appropriate,” Hu Xiaolian, a deputy governor at the People’s Bank of China, said in an interview with Century Weekly magazine.
> 
> The trading band may be widened in the future, the magazine cited Hu as saying. There is not timetable for exchange rate reform, Hu was cited as saying.




The most recent leg down in the USDX coincided very well with the USD dropping against CNY. If the DX rallies from low 80s levels (closed 81ish last week) will the USDCNY follow?


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## Timmy (23 June 2011)

sinner said:


> ...By widening the trading band they are essentially providing room for the CNY to move a maximum of 2.5% in a straight line every week or a roughly 130% straight line every year.
> ... Good luck to them. Mish has always said the Chinese let their currency float it will go *down* not *up*. My father is a macroeconomics professor and the last paper he wrote on the issue was that the CNY is undervalued. I am probably siding with Mish on this one. Who wants to bet we come back in a year to find the USDCNY ~100% up from Mondays price?






Timmy said:


> Sinner, you seriously expecting the USD to appreciate by 100% against the CNY within the next year?
> 
> A 100% appreciation of the USD against the CNY would put the rate at 13.655 Yuan to the USD.






sinner said:


> Why not?
> 
> ...




Sinner, blowing the dust off this thread to wrap up the bet.

USD/CNY is now at about 6.4635 (give or take).
Agreed starting price was 6.8275 as per:


Timmy said:


> Monday's fix was at 6.8275 (from the link provided by satanoperca, above)
> http://www.theaustralian.com.au/bus...urprises-markets/story-e6frg90x-1225882329000




Which equates to a CNY *appreciation *against the USD of about 5.33%, rather than a halving (depreciation) of the value of the CNY (to 13.655) that you and Mish were looking for.  

Big difference.

Couple of charts of the CNY appreciation over the past 12 months (CNY appreciation is a fall in the USD/CNY quote for those unfamiliar with how the CNY is quoted in the market):


This chart at: http://www.forexpros.com/currencies/usd-cny-advanced-chart



This chart at: http://www.bloomberg.com/apps/quote?ticker=USDCNY:IND&n=y


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