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?

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.

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 :)...

"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”

AND

SPEC the Truth


Stayed Tuned to Learn More...