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Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

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Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#111

Post by neximo4 »

fspeech wrote: post #104
neximo4 wrote: post #97

Earlier quoted context omitted.

> No matter how much capital the hedge funds can muster it will be puny compared to PBoC resources This is incorrect. Hedge funds borrow and create temporary money by writing derivative contracts such as options, futures & swaps. It is by this logic they can actually muster more funds than the PBOC in aggregate. Quite simply the market for currencies is bigger than the PBOC and the hedge funds, but there are more hed…

There is relative little rmb outside the country. Not everyone can just go inside China and borrow yuan and buy USD. If you are talking about non deliverables, who will be your counter party if everyone wants to go short?

> There is relative little rmb outside the country.

There doesn't need to be any, so long as the counter currency exists (the USD, EUR, JPY, etc) there can be a control against the onshore yuan, whether it trades or not.

There is always a counter party, It can be created using swaps to other currencies and to other companies actual cash flows.

I wouldn't want to argue against this topic excessively because its a fairly clear cut case of 'this time its different' with China, primarily through marketing.

I'd point out that on previous occasions in history, the gold & silver pegs, various cross currency pegs. It has always been the case the price setter has assumed they were bigger than the market and it has always turned out the opposite. It is also because the market can stand the test of time. This combined with today's use of leverage & derivatives is an even more dangerous combination.

Markets always assume the correct rate, because if not there is something that can be profited from.

None of what I say precipitates bias, I'm not against China's rise. I even believe the GDP numbers out of China, as I mention in another comment on this page. This is just the basis of how markets work. The predicate of your assumption is the PBOC is bigger than the market for Yuan trade and this is incorrect. In something as liquid as a currency a counter party will always be available.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#112

Post by ktRolster »

Lazare wrote: post #25
jeffwass wrote: post #5

Earlier quoted context omitted.

China's already warned Soros just a few days ago not to short the renminbi. http://www.ft.com/cms/s/0/ebabbebe-c40d-11e5-993a-d18bf68267... Edit - didn't see that the original WSJ article includes quotes by Soros mentioning his short, and also mentioned China's general warnings against shorts. Though the FT article I linked focuses specifically on Soros, and talks a bit about his history too.

> China's already warned Soros just a few days ago not to short the renminbi. Perhaps it makes more sense to Chinese eyes, but that looks very odd to me. If Soros tries and fails, he'll lose a lot of money, but that would seem to be no concern of the Chinese government. So if the Chinese authorities had no worries about the outcome it seems like they'd have no reason to try and warn him off; since they are trying to…

Soros famously broke the bank of England: http://www.investopedia.com/ask/answers/08/george-soros-bank...

His name alone is enough to scare Chinese bankers who are worried they can't support their currency.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#113

Post by maxthegeek1 »

mahranch wrote: post #3

China's economic growth simply isn't sustainable, and that's even if it was true growth. There isn't a top economist alive who believes China's self-reported GDP numbers aren't fudged in one way or another (source: http://www.businessinsider.com/economist-reactions-to-chinas... ). Either one of those situations (an economic slowdown, China fudging the numbers, or the more likely situation: a combination of both) make…

Any nation with a large rural population with access to easy credit has the potential for massive growth.

The majority of China's population still consists of subsistence farmers. China should be able to maintain rapid growth until those farmers are integrated into a modern industrialized economy at which point the returns on investment will start to diminish like it has for every other industrialized nation.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#114

Post by fspeech »

neximo4 wrote: post #111
fspeech wrote: post #104

Earlier quoted context omitted.

There is relative little rmb outside the country. Not everyone can just go inside China and borrow yuan and buy USD. If you are talking about non deliverables, who will be your counter party if everyone wants to go short?

> There is relative little rmb outside the country. There doesn't need to be any, so long as the counter currency exists (the USD, EUR, JPY, etc) there can be a control against the onshore yuan, whether it trades or not. There is always a counter party, It can be created using swaps to other currencies and to other companies actual cash flows. I wouldn't want to argue against this topic excessively because its a fair…

If market is forced to trade at an artificial price often the result is illiquidity. Swap or not eventually someone has to be on the long side.

I didn't say PBoC is bigger than the market. I said it is bigger than the offshore market. I don't see how that is controversial. It can shut down the offshore market if it wants to.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#115

Post by neximo4 »

fspeech wrote: post #114
neximo4 wrote: post #111

Earlier quoted context omitted.

> There is relative little rmb outside the country. There doesn't need to be any, so long as the counter currency exists (the USD, EUR, JPY, etc) there can be a control against the onshore yuan, whether it trades or not. There is always a counter party, It can be created using swaps to other currencies and to other companies actual cash flows. I wouldn't want to argue against this topic excessively because its a fair…

If market is forced to trade at an artificial price often the result is illiquidity. Swap or not eventually someone has to be on the long side. I didn't say PBoC is bigger than the market. I said it is bigger than the offshore market. I don't see how that is controversial. It can shut down the offshore market if it wants to.

> If market is forced to trade at an artificial price often the result is illiquidity

There is, Offshore-Onshore spread & HKD interbank rate.

