Monday, May 24, 2010

Yuan Appreciation: NINJA Style

The yuan over the past coupe of weeks has been doing what everyone says it should be doing. Appreciating. But it's doing it in Ninja like fashion. Super fast and unnoticeable to the public eye.

The Chinese yuan is currently pegged to the US dollar. And the US dollar is the one hundred pound gorilla in the currency markets that has finally awaken after a year of sleep.

The Euro is rioting down like Greek protesters. The Aussie dollar is going down under. The Canadian dollar momentum is going the same way as the Montreal Canadians (it was fun while it lasted CAD and HABS :) And the South Korean Won is starting to hide from the North Koreans.

Last year everyone was hating on the US dollar, now everyone is in love with it again. Such a fickle market. That is why you should never stay married to any one trade.

As the US dollar goes UP, so does the Yuan (as long as the peg holds). So, lets look at some of the Ninja Yuan appreciation in the past couple of weeks.

Euro Down over 16.5% since December 2009.

Aussie dollar Down Under 12.5% since April

Korean Won down almost 14% since April.

Those are massive moves in currency land in just a couple of weeks.

China is involved with a lot of trade with those countries. If China believes that a small appreciation in the Yuan will hurt exports, then this must be a major kick in the pants.

Can you still say the Yuan is desperately undervalued. Or, is it starting to look overvalued? The Chinese may continue to keep the peg, but they have to be careful if the US dollar continues to surge against all currencies. If the US dollar continues to fly in the coming year, the Yuan will rise as well and the Chinese government will not be too happy with that. China posted it's first trade deficit in March, but further deficits will inevitably come with such a dramatic short term rise in their currency.

Therefore, will a depreciation of the Yuan be in the works instead?

Thursday, May 13, 2010

China: Mini USA?

If some people think that America is the Dr. Evil of the Global Economy by poisoning the globe with their useless brands, then China most certainly is Mini-Me. Is China the next superpower or just the “extension” of a well established superpower, the USA?

I am currently studying in Hong Kong and I can't help but notice all the American brands. Hong Kong is considered an international city and before 1997 it was ruled by the British for 99 years, so the abundance of American brands in H.K makes sense. Therefore, when I traveled up north to some of the bigger and more “Chinese” cities like Beijing and Shanghai, I wanted to see what the true Chinese economy was all about. I walked and toured the cities of Beijing and Shanghai intending to be enlightened by all the amazing Chinese cultural and savvy business startups.

I stopped and stood in the middle of the downtown and financial districts, gazing at the future global economic powerhouse. I was mesmerized. Sadly, it was a feeling quite unexpected, but not surprising, and awkwardly familiar. What I saw in those big Chinese cities was... America.

I was bombarded with American Brands. Billboards, posters, and ads all over the city filled with iconic USA multinationals. Coke-a-Cola, McDonald's, Starbucks, Kraft, Apple, and Yum Brands. There were also some European brands like LV, BMW, and Zara's. But, we all know the Europeans are a snobby bunch. They only want to appeal to the more affluent and wealthy. The Americans on the other hand are here to conquer the Average Joe's of China. New stores and restaurants were being opened left and right, most of them being international companies.

A crazy example of the Chinese love for US brands is shown by how US fast food chains are marketed in the Middle Kingdom. In America, Pizza Hut and KFC are considered quite the unsophisticated choice for a dinner meal. However, in China, eating at Pizza Hut and KFC usually means you're on the right track to success. Pizza Hut in China looks like a fine Italian restaurant with prices only the Chinese middle class can afford. What American's think is junk food, is considered a luxury in China.

So, back to the whole idea that China is going to be the next superpower. How could that be possible when all their growth seems to be backed by American brands? The lives of a typical Chinese already consists of grabbing a bite at Micky D's, chilling at Starbucks, watching a late Hollywood movie, betting on the next NBA game, and texting on their Iphones. That doesn't sound very Chinese to me. What happen to fresh white rice, soy sauce chicken, and stir fried broccoli for dinner? Watching Chinese movies and playing badminton? China is not becoming the next economic success story. It looks more like the expansion of the US empire. An expansion with the code name “Project CHINA”.

I want to ask what few economists seem to ask. Where is China's innovation? Where are the new Chinese brands? When Japan's economy was booming, the Japanese often disliked American brands with a passion. Japan innovated and built their own international companies. Sony and Panasonic made amazing hi-tech electronics. Honda and Toyota made reliable cars. The Chinese so far have Lenovo (bought IBM's failing PC division) and Li Ning (logo looks like Nike).

