tag:blogger.com,1999:blog-1540057389458334563.post1812533883314017225..comments2023-07-30T18:55:22.943+01:00Comments on Asymmetric Wager: Note to self: The "Surprise" Part of Yuan Devaluationnemohttp://www.blogger.com/profile/09061859156431677511noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-1540057389458334563.post-11486690623870938502015-08-24T10:09:07.713+01:002015-08-24T10:09:07.713+01:00Sure, that's an important issue. The numbers a...Sure, that's an important issue. The numbers are available on the US Treasury TIC website (http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx). Check the official flows country wise. And yes many sovereign wealth funds operates out of Belgium/ Luxembourg (like many hedge funds operate out of Caribbean Islands).nemohttps://www.blogger.com/profile/09061859156431677511noreply@blogger.comtag:blogger.com,1999:blog-1540057389458334563.post-37801880144165167052015-08-24T05:20:54.581+01:002015-08-24T05:20:54.581+01:00Good point in the last para. I think China is alre...Good point in the last para. I think China is already dumping treasury securities (apparently through some Belgium entity: Source Zerohedge), but quantum would matter a lot. Anonymoushttps://www.blogger.com/profile/00241473863683186386noreply@blogger.comtag:blogger.com,1999:blog-1540057389458334563.post-4733853896982941442015-08-13T11:22:28.546+01:002015-08-13T11:22:28.546+01:00of course this depends upon the intention and cred...of course this depends upon the intention and credibility of PBOC. The last paragraph in the main text indicates what can go wrong. A little loosening the band here and changing fixing there may not stop the expectation of continued devaluation. That is not necessarily bad. It will be bad if it is unmanaged.nemohttps://www.blogger.com/profile/09061859156431677511noreply@blogger.comtag:blogger.com,1999:blog-1540057389458334563.post-1209048652038043432015-08-13T08:33:12.622+01:002015-08-13T08:33:12.622+01:00you are right, this is dumbed down with too many a...you are right, this is dumbed down with too many assumptions there. the impact of currency misalignment in international trade is murky and non-linear, theoretically and empirically. The point is do you think it is start of a trend and towards undervaluation. Forget about UK and Germany; they are only examples. Suppose the world has three countries, A, B and China. A only exports to china, B only imports from China. If there is a devaluation leading to adjustment to fair value, then most trade theory agrees world as a whole will see improved growth (Pareto efficient). How the growth is shared is complicated. But that also means it does not make sense for a world wide risk-off move. Unless you think the Yuan move is growth-negative. Which perhaps means Yuan is moving towards unfair devaluation in sustained manner. Or it will create deflationary pressure (I do not think it will), or there is a chance PBOC is misunderstood, and this creates uncertainties in Yuan for a sustained period. Something in that line.<br /><br />So my basic assumption is I trust PBOC and think this is one-off controlled move. And I think the move is towards fair valuation than under valuation. And this will start no currency war (look and TWI CNY). So I am reasonably certain the risk assets will shrug it off pretty soon.nemohttps://www.blogger.com/profile/09061859156431677511noreply@blogger.comtag:blogger.com,1999:blog-1540057389458334563.post-54381411071720347442015-08-13T06:38:00.045+01:002015-08-13T06:38:00.045+01:00Well, you have made a huge assumption of revenue b...Well, you have made a huge assumption of revenue being constant and there are two more implied assumptions here: Import from China is mostly goods and that UK end products face no competition from Chinese ones. Now while the second assumption is correct, the first and third are definitely not. The major markets for UK end products are EU and UK itself and Chinese products become more competitive in both these markets now. Hence, real possibly of revenue falling, whether due to lesser sales or reduction in selling prices.Unknownhttps://www.blogger.com/profile/17335696964901990995noreply@blogger.comtag:blogger.com,1999:blog-1540057389458334563.post-68706342289810963412015-08-13T06:37:29.146+01:002015-08-13T06:37:29.146+01:00Well, you have made a huge assumption of revenue b...Well, you have made a huge assumption of revenue being constant and there are two more implied assumptions here: Import from China is mostly goods and that UK end products face no competition from Chinese ones. Now while the second assumption is correct, the first and third are definitely not. The major markets for UK end products are EU and UK itself and Chinese products become more competitive in both these markets now. Hence, real possibly of revenue falling, whether due to lesser sales or reduction in selling prices.Unknownhttps://www.blogger.com/profile/17335696964901990995noreply@blogger.comtag:blogger.com,1999:blog-1540057389458334563.post-32866926613209590972015-08-12T08:07:48.556+01:002015-08-12T08:07:48.556+01:00Stock markets are not directly related to a countr...<br />Stock markets are not directly related to a country's trade surplus or deficits. It is driven by the profit and loss impacts of the resident companies in that country. If Germany has a surplus, you can assume German companies gain revenues by selling to the Chinese, and let's assume the cost is unrelated to CNY. A CNY depreciation will reduce revenues with same cost base. Net impact is lower profit and that feeds in to the stock market negatively. For UK it is the reverse. Companies purchase from China, and again let's assume the revenue is unrelated. So CNY depreciation makes input costs cheaper, and margins better. So markets should go up? No?nemohttps://www.blogger.com/profile/09061859156431677511noreply@blogger.comtag:blogger.com,1999:blog-1540057389458334563.post-44492601304459345992015-08-12T06:37:30.135+01:002015-08-12T06:37:30.135+01:00With CNY depreciating, all countries having trade ...With CNY depreciating, all countries having trade relations with China face the prospect of falling trade surplus/rising trade deficit. So both DAX and FTSE should fall some, right? So what is the surprise?Unknownhttps://www.blogger.com/profile/17335696964901990995noreply@blogger.com