Markets have given up nearly all of their gains today, as the excitement over the weekend’s PBOC announcement has been replaced with a dose of reality.
Why the mere announcement of a Yuan depeg would be cause for equity celebration is beyond my comprehension . . .
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Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Overall household indebtedness is up from $7 trillion to almost $10 trillion since 2000. On this sum, we estimate, the American consumer has an annual interest bill of more than $500 billion; a sum, by the way, that vastly exceeds his current income growth." —Kurt Richebacher
Knowing that the vote over the weekend in Greece was really a referendum on Euro membership, a majority of the Greek Parliament said yes to staying. European Finance Ministers meet again on Wednesday to solidify the 2nd bailout package for Greece at the same time hopefully a deal is consummated between Greece and its creditors this week. The Greek 14.5b euro bond that matures on March 20th is up by 2 pts. The optimism that all will be completed and contained AGAIN to Greece has yields lower in Portugal, Spain and Italy. The iTraxx Financial Index is also narrower by...
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June 21st, 2010 at 2:19 pm
“Why the mere announcement of a Yuan depeg would be cause for equity celebration is beyond my comprehension . . ”
Because the people on CNBC told them it would be cause for buying up equities. End of story.
June 21st, 2010 at 2:38 pm
That’s why we call it “noise.” All noise events have expiration dates. Or in this case, expiration hours….
June 21st, 2010 at 3:08 pm
I did a post on this the other day – the yuan de-peg is pretty clearly a short-term economic negative for the US…
http://efficientish.blogspot.com/2010/06/be-careful-what-you-wish-for.html
June 21st, 2010 at 3:45 pm
hello! how many times has china manipulated the press/news/politicians for their benefit? how many times have they followed through on their vague promises? this whole enchilada falls into the “duh” category. go back a to march and see what they were saying when there was the “threat” of a treasury yuan manipulation report. check their yearly trade balances and see that the late winter is always the “worst”. the media is even more comprised of ignorant nitwits than it used to be and it wasn’t known for knowledge/window then.
June 21st, 2010 at 3:47 pm
A couple of years ago, before the great recession, I believed that the internet would provide so much information that nobody could be fooled by fakeouts and fraud. This was proven to be an error on my part as fraud was rampant and people preferred ignorance and stupidity. As a result, most were ravaged for profit.
Today, this did not happen.
Are people finally smarter? I truly believe that not long ago, the markets would rise 10% on fake news that could be spun appropriately. Today, there was no spin to accompany the announcement. Is the internet and the free flow of information finally driving a demand for honest information? Is the half-life of spin approaching zero?
June 21st, 2010 at 3:54 pm
China, smart move. Make a token announcement ahead of the G20…see to be proactive. Business as usual.
June 21st, 2010 at 3:57 pm
During the entire rally of the past year, good news is good news, bad news is good news, and no news is good news.
It’s unpatriotic to interpret any news as anything other than good news for equities.
June 21st, 2010 at 4:10 pm
The monday market manipulation failed again. Well, well, well. It looks like GS might just have had another “strange” day when they actually lost money on their HFT thievery.
The best laid plans of mice and amoral bastards often come astray.
June 21st, 2010 at 4:10 pm
let me see if my incredible ciphering skills can break this down-
the yuan is allowed to appreciate -> everything we buy costs more
there we have it-
Big Blue got nothing on me
June 21st, 2010 at 4:15 pm
There was an interesting supreme court decision that kicked Wyeth in the nuts today. Are these corporate shills trying to look lest fascist? Did that spook some people into selling?
This isn’t a bear market. This is a GRIZZLY BEAR MARKET.
June 21st, 2010 at 4:24 pm
Just a psycho market. There is no way to tell which way the market will move by the end of the day anymore. You can pretty accurately gauge the open, but no way to know what happens after that.
How anyone can believe in “buy and hold” for more than 32 seconds is beyond me.
