 Day 2 isn’t nearly as positive as Day 1.
A day after the Chinese government announced that it would end its policy of keeping its current strictly pegged to the U.S. dollar, the world is getting an object lesson in exactly how slow any appreciation in the Chinese yuan is going to be.
On June 22 the yuan actually fell by 0.23% against the U.S. dollar.
That’s right. The yuan fell. It actually got cheaper against the dollar. The drop was the biggest since December 2008.
This comes a day after the MSCI Emerging Markets Index climbed 2.6% on confidence that the decision meant that the People’s Bank of China would now allow its currency to appreciate against the dollar. That would, markets bet, help Asia’s other exporters who were losing market share to Chinese exporters as their currencies appreciated against the yuan and the dollar.
I don’t think today’s drop in the yuan signals that after just one day the People’s Bank has abandoned plans to let the yuan gradually appreciate. I think a 3% gain for the currency against the dollar is still a good forecast for 2010.
But the People’s Bank doesn’t want currency speculators racking up profits from that policy. Today’s drop in the yuan is a not so subtle reminder that betting on the drop of the yuan isn’t a one-way, no-lose play.
That it takes some of the enthusiasm out of emerging stock markets is just a side effect.
“Sometimes the answers don’t come from Jim….”
Yes, that’s the way I use public boards also. I just thought it odd that the messages started with “Jim,”.
Thanks.
C.
Sometimes the answers don’t come from Jim….
Cassandra,
I can’t speak for Jim (which of course is the preface for where I attempt to speak for Jim without his permission), but based on his posts, I assume he spends much of his time researching, so he doesn’t really have time to answer every question thrown at him.
As for why people continue to ask even though Jim doesn’t answer, sometimes he does answer.
darylwhitman, java12jack, EdMcGon, and many others:
Almost every day, I see people here addressing what seem to be questions to Jim Jubak. He never answers, at least not here, and presumably nowhere. Presumably the people ‘asking’ the ‘questions’ have also noticed this, and yet they keep on doing it.
What does this mean? What am I missing about the nature of the new Web media?
Thanks.
C.
sigli,
It does scare me how little about economics the general population knows, and how much politicians take advantage of this fact.
Ed,
I wouldn’t argue with that, but think there’s more parts to it, something of pieces with different weightings.
I think there’s a huge problem with know-it-alls, self-righteousness, pride, etc. Know-it-alls don’t vote statesmen who will perform due diligence for them–ya know, the job of elected officials– they vote dogmatic politicians, and politicians love power.
People who don’t know the first thing about economics seem to have all the “right” solutions. Society is polarized into a bunch of know-it-alls who are really a bunch of ignoramuses. I’ve found the dumbest people tend to be the ones who are screaming about how stupid others are. I blame this attitude for the power problem you talk about.
But that’s just my worthless opinion.
grindy2424,
I noticed BRAZ. It’s definitely one to watch going forward. But like you, I feel it is too new to buy now. I only bought a relatively new ETF once before, and that was PALL (a physical palladium ETF), but I’d been watching the palladium market for a year when I did that, and I waited a month before buying that one.
sigli,
Part of the problem with considering both sides in the current political environment is that both sides want one thing: political power. The only difference is how they plan to exert control over our lives. Even if you support the views of one side, and don’t mind giving them control over certain aspects in your life, are you then willing to give the other side equal control over the aspects they choose? This is why the bipartisan divide is so strongly contested. People forget that the government inevitably changes, and the “other guys” get into power. When that happens, the “other guys” will use the same authority given to the previous guys to enact their own agenda. When you sacrifice your rights to government because you think government can do a better job of something than you can, don’t be surprised when a new government comes along and uses those rights you gave up to control you in other ways. (NOTE: I am using the rhetorical “you”. I don’t mean you specifically.)
Thanks all for the heads up on Gas Land. More reading for those interested:
http://www.politicsdaily.com/2010/06/22/gasland-the-battle-over-energy-extraction-moves-inland-from-t/
What concerns me is our society moving away from foresight and risk assessment, whether it’s offshore drilling, hydraulic fracturing, social security or the budget in general, GSE’s, war, TARP, HARP, HAMP, TALF, Obama’s stimulus, Bush’s stimulus, trade with China, energy policy, whatever. The attitude seems to be do what sounds good now and not only don’t worry about tomorrow, but scream at those who do, call them names, and take the attitude “the majority is against you and we won the vote so ha ha ha ha!”.
Considering all sides is not a contemporary value.