> It can shut down the offshore market if it wants to.

Not forever, markets can do what they are without any limit. The PBOC loses money or hurts China's economy doing this and it cannot be sustained.

> Swap or not eventually someone has to be on the long side.

There is always a counter party as someone will need to buy something in China. Not every flow is speculative. It is a very large exporter economy, if not the largest.

A swap allows finding a counter party in a currency that is not the Yuan at the cost of the interest rate differential.

Finding a counter party is actually very easy, especially with exchange rate swaps. It does not require a Yuan counter party with physical RMB.

Instruments such as swaps, options and futures were actually created to provide liquidity in cases when it is withheld such as what is being done. This is what makes today even less different than previous times when it comes to exchange rate pegs.

If not a swap, its an option. An option can have a counter party as someone will always be willing to underwrite an option as it pays off a premium that has _no bias_ to the expected price direction of the underlying instrument.

Hedge funds know this because they have it all at their disposal. It is simply the cost of time that has to be paid (in terms of options premiums or the swap rates), if they are correct.

The PBOC realises this and this is why their options are limited to making the trade expensive as opposed to being able to control it. This is why they jacked up the HKD interbank rate and increased reserve requirements on the RMB. Again, it ought to be mentioned this hurts all HK and China businesses and is unsustainable in the longer run.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#116

Post by randomname2 »

Kyle Bass went all-in, because 'this is much larger than the subprime crisis':

"Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar.

It is the biggest concentrated wager that the Dallas-based firm has made since its profitable bet years ago against the U.S. housing market. About 85% of Hayman Capital’s portfolio is now invested in trades that are expected to pay off if the yuan and Hong Kong dollar depreciate over the next three years—a bet with billions of dollars on the line, including borrowed money."

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#117

Post by simonh »

dingo_bat wrote: post #103
simonh wrote: post #98

Earlier quoted context omitted.

Reserves which fell by half a billion dollars last year, and still falling. This is why the funds are betting against the Yuan. How far is China willing to see it's reserves fall before it blinks? http://www.wsj.com/articles/chinas-foreign-exchange-reserves...

Did you mean half a Trillion and not Billion? Because it seems to me that China has $1.5 trillion+ reserves, and half a billion drop would not be cause for surprise.

Oops yes Trillion, not Billion thanks. Too late to edit.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#118

Post by neximo4 »

fspeech wrote: post #110
neximo4 wrote: post #97

Earlier quoted context omitted.

> No matter how much capital the hedge funds can muster it will be puny compared to PBoC resources This is incorrect. Hedge funds borrow and create temporary money by writing derivative contracts such as options, futures & swaps. It is by this logic they can actually muster more funds than the PBOC in aggregate. Quite simply the market for currencies is bigger than the PBOC and the hedge funds, but there are more hed…

http://www.barclayhedge.com/research/indices/ghs/mum/HF_Mone... Not all of them do macro bets, nor would they concentrate their position 100% against rmb.

No they wouldn't, no one would put their eggs in one basket in terms of risk.

Nonetheless the size of markets in control of hedge funds is still larger than what the PBOC has access to.

It may be better to substitute 'hedge funds' with anyone out there wanting to make profit through a price anomaly. This amount of people and their money is larger than the PBOC's resources.

Also it doesn't always take a sell to lower a price, or a buy to increase a price. It just takes a price that has the largest amount of trades as it does on Monday morning auctions with every currency.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#119

Post by johngalt »

obrero wrote: post #55
PakG1 wrote: post #19

What I'm about to say is unfortunate but true. China has a big us against the world mentality. Economic "attacks" are often seen as attacks by nation states, not by individuals, and as such, directly reflect foreign policy attitudes. Language like this only adds fuel to the fire. Given the different worldview about how the world works, motivations will always be suspect. Official party mouthpieces will never view suc…

> China has a big us against the world mentality In 2001, George Bush ordered the Air Force to fly along the Chinese border, to purposefully set off China's attack systems. Then, one of the fighter jets rammed into a Chinese pilot, crashing his plane and killing him. Then, the attacking US plane landed without authorization within Chinese territory. The Chinese sent a crew aboard the airplane and the US media and pol…

An EP3 is not a fighter. The collision was a prop plane vs a mig 21.

"Yes officer as you can clearly see: I was driving my ferrari. Trying to get away from the old man pushing a wheelbarrow, but he chased me down. Then he slammed right into me."

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#120

Post by dragandj »

dingo_bat wrote: post #103
simonh wrote: post #98

Earlier quoted context omitted.

Reserves which fell by half a billion dollars last year, and still falling. This is why the funds are betting against the Yuan. How far is China willing to see it's reserves fall before it blinks? http://www.wsj.com/articles/chinas-foreign-exchange-reserves...

Did you mean half a Trillion and not Billion? Because it seems to me that China has $1.5 trillion+ reserves, and half a billion drop would not be cause for surprise.

He probably means "european billion". In French and other European languages, milliard is a billion and bilion is a trillion.
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