* * *
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.
Ming Pao, the most influential Chinese newspaper in Hong Kong, reports that Shanghai residents are lining up at local banks to sell Yuan for Dollars over fears of even more Yuan devaluation.
* * *
As China’s leaders figure out that pegging the yuan to the dollar while quintupling their debt in five years was a colossal mistake, they are, apparently, concluding that the only way out is a sudden, sharp currency devaluation…
– 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.
– 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
– China “Loses Battle Over Yuan”, And Now The Global Currency War Begins (ZeroHedge, Aug 11, 2015):
Almost exactly seven months ago, on January 15, the Swiss National Bank shocked the world when it admitted defeat in a long-standing war to keep the Swiss Franc artificially weak, and after a desperate 3 year-long gamble, which included loading up the SNB’s balance sheet with enough EUR-denominated garbage to almost equal the Swiss GDP, it finally gave up and on one cold, shocking January morning the EURCHF imploded, crushing countless carry-trade surfers.
Fast forward to the morning of August 11 when in a virtually identical stunner, the PBOC itself admitted defeat in the currency battle, only unlike the SNB, the Chinese central bank had struggled to keep the Yuan propped up, at the cost of nearly $1 billion in daily foreign reserve outflows, which as this website noted first months ago, also included the dumping of a record amount of US government treasurys.
And with global trade crashing, Chinese exports tumbling, and China having nothing to show for its USD peg besides a propped and manipulated stock “market” which has become the laughing stock around the globe, at the cost of even more reserve outflows, it no longer made any sense for China to avoid the currency wars and so, first thing this morning China admitted that, as Market News summarized, the “PBOC lost Battle Over Yuan.”
That’s only part of the story though, because as MNI also adds, the real, global currency war is only just starting.
– Chinese Trade Crashes, And Why A Yuan Devaluation Is Now Just A Matter Of Time (ZeroHedge, Aug 8, 2015):
Overnight we got another acute reminder of just who is lying hunched over, comatose in the driver’s seat of global commerce: the country whose July exports just crashed by 8.3% Y/Y (and down 3.6% from the month before) far greater than the consensus estimate of only a 1.5% drop, and the biggest drop in four months following the modest June rebound by 2.8%: China.
– BRICS Bank, AIIB Pledge Partnership, Loans To Be Issued In Yuan (ZeroHedge, July 25, 2015):
Over the first half of the year, we’ve built on several narratives that we believe are critical when it comes to understanding how the intersection of geopolitics and economics is set to shape the world going forward.
One of these narratives revolves around the extent to which three China-led ventures are set to supplant traditionally dominant supranational lenders on the way to embedding the yuan in international trade and investment.
– The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi (ZeroHedge, June 9, 2015):
As Russia adjusts to Western sanctions stemming from the conflict in Ukraine, Gazprom is now settling all crude sales to China in renminbi. At the intersection of the petrodollar’s death and yuan hegemony is: the PetroYuan…
– De-Dollarization Du Jour: Russia’s Largest Bank Issues Yuan-Denominated Guarantees (ZeroHedge, June 7, 2015):
The unipolar, dollar-dominated post-war world is shifting under Washington’s feet.
Leading the push towards multipolarity and de-dollarization are a resurgent Russia and China, the rising superpower. The demise of the Bretton Woods world order is perhaps nowhere more apparent than in the launch of the BRICS bank and the establishment of the AIIB. These new structures represent a move away from US-dominated multilateral institutions and their very existence suggests that a failure to adapt to economic realities and an inability or unwillingness to meet the needs of the modern world may soon drive institutions like the IMF into irrelevancy.
– China requests IMF recommend renminbi as a reserve currency (Government Slaves, May 14, 2015)
– China To Establish Yuan-Denominated Gold Fix In Bid To Upend London Benchmark (ZeroHedge, May 6, 2015):
A long time ago, in a financial galaxy far, far away, a “fringe” blog raised the topic of gold market manipulation during the London AM fix. Several years later (which, incidentally, is about average in terms of the lag time between when something is actually going on and when the mainstream financial media finally figures it out and reports on it), it was revealed that in fact, shenanigans were likely afoot and indeed, regulators are still trying to sort out what happened.
Via WSJ earlier this year:
As Moscow and Seoul throw their support behind China’s Asian Infrastructure Investment Bank, the question is no longer about the end of dollar hegemony but rather about the extent to which the new venture will be used to institute a global shift towards the yuan.
– De-Dollarization Continues As Russia Seeks AIIB Membership (ZeroHedge, March 28, 2015):
As we noted a week ago, Vladimir Putin’s calls for a Eurasian currency union clearly demonstrate that the Russian President is acutely aware of the fact that the unipolar world of the 1980s is long gone. Putin’s security council also made it clear this week that the Kremlin is well aware that the sole aim of US foreign policy is preserving Western hegemony via an implicit (and sometimes explicit) policy of containment aimed at perpetuating the idea of US exceptionalism. Moscow then took the rhetoric up a notch on Thursday, accusing the US of attempting to take the “mutual” out of “mutually assured destruction” (i.e. Moscow thinks Washington is trying to tip the nuclear power balance).
Given all of this, we weren’t surprised to learn that Putin is now backing a Russian bid for membership in China’s Asian Infrastructure Investment Bank (for a summary of AIIB developments, see here).
Here’s more via RT:
Russia decided to apply to join the China-led Asian Infrastructure Investment Bank (AIIB), the country’s Deputy Prime Minister Igor Shuvalov said on Saturday.
“I would like to inform you about the decision to participate in the AIIB,” which was made by Russian President Vladimir Putin, Shuvalov said at the Boao Forum for Asia.
As I’ve said many times before:
“Only physyical gold and silver are real.
Everything else is an illusion.”
Paper investments in gold and silver will not be covered and there is a bloodbath coming.
The coming crisis will make 2008 look like a walk in the park.
– Madness Coming To Gold Market: “There Are Thirty to Fifty Owners For Each Ounce of Gold That’s Out There” (SHFTplan, March 25, 2015):
Though the price of gold has seen a significant drop over the last two years from it’s all time highs of about $1900 per ounce, many experts and analysts believe that western central banks and their colleagues at major financial institutions have been manipulating the price. The rampant manipulation is believed to stem, in part, from the formerly Rothschild owned London Gold Fix, an organization made up of five large banks that make a daily determination of what the price of gold should be.
It is this unilateral control by western banks that recently prompted the Chinese to create their own Shanghai Gold Exchange. What separates the two is that the Chinese will be using their currency, the Yuan, as the reserve rather than the U.S. Dollar. Moreover, unlike their European counterparts, the Chinese will be trading in actual physical dollars.
The Daily Coin explains: