Must One Be Bearish About China's Stocks and the Yuan?

Yuan Devaluation? Think Again. 10/10/2015 12:05AM Isabella Zhong asks Gavekal's Louis Gave talks about China's correction, what's ahead for the yuan, and why he likes Chinese airport stocks in this October 10th, 2015 video:

Chian's deceleration: What Should the CFO Worry about?

The Chinese economy grew averaged double digit growth for two decades. Recently that has slowed to 7-8 percent.The Conference Board has identified a set of structural factors that indicate a long “soft fall” to 3 to 4 percent growth. Ethan Cramer-Flood explains what this implies for pricing, credit, and compliance.

ANZ: We Are Still Bullish on Natural Resoures

According to the conventional wisdom, if China slows down, Australia will catch a cold.  A natural resources boom has fueled a twenty year expansion in Australia's economy. Does the slowdown in the BRICs, and particularly the "C" (China), mean the end of this Aussie expansion? No says Mike Smith. The chief executive of ANZ discusses his country's and his bank's prospects and plans with FT's Jeremy Grant in this 5:19 minute video.  But Mr Smith does not see everything as rosy in the Lucky Country: he argues the wider Australian economy needs modernization:

An "Ordinary Man" to Build a 180 Mile Canal Across Nicaragua. We Will See.

When the United States was deciding how to cut the passage from the east to the west it considered two alternatives: Nicaragua and Panama.  Thanks to fortuitous events and the opportunism of Panamanian patriots, it chose Panama.  The idea of a canal through Nicaragua is being revived by a Chinese businessman.

John Paul Rathbone wrote in the Financial Times that Nicaragua's "congress voted to give Wang Jing the go ahead to build a new canal in its country.  On June 13th, Daniel Ortega left-wing Sandinista government gave HKND, the newly-registered group [a] 50-year concession' to study the feasibility and build a canal."   So HKND is a special vehicle for this $40 billion project.  Furthermore "HKND is working on the feasibility study for the giant project with McKinsey as well as China Railway Construction, a large state-owned group."

Nicaragua is ruled by the left wind Sandinistas under Daniel Ortega.   Mr. Wang is a good friends of President Ortega's son.

And who is Wang Jing? Rathbone described Mr. Wang as a "40-year-old businessman...who also heads Beijing Xinwei, a midsized telecoms company."  The FT's Kathrin Hill interviewed this self described "very ordinary Chinese citizen" for its "Beyond the BRICs" blog. Hille tells us, "he lives with his mother, his younger brother and his daughter in Beijing."


Hille talks with Wang in this video about his plans and asks whether his US$40bn project is a front for the Chinese government's ambitions to extend its influence in the US's backyard:


This is a project not without risks.  Rathbone warns, "[a]lthough global trade is growing, the Panama Canal is nearing the end of a $5bn expansion plan to double its capacity, while global warming means melting ice packs in the Arctic could make a northern route a viable alternative to crossing the central American isthmus by canal."

Is that a Tear Rolling Down Alexander Hamilton's Cheek?

Alexander Hamilton was a pesky immigrant who saw Great Britain's creditworthiness and thus ability to borrow as important to its standing as a superpower as was the British navy.  As the republic's first Secretary of the Treasury, he set the U.S. on course to creating the dollar as the world currency built on the credit worthiness of U.S. treasury bonds.

Pity Mr. Geithner who fate it is to have Hamilton's job when we suffer the indignity of a credit downgrade.  Standard and Poor's announced after markets closed Friday that America's bonds have fallen from AAA to AA.

The announcement brought quick reactions.

Guess who said the following?

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone...
A little self-discipline would not be too uncomfortable for the United States, the world's largest economy and issuer of international reserve currency, to bear.

"For centuries, it was the exuberant energy and innovation that has sustained America's role in the world and maintained investors' confidence in dollar assets. But now, mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad...
All Americans, both beltway politicians and those on Main Street, have to do some serious soul-searching to bring their country back from a potential financial abyss."

(A) A big bond investor
(B) A foreign upstart
(C) A news service
(D) All of the above
(E) None of the above

The correct answer is (D).  Saturday, in the wake of the downgrade,  Xinhua, China's official news service editorialized the words you just read.  The signed editorial was attributed to Yamei Wang.  It is embarrassing to be lectured by China especially when China is calling a spade a spade.

China, Monetary Policy, and the U.S.

The U.S., still the monetary linchpin of the global economy, is fighting its unemployment with monetary and fiscal stimulus rather than addressing the dislocations created by the housing bubble.   This repeat of its policy mistakes in the wake of the high tech bubble is destabilizing the world economy.  The emerging world has led global economic growth over the past decade with China, Brazil, and India the main powerhouses.   Super loose monetary policy in Europe, Britain, and especially the U.S. has flooded them with foreign exchange reserves which have threatened to over inflate their economies.

The People's Bank of China's Governor, Zhou Xiaochuan (on the left in Bloomberg photographer Tomohiro Ohsumi's picture) sees fighting asset bubbles as well as inflation in his job description.   The central bank has raised its reserve requirements for the third time this year, according to the Aaron Back and Tom Orlik in the Wall Street Journal: "China's central bank said Friday it will raise the share of deposits banks must hold in reserve by half a percentage point, the third increase this year, as inflationary pressures remain in the spotlight."  At the time of the Bank's November reserve requirement increase, Bloomberg News reported, "China ordered banks to set aside larger reserves for the second time in two weeks, draining cash from the financial system to limit inflation and asset-bubble risks in the world’s fastest-growing major economy."  This enforced increase in banks' liquidity restricts their ability to expand loans.

Nor is this the only monetary policy tool being used.  The central bank raised interest rates in February.   Indeed, "[t]he PBOC raised the reserve requirement ratio six times last year, and benchmark lending and deposit rates three times since October. The previous reserve ratio increase took effect Feb. 24."  In November, Qu Hongbin, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong, told Bloomberg  the bank “decided to fight forcefully” against the impact of America's loose monetary policy.

Gordon Chang, author of "The Coming Collapse of China," talks about China's economy and currency policy. Chang, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses Federal Reserve Chairman Ben S. Bernanke's November speech in Frankfurt.






Below Keith McCullough, chief executive officer of Hedgeye Risk Management and a Bloomberg Television contributing editor, to Bernanke's defense of quantitative easing (see above.) What does this mean for for U.S.-China relations? McCullough speaks with Betty Liu on Bloomberg Television's "In the Loop."




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