How Will China Handle The Yuan?
by ilene - September 2nd, 2009 11:27 am
How Will China Handle The Yuan?
Courtesy of Mish
Inquiring minds are asking "How Will China Handle The Yuan?"
It’s a good question, too. Lance Lewis has a conversation with Professor Ryan Krueger in How China Will Handle the Yuan describing how it might play out. Please click on the above link for one possibility.
Here is the same conversation except with me replying to Lance instead of Professor Ryan Krueger.
Lance Lewis: You notice the extra chunky volume in the Chinese Yuan ETF (CYB) yesterday at the same time that the dollar reversed violently?
Mish: This violent reversal?
That looks like normal day to day action to me.
Lance: I’m telling ya. Something is up with China and the yuan. It would explain a lot. What if it were close to revaluing against the dollar?
We know it’s fed up with funding US debt, but it can’t stop funding it as long as it continues to peg to the dollar and is forced to buy dollars every day in order to hold down the yuan. The US isn’t even its largest export market anymore. The EU is. The US consumer is broke. Why does China need to keep exporting cheap goods to the US if the US consumer can’t buy them anyway?
Now look at the recent market action in August. Normally when Chinese stocks go down, the dollar rallies and commodities get hit, just like in early August when people were betting on “the usual.” But this time, after the initial knee-jerk reaction to Chinese stocks sliding, “the usual” didn’t happen. Oil is now back on its highs. Gold is close to breaking out, and the dollar is back on its low for the year. And all of this is occurring even as Chinese stocks are back on their lows as of last night?
China revaluing the yuan is the only thing that fits, and the US Treasury may even have an inkling that it’s coming, which would explain why Obama suddenly renominated Gentle Ben on a Tuesday in late August when he was supposedly on vacation. Rather odd timing, but not so if the intent was to remove as much uncertainty as possible as to who will be running the Federal Reserve going forward in order to prevent complete panic in the dollar and Treasuries if China were to one…