June 21st, 2010 at 4:24 pm
Maybe some people took a look at the Baltic dry index during the day.
http://www.bloomberg.com/apps/quote?ticker=bdiy%3Aind
June 21st, 2010 at 4:43 pm
“Why the mere announcement of a Yuan depeg would be cause for equity celebration is beyond my comprehension . . .”–BR, above
BR,
no kidding, saw CNBC’s WWE coverage of it,this AM..”equity celebration” is, indeed, apt..
seemingly, it’s, a lot, like: “Because the people on CNBC told them it would be cause for buying up equities. End of story.”–HW, above..
June 21st, 2010 at 5:35 pm
The idea that merely a proposed change in a currency peg might change anything real such that equities are immediately impacted is absurd, but that’s the world we live in. Honestly, most financial analysts would do just as well to go back to astrology and dream interpretation to try and get a grip on inexplicable and mysterious things they don’t understand, like foreign exchange rates and trade deficits.
The US may regret getting what it asked for. China has been a stalwart customer of the US treasury. It had to be in order to keep the peg from floating. Where will we sell our toilet paper now? And all the morons that think this means we’ll start selling stuff to China now instead of the other way around need to consult their astrologists first.
June 21st, 2010 at 5:58 pm
Money McBags had some thoughts on the yuan/renminbi/johnson rod unpegging today:
http://whengeniusprevailed.blogspot.com/2010/06/62110-midafternoon-report-china-drops.html
June 21st, 2010 at 6:11 pm
I agree with all the above,seems like everyone is on the same thread…I might just add that at this juncture in our “devolving” market’s, you need to be skeptical of everything. If I told you a year ago, we could possibly be following Japan’s deflationary spiral, you’d have thunk me mad. Today, you can almost feel the strain, the system has been degraded to the point of almost being useless. There is no more “investing”,Buy and Hold? There was never a reality to that stupid saying. Today is the worst possible time to be trying to save and invest if you are young. Our profligacy has damned the young to a standard of living,that up until today,always moved forward. The next generation will be the first in decades who see their standard of living go down. This is criminal and all the progressives should be shunned for their part in this sick experiment. The President should break from the radical’s in charge and stand up, while we have time. But that wont happen and the coming depression will finally clear the system so we can get through to the other side. 5 to 10 years if we are lucky,have a plan. No plan,is not a very good plan to have. God bless America and her brave men and women serving all over the world. Thank you.
Jerry
June 21st, 2010 at 6:18 pm
“And all the morons that think this means we’ll start selling stuff to China now instead of the other way around need to consult their astrologists first.”
Enough.
GM will sell more units in China this year than in America ( almost 2 mil).
http://www.product-reviews.net/2010/06/17/general-motors-gm-more-sales-in-china-than-u-s/
Apple’s COO (another moron who thinks we can sell stuff to China on Q1 2010:
Cook:
China has been interesting. If you look at greater China which we define as mainland China, Hong Kong and Taiwan, the iPhone units were up year-over-year over 9 times. We added another 800 points of distribution in China. The revenue, we have never released this number before but I will do this in this particular case, through the first half of the fiscal year that we just completed for the six month period our revenue from greater China was almost $1.3 billion and this is up over 200% year-over-year. So we are well pleased with how the company is positioned to take advantage of the growth in greater China.
Microsoft is calling for 20% growth in PC sales in China in 2011, after doing 15% in 2010.
http://www.marketwatch.com/story/microsoft-sees-china-pc-sales-growing-20-in-2011-2010-03-18
AMD calling for China to be largest chip market by 2013.
http://news.xinhuanet.com/english/2009-12/03/content_12580823.htm
Coke, GE, Avon, Caterpillar, McDonald’s, P & G, the list goes on.
All are growing sales wildly in China.
Color me moronic.
June 21st, 2010 at 6:33 pm
perhaps the key is not revaluation, but revaluation vs a BASKET of currencies such as euro, yen, and hk dollar, with euro weighting slightly higher than the usd weighting.
it is very possible that if euro indeed goes to parity with the usd, the rmb will be effectively devalued vs the usd! i’m curious what Geithner and Schumer will say then…
June 21st, 2010 at 6:40 pm
“…And all the morons that think this means we’ll start selling stuff to China now instead of the other way around need to consult their astrologists first…”
Curm,
from here, it seems that you may be unfairly besmirching ‘Astrologists’..
such Morons may be, much to our mutual dismay, beyond the help of Any outside Vector, save, potentially, One.
http://www.thefreedictionary.com/besmirch
http://www.thefreedictionary.com/moron
June 21st, 2010 at 6:52 pm
Do you think they were smart enough to fade their own “news” last night?
