Kyle Bass is silly... Just like the other overly publicized people that periodically show up on TV to tell everyone their deep thoughts on all sorts of subjects, he just tells stories that sound plausible, but, on reflection, prove very superficial. Generally, I find there's really too many top-down storytellers out there.
Global Macro Trading Journal
- Thread starter Daal
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Maybe that's a reason to short it. Sovereign wealth funds, and governments in general, are usually a fade rather than a follow. The only real exception is when they intervene at extremes.
Think of all the copper China bought above 4.00, or all the bank shares the SWFs bought in 2008. Now imagine China gets spooked by a possible Euro breakup, and decides to go back to the dollar or gold - can we say 'price-insensitive seller'?
Funny, when I say something like, I'm just a conspiracy theorist.
Beijing may not have an official peg to the euro like it does to the dollar, but it's crazy to believe the mandarins would allow the yuan to rise sharply against it anymore than they would allow the yuan to rise sharply against the greenback - so of course they're in there buying.
I believe Europe is a bigger market for China than the U.S.
Of course, the regime may change... However, the key elements are still in place. The Eurozone is a trade-neutral area. Specifically, it's not running a trade deficit w/China. On the other hand, the Chinese are still desperate to diversify their FX reserves away from USD. In fact, given the above, if all they do is maintain the % share of the EUR in their total reserves constant, they'll be buying in pretty chunky size, day in, day out. So, unless you expect the EUR and/or the whole diversification concept to go away, shorting EUR is a dangerous game.
Well, the Chinese buying of EUR is a fact that the whole mkt is aware of, rather than a figment of my imagination. So I am not suggesting some sort of a conspiracy theory. I am just stating that I expect that things are unlikely to change.Quote from ralph00:
Funny, when I say something like, I'm just a conspiracy theorist.
Yeah, the Eurozone imports more from China than the U.S., but that's irrelevant, because it exports roughly the same amount. So the relationship between the yuan and the Euro is very different to the one between the Yuan and the Dollar. As a result, the Chinese buying of Euros has a very different rationale, as I mentioned in my previous post.
Well, define "temporary", Daal... As far as I am aware, they've been doing it for a very long time now, which means that EUR has been "higher" than some sort of equilibrium value (PPP or whatever) for a long time. As long as their trade deficit w/the US persists and they keep accumulating USD, they're likely to keep doing it. Is this effect "temporary" if it's there for decades?
I'm a big believer that the only way to change the final path of the currency in a large way is fixing it done by a CB who can print it. This is not the case here, so it just seems to be that this is an instance of CB intervention of uncertain size. The difference between EUR parity and EUR at 1.40 won't be China in my view
Actually, having checked my sources, it appears I am mistaken. The Eurozone is actually running a pretty hefty trade deficit w/China. Hmmm, I wonder where I got the idea that they're net flat. I stand corrected.
Euro at $1.10 (assuming $/yuan stays somewhat constant) is not something the Chinese want to see, but it doesn't mean we won't see it.
There is the equivalent of a bank run going on in Europe and the Chinese may soon be the last buyers of the euro. The world is going to find out - today, tomorrow, next month, 18 months from now, I don't know - that China and its vaunted reserves are not some bottomless piggie bank waiting to fund the EFSF, prop up the euro, make Apple or CAT or VALE a buy forever, ...
Is China's support a reason to be wary of shorting euro? Yes, but maybe not enough reason.