What a week so far. This week we saw the USDCNH break above the 7.00 level, something I have mentioned in my posts for Bitcoin strength.
China has said this was normal, due to tariffs and fundamental reasons, while President Trump and the US Treasury think it is an act of currency manipulation.
I have spoken about the US and China trade war on my blog. China is in it for the long game. They will be patient for a weaker US President from the Democrat side. They know the US stock markets are President Trump's Achilles Heel. He needs them up to win re-election ('Keeping America Great"). If markets continue to tumble it will be President Trump who is forced to the trade table to take a China dictated deal. China does not need to worry about elections.
So as the Yuan devalues, Chinese money is running into Gold and Bitcoin as mentioned in my previous posts. All governments are devaluing their currencies. New Zealand just cut rates 50 basis points yesterday!
Mainland China has been coming down hard on Hong Kong, attempting to get rid of the British Law. This is a way to stop money leaving from China (generally money from mainland goes to Hong Kong and then from there to Australia or Canada etc) and was also a way for China to get away from tariffs by shipping from Hong Kong (not under tariffs).
Hong Kong is in trouble. It is the most expensive city in the world with a large real estate bubble and there are some credit and debt problems there now.
If you listen to Kyle Bass, he has said that Hong Kong has used 80% of their US Dollar reserves to maintain the peg under 7.85. Will this peg be broken? Many think so. They are running out of US Dollars and not in the best position to buy more Dollars.
If the Chinese army does march into Hong Kong, which is probable, expect the HKD peg to break. Probably will peg to the Yuan. As Kyle Bass has said, shorting Hong Kong is the best play right now. Many hedge fund managers have spoken on this as well. Shorting the Hang Seng and the Hong Kong Dollar are ways to play this trade.
Why will China march into Hong Kong? If the people are up in arms due to Yuan devaluation, and the Chinese Communist Party feels threatened, they will go to war. The CCP will not give up control over China. War is the best way to unify the people and also blame others for domestic problems. When all else fails, they take you to war.
When this peg breaks, I expect MORE Hong Kong money to run into Bitcoin and Gold and Silver. So I am still bullish on Bitcoin but remember, as discussed previously, it is all about CHINESE MONEY.
After studying in greater details and watching a few of the videos you recommended along with others, I have these burning questions for you:
1. President Trump would want to win in the 2020 election and he knows how important the stock market results is to him, right ? If yes, then imposing the additional 10% and possibly 25% tariffs on the 300 billion worth of goods make little sense to me. Yes, he is an impatient man looking at his various tweets and rounds of hiring and firing his cabinet ministers. He must know China would retaliate and with a tight timeline, shouldn't he play the nice guy role and get President Xi on his side ? He must have something on his sleeves to counteract this move by China.
2. Many of my traders friends here are saying China is doom ; citing astronomical debts to GDP, shadow banking issues, no longer the factory of the world, etc. If China goes down with USA, I can't see any country on the map that can replace them in terms of technological power, trade, logistics, etc. Vietnam, Thailand and Indonesia are merely picking up the crumbs of the business from the US-China trade wars. They have their domestic issues to handle.
In short, I somehow see an agreement of some sort to be made between both of them by this month before the 10% tariffs implementation. President Trump cannot be using government funds to help the farmers that were voting for him in the long term. While they are sore about their business being affected, I can't see how they can remain confident and vote for him again. President Trump needs them to be on his side.
HK - a entreport for China to channel funds out of the countries especially the rich who refused to be taxed or restricted. We can see the myriad of Chinese flocking to buy properties in Australia, Canada, Singapore, Malaysia, etc and help to push up the prices aggressively. Many Chinese are also using HK as a stepping stone in setting up their export office to deliver goods to US , thus escaping the tariffs (both existing and future).
China will and must come to the rescue of HK protests as it is in their interest economically and politically as well. Lastly, weekly chart of China A50 is still on a bullish trend.
I am awaiting on the side for the dust to settle before placing my next entry.
@dchua1969, Good stuff here! Thanks for the comment!
1. So for the tariffs, I think President Trump actually believes tariffs work. Tariffs are a tax on the consumer, because when these American companies import from China, they pay the tariff, and then to make profit, they have to raise the prices. So the US consumer when they buy the goods actually par for them as the company makes their money back on the tariff they paid. Hitting China on trade is a way to hurt them, but China can trade with many other countries. Only way is to really block their shipping lanes (hence China creating those islands in the South China Sea) but that would be military conflict.