June 21st, 2010 at 7:05 pm
scharfy,
sincerely, that’s swell..
Though, note that much of the ‘Hype’ was centered upon ~”Yuan ‘undervalued-ness’ disappearing..leading to, increasing, “Financial”-Rationalization for, LSS:, “on-shoring” ..
What you’re delineating is, further, Financial Profits from a “growing”, purportedly, PROC-base, and its ‘Knock-on’ to the Bottom Line of “U.S.” MNCs..
there isn’t a Gulf between those two Sets, there’s, at least (the Largest of) an Ocean..
June 21st, 2010 at 8:05 pm
Thinking in terms of fundamentals, stock prices represent a looooong stream of earnings. So there is reason that a depegged currency may be a positive sign for stocks, particularly large caps, even if the x-rate did not change today.
Stronger yuan means the Chinese will find US exports more attractive. Actually, Europe may benefit more from that more in the short term, but over the long term, China will be buying more stuff from global businesses, many of which are US-based.
The price of stuff from China will go up, which is not so good for anyone who needs their inputs, particularly non-globalized companies, but these tend to be the smaller capitalization stocks. However, it also means that – admittedly just at the margins – the US worker is now a more attractive labor supply. So we will be putting some more US workers to work producing stuff for the Chinese and other external markets. That’s better than having US workers working to get US consumers to buy chinese goods on credit.
It’s clear that the systemic imbalances have been a big part of the origins of the crisis and clearing that stuff up is an important part of getting to some kind of sustainable normalization. So the market pops up because one source of systemic instability is now less blocked and potentially moving in the right direction. Allowing exchange rates to fluctuate tends to reduce risk in the system. Less risk –> higher present value.
The effects on the stock market should be real, but relatively mild, since no observable change has actually happened yet. But this is where remembering that it’s a long stream of earnings that goes into current prices becomes important to remember.
However, the effect of the currency peg can be overstated. China’s biggest competitive advantage is inexpensive labor, not its exchange rate. So these changes are mostly going to be felt “at the margins.”
June 21st, 2010 at 8:29 pm
Because there are clueless people out there, many on bubble TV, who believe that China has finally seen the light and will follow Washington’s every desire henceforward.
IMHO, China will follow the Singapore model whereby the currency will float against an unspecified basket of currencies. Three years ago the Sing Dollar and the Swiss Franc were both at around 1.45 against USD; now the SIng dollar remains around 1.40 whereas Swissy is at 1.10. Which demonstates how to obfuscate whilst actually doing very little.
And you know what, even if China DID revalue by, say 50%, it would still make not an iota of difference. The average Chinese manufacturing job, even after the round of increases, pays about USD 50 per week, compared to 20 USD per hour in the US. I rest my case.
June 21st, 2010 at 9:19 pm
I saw the Yuan depegging news late Saturday nite at zerohedge, looked around for other related news and could find none til Sunday. I presumed the EUR/USD would tank (increased cost of doing biz with China I suppose) and the equity mkts to drop some today (same reason). I checked the EUR/USD chart yesterday and was surprised to see it had gapped up at open about 60 pips to around 1.2450….it closed Friday around 1.2388. I see now it’s trading around 1.2324 and the S & P 500 closed down around 4.3 pts today after gapping up a bit then trending down pretty much the rest of the day within a trading range of about 23 pts (1131.23 -1108.24). Looks like a knee-jerk short hurrah.
