Omm Nom! Nom! Nom!
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Looks like Mr. Limm and kin are trying to take away our punch bowl. Not bloody likely, I say.
You see, the Chinese really only have one way to cauterize the inflation wound they are already seeing in their economy — and that’s by removing themselves from their peg to the U.S. dollar. They can make all the noise in the world about raising reserve requirements and dampening loan growth, but they will will still strain to be heard over the “clack-clack-clack” of the U.S. Mintex 3ooo Printing Robots in the basement of Ben Bernanke’s Transylvania Castle.
I say, if the Chinese refuse to de-peg their currancy and let the Yuan run free, naked and untethered, they ought to just continue to get drunk and buy stocks. It’s the only rational thing to do when you are allowing your currency to be devalued right along with that of the Great White Ghost across the Pacific.
And let’s face it, there’s only so much iron ore, coal, copper, lead, zinc, chromium and every other heavy metal for industrial usage left in this globe. Outside dredging the Hudson River, that is, but even that reclamation project is years away. The Chinese know all this and realize the only way to keep those prices cheap to them is by miming along to the dollar prop story.
Again, raising Chinese reserve ratios is not going to do that if Helicopter Ben is easing quantitatively as fast as his machines can print, purchase and store massive haystacks of U.S. cabbage like he is. We all know (and yes, the Chinese leadership knows) that fast cash to you is just heading right back into the Chinese economy via click-bought and big box consumer goods purchases (oh, and look here, retail sales are strengthening… wonder where those goods are coming from?). What’s more, that money, once washed up on the shores of the South China Sea has to go right back into the commodity markets as the Chinese continue to build out infrastructure and purchase raw materials inventory.
Here me now and believe me later — The Chinese cannot “whip inflation” by themselves while they are tied to the dollar, and while their growing economy is tied to our consumption. These are infrastructural realities that are not going to change because the Chinese CB has decided to take a stern line on lending reserves. So sorry.
My take? Eat a samich (sic) this morning until at least 11 am to see where the market settles out. Gold is currently down only about $16 (less than 1.5%) and silver, as usual is taking it harder, down 44 cents (2.8%), with the DXY at a current $80.64. I continue to believe this is a shakeout, and that the dollar will not continue much higher than here, despite all this “nooze” circulating to keep it propped. If we break much above $81, however, I will be forced to reassess, and perhaps take a little off some of my riskier metal plays.
Best to you all.
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Update: I notice in my haste to get out this morning’s post that I neglected to give you a run down on yesterday’s purchases (which were recorded in real time on The PPT, of course, as were today’s). Yesterday I added to the following positions:
2k Petroleo Brasileiro SA (ADR) [[PBR]] @ $40.60
4k Exeter Resource Corp. [[XRA]] @ $8.46
2k Eldorado Gold Corporation (USA) [[EGO]] @ $12.66
2k Thompson Creek Metals Company, Inc. [[TC]] @ $12.67
10k NGAS Resources, Inc. [[NGAS]] @ $1.62
1K Sociedad Quimica y Minera (ADR) [[SQM]] at $37.06
This morning’s purchases (also “adds”):
2k [[PAAS]] @ $21.75
4k Gold Fields Limited (ADR) [[GFI]] @ $11.75
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SSRI – what a bunch of loosers! Glad its my smallest metal pos … prob should rotate out & into something worthy
I just added some PAAS. SSRI is now my smallest silver position.
Carrying it only to ward off “The Curse of Jake.”
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Thanks Jake, great stuff. DXY is breaking down right now…
Great Post! Not that I could ever imagine that the US administration is actually that smart, but part of me thinks this was the plan all along to knock the Yuan off the teat.
I also feel that even with the Chinsese policy change it will only take them from RED FUCKING HOT to TEXAS CHILLI HOT, which is still more than enough to bank coin off of.
Cheers
Jake,
I think we can all agree that the Chinese will stop buying treasuries.
Not today, but it’s not a matter of if, only when.