A lot of jobs are disappearing in America, but most of those are low end jobs anyways. Do Americans really want to be making Nike shoes and HP laptops? Hopefully, America is moving forward and creating more highly skilled jobs. Richard Florida, a famous theorist, says America is moving towards a creative society built by the creative class. The US is still an unprecedented innovative force in the world. Amazing companies like Google, Apple, and Facebook are constantly changing and creating new industries. China, however is still a developing nation with a lot to learn. For them to be number 1, they must stop following and learn to lead.

I am not here to bash the Chinese economy or to praise the US. I am just here to point out the facts. I used to be one of those China bandwagon riders too. However, after seeing it first hand, I am somewhat disappointed. Until China can come up with something that is not American with Chinese characters, I will continue to question their economic strength. Only time will time.

Tuesday, May 11, 2010

The Chinese Yuan is Overvalued

No the title is not a misprint. It's my opinion. An opinion that is based on history, fact, and common sense.

I want you to step away from the media and government propaganda and ignore all the economists that didn't predict the financial crisis of 2008. I want you to step back and try to take a non-biased view on this hot topic issue of China's currency, the yuan or the RMB.

Economists and speculators think they're debating this topic, but they aren't debating, they are just agreeing with each other, and arguing about what the outcome may be. Everything you hear in the news today tells you that the Chinese yuan (RMB) is undervalued. The only questions that the media seems to ask is how much is the currency undervalued by and when will it move. I say hold your horses. Economists are making one huge assumption sound like fact. They're all saying the yuan is definitely undervalued and ignoring all opinions from the other side. It's like betting on the Lakers to win the next NBA playoff game with your friend, and debating where to eat to celebrate the team's victory. Listen folks, the game hasn't finished, so don't get too excited.

Why is it that we all believe that the yuan is undervalued? Oh, is it because of the large trade imbalances, unfair global competitive advantage, currency manipulating, economic mumbo-jumbo. I forgot about that. Or did I? From what I see, China might be in the midst of a massive economic bubble. A country whose economy is heavily reliant on global exports, has an abundance of debt and huge inventory over supply. Don't forgot China is still considered a developing nation with a GDP per capita about 10% the size of the US.

So, lets take a look from outside of China's “Wonderland” and compare some actual facts.

BS#1: If the yuan appreciated, the US trade deficit would decline.

Fact: When China allowed the yuan to appreciate from June 2005 to July 2008, the US's trade deficits with China actually GREW. It went from -$202 billion in 2005 to -$268 billion in 2008. So, where is this yuan Up, US trade deficit DOWN BS coming from?? Just look at the facts.

2005 - 2008

Yuan UP 17.9%

US Trade Deficit UP 32.7%

BS#2: All other emerging market currencies are appreciating against the US dollar, so the yuan should rise as well.

Fact: Most economists would like to compare the yuan with other emerging market currencies, like the Brazilian real and the South Korean won. If that is the case, then it would be reasonable to make a past comparison of the moves in emerging market currencies with the moves in the yuan. I'm now going to focus on the Brazilian real to give an example.

From 2005 to 2008, both the Real and the Yuan appreciated against the US dollar. Then in July of 2008, the Chinese government pegged the yuan to 6.8RMB/US$. Now, if we look at a chart of the Real after July 2008 we will see something quite interesting.

From July to December 2008, the Real DROPPED 37.5%! While, the Yuan did NOT move. It wasn't only the Real that dropped, but almost all currencies in the world did as well. From the Aussie dollar, Euro, to the Norwegian krone, they all fell against the US dollar in 2008. Some say that the move was just temporary, but it was a significant move nonetheless. And remember the yuan did not drop like everything else. On the contrary, due to the yuan being pegged to the US dollar, the yuan was actually appreciating with the US dollar against all the other currencies.

So, why doesn't anyone think that China was actually trying to prevent their currency from crashing like all other currencies in 2008? Or that maybe China just wanted stability in the yuan during the major financial crisis that occurred. Nooo...instead everyone sides with Mr Timmy Geithner and calls China a “Currency Manipulator”.

Right now, the Euro is crashing against all the major currencies. Due to the yuan's peg with the US dollar, the yuan is soaring against the Euro. What happens if in 2010 we get a sequel to 2008's US dollar “Iron Man” performance? And if the yuan doesn't appreciated, but just does not de-peg against the dollar, what would happen? The yuan would soar with Iron Man (US dollar) against most global currencies. Then will China be able to handle the rapid ride up? Or could they just devalue like the rest??

Think about it.

Monday, May 10, 2010

The Bipolar Market

Last Thursday the US stock markets dropped almost 10% in less than 15mins. After the weekend, the markets then jumped almost 5%. Those are major market moves in less than 3 business days.