On a side note….I also noticed Sat. that 11 U.S. warships and 1 Israeli warship (supposedly containing nuclear weapons?) traversed the Suez Canal late Fri.(?) headed toward the Red Sea and……….in the vicinity of Iran I would guess. Interesting piece here: http://georgewashington2.blogspot.com/2010/06/showdown-in-red-sea-us-sends-11.html
Map of this region: https://resourcesforhistoryteachers.wikispaces.com/file/view/txu-oclc-192062619-middle_east_pol_2008.jpg/50772193/txu-oclc-192062619-middle_east_pol_2008.jpg
June 21st, 2010 at 9:33 pm
Scharfy:
Nice anecdotes. None of which have anything to do with exchange rates. Let me type this real slow so’s you’ll get it:
Just because the Chinese have promised to allow the yuan to float, presumably up, relative to the dollar, hardly means Chinese workers making $5/day or so will be supplanted by Americans willing to work for the same or less. And keep in mind, most (perhaps all) of those companies that have rapidly rising sales in China are not exporting to China, but are instead producing in China for Chinese, et.al., consumption. Do you think Apple makes anything in America?
If it is made in China, even by an American company, for Chinese consumption, guess what: It has a virtually nil effect on exchange rates. No foreign currency need change hands.
June 21st, 2010 at 10:18 pm
@ Curmudgeon
I think what you’re driving at is that the wage Gulf is too far to bridge. 20$ an hour can never compete with 5$ an hour. Doesn’t have too. If fact we shouldn’t even try to compete in the sweatshop game.
Plenty of room for exporters with high labor costs. Germany has been doing it for years. Japan. Taiwan. The US as well. WE are the worlds #1 exporter. (we just import a fuck ton more)
The competitive edge is that the design and intellectual property aspect of the product IS the product. Not how cheap it is assembled. Think Google. Or medical-tech machines. Or the engineering of a Boeing Jet. Or even the Ipod. We can’t outlabor china. Gotta outthink them. They bring 100 slaves to plow the field, and we have to design a tractor to do it. Hi tech Hi tech Hi tech.
But back to exchange rates.
The important thing is that a revaluation of the Yuan benefits US exporters to China.
I don’t get what’s so confusing about this. Do you disagree?
Now that China has a growing middle class, they will want to buy foreign goods. We can sell them. A revaluation helps us do that by assisting purchasing power.
One more anecdote. Can’t resist. BMW just doubled their Y o Y sales in China. http://online.wsj.com/article/BT-CO-20100422-707297.html
And Audi is absolutely killing it..
http://autonews.gasgoo.com/auto-news/1015524/Audi-China-sales-up-40-to-17-396-cars-in-May.html
All with VERY high labor costs.
June 22nd, 2010 at 9:01 am
One of the counterintuitive findings of macroeconomics is that when you have two substitutable goods (say chinese labor and US labor, or fossil fuels and alternative energy), one being more expensive than the other, the economy *still* uses both the expensive and the inexpensive resource. It will use more of the cheaper resource and less of the more expensive, but it will still use some of each.
What this means is that US labor is still needed, even if Chinese labor is very very cheap. It’s just that we’ll use a lot more Chinese labor than US labor because of the difference.
Now that Chinese labor is becoming more expensive and US labor is cheaper, both because of relative economic growth and now because of exchange rates, this means that there will be an uptick in the use of US labor. Given the huge hole we’re in, it’s not going to be enough to undo the bloodletting of recent years, but it will have an effect, and we’ll take every improvement we can get. More domestic employment is really the big key to absolutely everything – paying of private debt, paying of public debt, getting demand re-juiced enough to create sustainable employment.
So it’s important not to overstate the effect of Yuan de-pegging, but it is also important not to dismiss it as meaningless.
June 22nd, 2010 at 9:22 am
You are all still thinking of economics instead of gambling. A higher Yuan means that Chinese investors have more purchasing power to come over and buy up the stocks of US corporations.
The equity markets jumped because so many people are delighted at the thought of a quick buck from selling off America’s crown jewels to foreign ownership.
The Chinese have a long term view of money and power, and they are content to have ownership of income producing assets, even when the returns are marginal. Americans have a short term view, and realized by lunch time that the higher yuan will take many months. American investors grew bored, and went back to speculating on gold, derivatives, and other brightly colored objects.