Topic: 1997 All Over Again?

[Mirkkanen]

http://www.zerohedge.com/node/512045

Is China going to be the cause of another Asian currency meltdown?

[KeepOnTrying!]

http://www.zerohedge.com/node/512045

Is China going to be the cause of another Asian currency meltdown?

An economy as large as China's indeed has the potential of positively or negatively affecting not just local and contiguous economies but the rest of the world's economy. We have already seen that happen in relation to the recent devaluation of the Yuan; the USA stock market took an initial dive before recovering somewhat.

Part of the reaction to events such as what is happening in China will be compensatory as an attempt to blunt the effect on other economies and currencies. Some may be simply opportunistic plays by some countries; you don't really have any friends out there! But a substantial part of responses you see are real, such as observed in neighboring Asian countries.

Everyone wants to do business with China; you either want to sell things in China or sell Chinese made goods in your country. In other scenarios China buys into your local economy by way of bonds and similar indebtedness financial instruments or funds major projects including local manufacturing and energy production facilities. So when the mother goose sneezes the golden eggs rattle!

I hear that people who man high offices in China are usually those who have distinguished themselves in prior lower and regional positions in the past. So the competence of the political and bureaucratic wings of the government may not necessarily be in question. But the recent devaluation of the Yuan has been characterized by some as a panic move to shore up exports despite the fact that the Chinese economy should be evolving into a consumer based system rather than the prior export oriented system.

They say that Bernanke had studied the US Great Depression in school and that was why he had responded to the American economic slowdown the way he did, to avoid repeating the mistakes of the past. It seemed to succeed, at least in comparison to Europe. I am hoping that the Asian economies also studied the 1997 contagion and put in place defense mechanisms to compensate and ride out similar storms in future. The question is did they do their homework well? Even if they did can they realistically avoid being buffeted by the typhoon-like fiscal blast originating from a China sneeze?!

Only time will tell.

[KeepOnTrying!]

The Dow Jones Industrial Average down by 530 points today. Couldn't shake off the (China) cold today?

[Mirkkanen]

Here are some brief comments from Citibank:

"Is this Asian Currency Crisis Part 2? It sure feels like it. It would be more accurate to call it the Great EM Deval-Meltdown as emerging market currencies are in freefall and another peg bites the dust overnight (Kazakhstan). There are few pegs left besides Saudi Arabia and EURCZK and both are under pressure. The 1-year SAR forwards are at 12-year wides and EURCZK is pinned to the 27.00 floor. Take a look at the white chart below right which shows Malaysian Ringgit and you can get a sense of the 1997/1998 crisis vs. now. The moves are not as big yet and volatility has not exploded in the same way but it feels like we are in an EM crisis right now. Gold agrees. RIP BRICs thesis."

[pandamonium]

Another interesting opinion "China chooses her weapons" by Alasdair Mcleod on goldseek or silver seek......

[KeepOnTrying!]

This is the "slow motion phase" "deer in the headlights phase" where people apparently stay frozen as the market continues its downward slide. But this may indeed be a time for inaction depending on your investment strategy. If you have stock market investments that are in balance you probably ride out the storm. Normally, any money in the stock market is money that is not needed for at least 5 years. Money that needed taken out would have been done at the run up of the market prior to the China sneeze.

*Note: This is not investment advice. Please consult a professional before buying or selling in the stock market.

[KeepOnTrying!]

How reliable is the recent uptick in bullion prices? Is it expected? Is it sustainable? Will it revert to it's prior downward trend? With the current market uncertainty it is predictable that some may run for cover in bullion initially.

[poconopenn]

The effects of a stable Chinese economy on the globe economy in 2015 is quite different from 1997. In 1997, Japan was the dominate factor in Asia and world economy and China had a GDP about 65% of Japan. Today, China has passed Japan to become the second largest GDP next to US, while Japanese Yen has devalued about 40% during last 20 years. To stabilize Chinese economy by devaluation of Yuan about 4.6% vs. dollar is not a bad move. FED has not made any complaint and IMF actually said the devaluation of Yuan by expand the trading band would help the Yuan to become a reserve currency in the world. In other words, a stable Chinese economy will help the world economy. The recent appreciation of Canada and Australia currencies suggests that these two countries (raw material producer) will be the major beneficial of a stable Chinese economy in the near future.

In mid-1990, I made many business trips to China. At that time, Chinese were waiting outside the hotel for foreigner. They were asking to buy US dollar at about 10-15% higher than the official rate. There were not enough foreign exchange in the bank for Chinese businessman. Nowadays, you can exchange RMB at ATM located at any corner of the street and Chinese government has more foreign exchange than any country. China has transferred to high tech industries and most low tech industries have move to the nearby countries due to the lower cost in operations. Nowadays, China’s competitors are Japan and South Korea. Both countries have devalued their currency significantly during last 12 months. The Asian and EU currency meltdown has been going on for sometimes already and definitely not caused by recent devaluation of Yuan. A stable Chinese economy, expanded at rate of 6.5-7%, will be good to the world economy, especially to the developing countries in the Asia, since China is the key market needed by those countries.   

[KeepOnTrying!]