What I see is that Mr. Market is currently dealing with symptoms of Bipolar disorder. The market was manically depressed Thursday and then hysterical on Monday. If you blinked, you probably missed everything.

When someone has major mood changes in a short period of time, they are not stable. It usually means that the person is clinically depressed. A normal person would not show signs of major mood swings. And a normal market would not show signs of major volatility. I would diagnose Mr. Market as being in the stages of depression.

Yesterday's Euro bailout of $1 TRILLION helped make Mr. Market really happy for a day. It was like the global markets were given a shot of Prozac. But, the problem with drugs, like Prozac, is that it provides a quick fix, but no long term solution. The crisis in Europe was caused by country's having a lot of DEBT. And the EU's solution to it's Debt is... MORE DEBT?! It's like paying your student loans with a credit card! All of this doesn't make sense and it's not good news for the economy in the long term.

The markets are truly depressed and Debt Deflation will be upon us.

Friday, May 7, 2010

Stock Market Crash: May 6, 2010

A lot of people were confused and shocked from the move yesterday. Some people lost money.

On the other hand, this one guy was quite excited (Super funny :)...

Thursday, May 6, 2010

"Blame Speculators?!"

The stock markets just had a seizure...

The US stock markets plunged, tumbled, and cascaded yesterday after a slew of bad events and news.

Once again people will blame speculators for the unprecedented event. Mass media will blatently say that Program trading or Computer trading by large financial firms hi-jacked the stock exchanges and caused emense amounts of volitility. In fact that may be the case, as the situation is still under investigation.

Manipulation or not, people will be looking at this the wrong way. It is not that falling markets are the problem, it's the Reasons why the markets fell that's the problem.

The simple reason: The Global Economy Sucks!

The markets voiced their strong opinion yesterday on the Greece crisis, Europe's soverign debt problems, continued rising consumer debt, and high unemployment rates. The speculators have awaken. They say “I have NO faith in this phony economy!”

The governments and mass media will unleash their attacks on speculators, but they will only be finding scapegoats for their flawed policies.

The fact of the matter is, the fall was somewhat predicted and it may be a sign of what's to come.

I say, it was about time.

Why Speculation is not what you think it is

Speculation is needed because without questions there would be no answers.

We live in a Brave New World. Where conformity breeds complacency and judgment proceeds evidence. As the global economy remains in pain, we all complain about the incompetencies of our world leaders. While we sit in our homes and wait for their government subsidies to survive. We keep giving government more and more power, thus leaving us with less and less rights.

We must fight conventional thinking and mainstream beliefs. We must go up against the corrupt individuals that led us here and question their actions, statements, and ideologies.

I am a normal student who looks ahead to his own future and sees many obstacles in his way. The biggest one standing right in front of me is a giant pile of BULLSHIT. The filthy and stinking crap of lies that spew out of people's mouths I hear everyday. CEOs, lawyers, politicians, bankers, salespeople, and the mass media. BSers are everywhere! For I have had enough of their nonsense. I say No More.

I am here to try to present to you a path that is not filled with sleazy deceptive BS. I want to provide an alternative route that feeds off of curiosity, skepticism, imagination and most importantly the Truth. The route's name is Speculation. It is the trading of financial instruments to generate a profit on the basis of one's opinion on a financial asset's perceived value.

BUT first, I must offset your initial cringe to the thought of “Speculation” or more formally named, stock market trading. Speculators are not all crazy, barbaric, and greedy individuals. Some are just normal and decent people who have a strong opinion of what's right and moral in society. For some, they provide the answers to necessary questions not asked in public due to ignorance.

I captured the following statements from a BBC interview with Hugh Hendry, a well established “Speculator”.

The typical attacks against Speculators:
Governments around the world say that “Speculation” causes huge instabilities in financial markets. The activities are quite damaging. Speculation is just pure gambling?!

The poetic response aimed at reasons why government officials are against "Speculators":

I represent their worst nightmare.
I represent to them the only member of our society
that can Stand Up to them and Challenge them.
I can say to these incredibly Important People,
“I Think You're Wrong.”
that Scares them.

The fact that we are willing to risk our money.
I think you should take that Seriously.
That is important.
We aren't reckless, we're typically wise.
And if we are betting in that manner,
it would be better to consider WHY we have that opinion.

(Hugh Hendry, 2010)

The economy is in free fall. Jobs are disappearing. People are drowning in debt.

So, What do you do?

Break free from “The Brave New World”


SPEC the Truth

Stayed Tuned to Learn More...