Monday, January 18, 2016

Note to Self: The Peking Swan?

What are the probabilities of a Yuan devaluation in the range of 10%.? And given this may happen next week or next quarter or any time*, how to trade this and not bleed to death on carry?
The officialease from Beijing, indicating an apparent strong stance against this and favor for a stable currency, would have been highly suspicious, had it not been China. As for China doing a volt face, this will have a mighty kill radius. The swan may not resemble any before in recent past, alive or roasted.
Or it may happen much less dramatically in a series of devaluation-cum-depreciation (the much more likely case), which will have relatively benign impact on the markets in the short term but prime it up for more to follow. This can undermine PBoC.
The question is how best to position for this. Rates - may be, Equities - difficult to run the position for long time, Commodities - Oil in contago, but not in super-contago yet, FX - may be. Need to look closer.
* The Uncertainty Principle, as applied to macro investing, says you cannot forecast the direction and exact timing of an even simultaneously.

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