So the question is, what are they doing today to move in that direction.
My concern is that whenever you (one) thinks all bases are covered and nothing else is a possibility, something that was never though of actually happens.
Here’s the thing– I win either way.
The Chinese stop buying treasuries, they will still have to buy something with their dollars… I hope it’s commodities (it’s already becoming a lot of PM’s btw).
Also, I own a metric shitte tonne (sic) of TBT.
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Well said.
you sir are a true gentleman and a scholar.
good day you.
regards
chuck
Agreud
I am bleushing (sic).
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Very insightful post. 10 stars.
“Hear” me now … parochial schooling???
Only 12 years of it.
(Well, technically, the grammar school was “parochial.” The high school was an all boys Catholic regional school, drawing kids from all over Lawn Guyland, Brooklyn, Queens and Ma-hah-ah. But not Staten Island. Those kids were barred.)
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Hahaha …. Bet Fly was from SI
Brooklyn, actually.
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I think I speculated a few months back that that fly lived on Smith Street. I was close.
[redacted], yo
I am heartily sorry for having disclosed stuff I should not have. Please do not ban me.
Okay.
Great use of onomatopoeia with respect to your money machine quip.
“allowing your currency to be devalued right along with that of the Great White Ghost across the Pacific.”
I think you meant depreciated, not devalued. A devaluation is an official action.
I’ve been reading about record short positions in the Euro and usually when information like this becomes public in the MSM, either a parabolic blowoff top/bottom occurs or it’s time to take the opposite side.
Wouldn’t a de-pegging of the yuan allow further global growth vis a vis buildout/exploitation of the other SE Asian countries? They would provide competition to the Chinese thus making it better for the sum of the global economies as China SLOWLY becomes self sufficient. In other words, another place where we can stimulate growth, have them make our shit, and a place to export America’s and China’s inflation?
I think you meant depreciated, not devalued. A devaluation is an official action.
Not sure if you were meaning to be ironic here, but I laughed in any case. 😉
I’ve been reading about record short positions in the Euro and usually when information like this becomes public in the MSM, either a parabolic blowoff top/bottom occurs or it’s time to take the opposite side.
Indeud. I think I may have mentioned this a time or two…
I agree w. your thoughts on the yuan, but apparently the Chinese gummint trusts our CB more than they trust themselves.
Either that, or they’ve decided to sacrifice consumption today (for their people) for long term investment in their country, via the artificially low yuan rates.
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“clack-clack-clack” of the U.S. Mintex 3ooo Printing Robots”
I literally LOL’d at that. Great post, again.
jake, ubs had some interesting macro commentary about how inflation was solely due to commodity prices and to the extent that china stops stockpiling and buying raw materials at such a rampant pace, they solve their inflation problem as commodity prices remain soft for 2010…I uploaded the commentary to Scribd below:
http://www.scribd.com/doc/26781606/Risk-on-Risk-Off
I think he misjudges why China is “stockpiling” raw materials. He says “who will buy (US) paper?” but then goes on to say that China will limit their purchasing of commodities.
Well, which is it? Even if they claim they will limit growth 9% annually, that’s still a lot of exporting to guess whom?
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What inflation really does is to change the relationships of prices and costs. The most important change it is designed to bring about is to raise commodity prices in relation to wage rates, and so restore business profits, and encourage a resumption of output at the points where idle resources exist, by restoring a workable relationship between prices and costs of production
525,600 apologies
Floris, Iowa?
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No, just an appropriately gay response to your comment.
Jake, what are your thoughts on the RGLD acquisition of ROY? Will it happen in the end? Is that what is currently weighing on RGLD shares?
Could be a reason for some of the downdrift, but most of it was just the same selloff you were seeing in all the PM’s since their highs in December.
Whether or not they are successful in this acquisition, I don’t see it greatly affecting their long term value one way or another.
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Watch BAE System stock on tuesday after the bell. Watch it drop.
Porquoi?