I think President Trump knows tariffs will hurt the markets and his re-election chance...but he is actually putting pressure on the Federal Reserve to cut interest rates and to go back to QE. This means that the Fed mandate is actually to keep assets (mostly stocks) propped up. His gamble is when the Fed cuts rates and goes back to QE, there will be nowhere to go for yield except stocks...so money will be forced to run into stocks for yield. Pensions funds may also have to do this as bond yields keep dropping. So it is a gamble and it may backfire but it is all about the stock market. The Chinese know this as well. As long as stock markets are high or near the highs when election time comes, President Trump will win the elections...although personally I think it will be difficult to keep stock markets propped up even with cheap money.
2. Yes, China has a lot of problems. They have the largest debt bubble in human history (40 trillion in 10 years). Many who see China doing well is the fact that they have a manufacturing base still. Certain western nations do not, mostly service economy. Also, China may surpass us in terms of AI and other technology because of two things: 1) Government support- meaning the government want to be the head of AI and dictate the global terms as the Americans did with nuclear weapons. There is less bureaucracy there too. Too much in America where things don't get done. And 2) No moral issues: For example with self driving cars, the Chinese aim for tech prowess. In America, the programmer will have to go to court and explain his reasoning about what is programmed for a car crash (eg: does the car swerve left to kill a small family of three, or does the car swerve right to kill an elderly couple, or does the car go straight ahead to kill the occupant).
But yes, China does have a LOT of problems. They will have to go through some debt/credit issue as well. They still have a bit more room to cut than us (China interest rates around 4% and the US near 2%). Again, if the CCP think they will lose a grip on the country it would be war most likely.
China and Russia say they want a multi polar world with multiple super powers...I think the west wants to make sure this does not happen because it is likely those other nations will not treat us fairly given.
If President Trump gets freaked out about the stock market, he will go for a deal and the Chinese will dictate it. Again, China can remain patient because they have no elections, and have a powerful grip on their people with surveillance etc. They can quash uprisings.
I can see Chinese troops moving into Hong Kong very soon, maybe even this month. Will be more about preventing money from leaving China.
And when it comes to the China A50, I think there is still room for stocks because central banks still have room to cut rates and go to QE. Again, China has around 4% interest rates. It is more about some systemic crisis occurring. There is a rumour going around that China had to borrow money from banks (HSBC and Deutsche) to help prop up the Yuan. If this is true it is pretty scary and shows China may be collapsing. They are supposed to have 3 trillion dollars in reserves but many people think they used up 1 trillion...others like Jim Rickards thinks China used the 3 trillion as collateral for projects and specifically collateral for their belt and road initiative infrastructure project.
After studying in greater details and watching a few of the videos you recommended along with others, I have these burning questions for you:
1. President Trump would want to win in the 2020 election and he knows how important the stock market results is to him, right ? If yes, then imposing the additional 10% and possibly 25% tariffs on the 300 billion worth of goods make little sense to me. Yes, he is an impatient man looking at his various tweets and rounds of hiring and firing his cabinet ministers. He must know China would retaliate and with a tight timeline, shouldn't he play the nice guy role and get President Xi on his side ? He must have something on his sleeves to counteract this move by China.
2. Many of my traders friends here are saying China is doom ; citing astronomical debts to GDP, shadow banking issues, no longer the factory of the world, etc. If China goes down with USA, I can't see any country on the map that can replace them in terms of technological power, trade, logistics, etc. Vietnam, Thailand and Indonesia are merely picking up the crumbs of the business from the US-China trade wars. They have their domestic issues to handle.
In short, I somehow see an agreement of some sort to be made between both of them by this month before the 10% tariffs implementation. President Trump cannot be using government funds to help the farmers that were voting for him in the long term. While they are sore about their business being affected, I can't see how they can remain confident and vote for him again. President Trump needs them to be on his side.
HK - a entreport for China to channel funds out of the countries especially the rich who refused to be taxed or restricted. We can see the myriad of Chinese flocking to buy properties in Australia, Canada, Singapore, Malaysia, etc and help to push up the prices aggressively. Many Chinese are also using HK as a stepping stone in setting up their export office to deliver goods to US , thus escaping the tariffs (both existing and future).
China will and must come to the rescue of HK protests as it is in their interest economically and politically as well. Lastly, weekly chart of China A50 is still on a bullish trend.
I am awaiting on the side for the dust to settle before placing my next entry.
What do you think ?