I suspect that there will be complimentary fiscal moves by all major economic powers to prevent any major global blowout this time. Such cooperation has existed for sometime now (I hope).

[davidt3251]

The recent appreciation of Canada and Australia currencies suggests that these two countries (raw material producer) will be the major beneficial of a stable Chinese economy in the near future.

China is far from stable.

If the Chinese economy is stable why are 1500 companies halted for trading on the stock exchange? That doesn't happen in countries like the US, Canada, UK, Germany, Australia, Japan. Thats not stable.

As for your foreign exchange argument, oanda.com shows a clear depreciation (not appreciation) of the CAD to the RMB the past 25 months, from $1 CAD buying 5.98 on July 25, 2013 to $1 CAD buying only $4.87 RMB today, approximately a 20% devaluation of the CAD vs the RMB.

The Chinese economy has proven itself to be a giant ponzi scheme. The rapid flow of funds out of China after their stock market crash literally forced the central bank's hand. At least by depreciating the yuan they can make the foreign currency the outflow receives worth less.

China isn't buying more commodities, in general, right now. There was a huge surge before the Beijing Olympics for infrastructure which is now over, and consequently the Chinese buy less. My friend is the Chairman of an Australian company which had a deal with a Chinese state owned enterprise (SOE) to develop a Bauxite resource in Western Australia. The SOE committed to spending $2.5bn on the mine.

Now they are dead broke and want out. First they begged to be let off the hook for free (Chinese generally don't think they need to honor contracts). They created a rumor that there could be a breakup fee of $15m. The Auzzies plan to sue.

Chinese SOEs are the equivalent of the Chinese government. $2.5m to dead broke isn't stable.

The Chinese better be careful what they wish for if they want to be the reserve currency. Look at the mess that created for the US.

As for the world, we have become too reliant on this Chinese house of cards and its collapse is accelerating.

Your analysis doesnt hold water.

[pandamonium]

Isn't the US economy a house of cards too?   CNBC was on TV today, Sunday, for 2 hours.  Have not seen that since the 2009 crisis.   US big name stocks are down 20% to 30% plus.   The world is a mess, probably the worst i have seen in my lifetime.   For me the bottom line, long term view is this:  The USD cannot survive the upcoming derivative crisis or our corrupt, sold out government.   China owns the gold, plus a few other countries.   No matter what problems any country has, he who owns the gold makes the rules.   I cast my vote w/ Jim Rogers.......

[poconopenn]

As for your foreign exchange argument, oanda.com shows a clear depreciation (not appreciation) of the CAD to the RMB the past 25 months, from $1 CAD buying 5.98 on July 25, 2013 to $1 CAD buying only $4.87 RMB today, approximately a 20% devaluation of the CAD vs the RMB.

I was talking about the currency rate change after China devaluation since August 11. RMB has appreciated too much during last few years against all major currencies. The strong RMB makes it impossible for China to compete with Japan and Korea in the last two years in the world market. The devaluation of RMB will improve Chinese export business and stabilize the Chinese economy in the next few quarters, and buy time to make further changes in its economic and financial systems.
  

[KeepOnTrying!]

Hang Seng index down by 8%. Global stocks getting clobbered. US stock market set to open low. Although there may be panic all around that will be the worst thing to do. Hoping everyone has already taken care of things. We have been through this before. Good luck to all!

[davidt3251]

I was talking about the currency rate change after China devaluation since August 11. RMB has appreciated too much during last few years against all major currencies. The strong RMB makes it impossible for China to compete with Japan and Korea in the last two years in the world market. The devaluation of RMB will improve Chinese export business and stabilize the Chinese economy in the next few quarters, and buy time to make further changes in its economic and financial systems.
  

The Chinese stock market was down 9% yesterday. If you think thats stable then we really don't agree on basic terms and I'm discontinuing this conversation.

By the way, based on your stable economy my trading account made another 1000% this morning being short China and the US using Puts.

If your definition of stability means more of this then bring it on!

In truth, I already went long the Dow at 15200 this morning.

You can't analyze these markets. Using the word stable, stability and stabilize to describe the Chinese market is completely unrealistic.

Please, just stick to MCC.

[Birdman]

The Chinese stock market was down 9% yesterday. If you think thats stable then we really don't agree on basic terms and I'm discontinuing this conversation.

By the way, based on your stable economy my trading account made another 1000% this morning being short China and the US using Puts.

If your definition of stability means more of this then bring it on!

In truth, I already went long the Dow at 15200 this morning.

You can't analyze these markets. Using the word stable, stability and stabilize to describe the Chinese market is completely unrealistic.

Please, just stick to MCC.

I know you think I am soft, David, but let's again please try keep the tone of the discussions positive and constructive.  Discouraging others from sharing their opinions and logic, or bragging about selective single trades doesn't seem productive, at least to this single moderator.  The permanent record of this forum will quietly stand for those in the future to evaluate who had the best investment strategies.

I'm the guy who paid $25,000 for a set of Pagodas. Remember? Yep, by design it flushed all the product into the market and resulted in great research here by you and others (thanks SANDAC and those others) that would have cost me a fortune had I had to pay for it. Instead I then swept up multiple more sets as low as $6,000 and have a dream position in one of the ultra low mintages of very early MCC