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Re metals, coal, etc., you said: “The Chinese know all this and realize the only way to keep those prices cheap to them is by miming along to the dollar prop story.”
The above is precisely the opposite of the case. If the Chinese free-floated the RMB, the dollar would plunge relative to their currency and stuff traded in dollars would become cheaper from the Chinese’ perspective. Further, this strengthened RMB would raise the cost of Chinese-manufactured goods to the great US consumer and result in a decrease in the quantity of tons of stuff that we would be able to buy, further decreasing demand for commodities …unless Chinese and others consumers pick up the slack.
The above is precisely the opposite of the case. If the Chinese free-floated the RMB, the dollar would plunge relative to their currency and stuff traded in dollars would become cheaper from the Chinese’ perspective…
Yes, but this blog’s thesis is built upon a foundation of the historical study of rational action by persons and states.
China certainly could free float the RMB, but they’d be cutting their own throats in doing so. Like the Japanese before them, the Chinese are relying on their dollar peg to keep their prices artificially attractive to the American consumer. This drives American (and other Western countries’) investment in their capital infrastructure, bringing them closer and closer to First World status at a breakneck pace.
If they allowed the RMB to float free, they would say goodbye to their export dependent economic growth as consumer demand would drop off and opportunistic capital would seek a cheaper labor environment. Make no mistake, this is already happening, even with the RMB peg in place, as increasing standards of living in China begin to drive higher wage rates.
The Chinese government is well aware that they must continue this export led growth or suffer an economy damaging consequences right at the critical point of inflection in their transformation from a (3rd World) producer to a (First World) consumer economy. So, despite the vociferous demands of our Democrat Congresscritters looking to save union jobs here, it’s highly unlikely they will unpeg any time in the five or more years.
So I guess I should’ve caveated my premise by saying “The only way they can insure lower prices without risking internal revolution…”… 😉
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“The Chinese know all this and realize the only way to keep those prices cheap to them is by miming along to the dollar prop story.”
“..this blog’s thesis is built upon a foundation of the historical study of rational action by persons and states. ”
Oh.
???
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There is another big deficit, big economy that has had easy money for a couple decades now. Note their inflation rate and trend:
http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=JPY
Yes, there are differences between us and Japan …and I, like Jake, am positioned for Ben’s inflation to win …but there are many possibilities. Some might argue that, once a country is as in debt as we are, our FED becomes fully de-balled.
Yes, but I think that result would be premised upon the US losing its reserve status.
Not an unlikely, event, btw…. and maybe more likely to happen (or at least happen before) than the RMB de-peg.
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Hey Jake, you haven’t posted much about your short treasuries (TBT) position in a while. Just wanted to get an update from you. We’ve been RANGE-BOUND since last June, nearly 9 months. I’m starting to get a little impatient as it still seems like the bond market boys still haven’t gotten that whiff of higher rates on the horizon. Where is the catalyst for that final breakdown in treasuries (i.e. breakout in our short position)?? I’m convinced over the long-term short US treasuries will be BIG $$$$. But I’m torn on the intermediate term here…
Bull case for U.S. treasuries: EU-specific problems, Minimal U.S. recovery (necessitating low rates), low inflationary environment (due to slow global economic growth), “safe haven” in time of uncertainty, continued Quantitative Easing
Bear case for U.S. treasuries: Worldwide sovereign risk, China stops buying (boost Yuan/punish U.S. for one reason or another), loss of confidence in all fiat currencies, inflationary environment (due to stronger global economic growth), end of Quantitative Easing
So, now that I’ve laid out both cases…how do things shake out in the intermediate-term? 🙂
Intermediate term is always going to be a trader’s domain, and I don’t buy TBT to trade it (except at the extreme ends of the bear move). That said, it respects the fibs pretty well, and it doesn’t seem to want to get much below $43 recently.
If you recall, it spent some time in the 30’s last year… I don’t expect it to get below $42.50 this year. If it does, I would revisit and likely sell.
Otherwise, it’s an anchor tenant.
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