I just saw gas land last night, scary stuff. Hopefully ‘the spill’ will help get companies to pay for some of the ‘external costs’ of doing business, instead of the individuals who are effected, like Jim has wrote about in the past. It is disgusting what they get away with. If a land owner says his water is no longer drinakble because of fracking, they say prove that it was from the fracking, and who is going to win that battle, a rich company’s lawyers or an individual and their lawyers?
What better way to show that the peg is history than to have the yuan first go up and then down etc.
Ed,
I’m looking through the new ETF launched in Brazil today (BRAZ) to see if there are any great buys within the fund. Wouldn’t buy the fund for awhile… We should start to see some great growth with 2014 world cup and Olympics coming so I am starting to get ready to shift LONG term here.
I think I’ll start to wade in soon. China is likely to take off like a rocket with one of the patented moves up before people can catch it.
Actually when everyone was talking about the yuan increasing after remove of the peck, I was reading several article warning that it might go the other way, because the euro crisis and such.
As for Nat Gas. I have been reading about the extreme dangers of “fracking” for at least as long as people have been talking about how all our problems are solved because we now can get so much from the process. They were warning that people’s water is already being contaminated. Of course denied by the oil companies. And as for the containers for the contaminated water used in the process. Well when you basically break up rock over a long distance and pump water into it, what makes people think that some of it won’t leak out?
I guess people think of ground water as if it all exists where you pump it out from, but in reality water feeds that spot from miles around. Water contamination is one big problem the US has, and it is going to get worse.
@Ben and Southof8:
I live in PA where they are doing a lot of Nat Gas exploration in the northern Tier. I was up there last weekend and saw a lot of trucks hauling these big red rectangular containers. I was told by a local that the companies put the polluted water in these containers, put them on a pad somewhere in the middle of nowhere to sit for the rest of their lifetime. Of course one must hope that these containers never get leak. My guess is when they do, the company will conveniently transfer their assets to another “company name” so they can claim bankruptcy and not have to deal with the “frack-filled” waste containers.
Then there is the damage to the roads from all of the trucks hauling this stuff – the weight typically exceeds the weight limit for the road. The state was so dumb that they didn’t put in a clause for the companies to pay to repair this damage. So the taxpayer will end up footing the bill.
In Centre county PA alone, there have been 8 wells tested, none have produced anything and there are 192 permits requesting exploration for additional wells. So much for “clean” energy.
I’m truly torn in whether I invest in this stuff or not. Part of me says they are going to get away with it anyway so I might as well make some $$ so I can move out of here once they ruin the land and the ethical part of me doesn’t want to support this. The PA legislature has made some bad decisions regarding this exploration. New York is smart enough to impose moratorium’s on their exploration to see where PA screws up.
grindy2424,
Will do. Brazil is good too, although there seems like there are more specific opportunities in China than Brazil, although Brazil as a whole might be the better play in the long run.
When in doubt, there are always the Brazilian ETF’s like BRF and BRXX.
Ben, what is Gas Land and where can it be seen?
The jury is definitely still out on fracking; whether it pollutes water supply is pure guesswork- kind of like whether capping a well 5000 feet below sea level is doable.
Those with skin in the game say it’s not; but lots of greenies who have no stake say it’s geologically destabilizing and a threat to underground water supplies.
What mechanisms does China use to peg itself to US currency? Is it buying treasuries? So does this mean it will sell some it’s tresuries?
all investors should watch ‘Gas land’, fascinating.
As someone who has been very bullish on domestic nat gas long term, this raises some VERY serious concerns on the viability of ‘fracking’.
thoughts?
Ed,
I like the China as well as the Brazil connection.
Would love you to share what interesting searches you come across…..
Will post mine as I find them.
djpoints,
I am currently more interested in Chinese companies at the moment. With economic weakness showing up in the U.S. and EU, China seems an even better play going forward.
well said
Most of the media missed the most important part of the China-peg-$ story. As reported in the NYTimes on Sunday evening…right after the Chinese announced in English that they would remove the peg, they monitored the blogs, etc. to gauge their people’s reaction. Needless to say, this announcement caused an untense and unfavorable reaction. So what happened? The same leaders reissued a new statement in Chinese stating for all intents and purposes the peg would remain.
And to the ques in the post above, yes, a deprec Yuan favors Chinese exporters, but as Jim pointed out, Not the rest of Asian exporters.
Yuan Gain May Alter Global Growth More Than Velocity (Update1)
http://noir.bloomberg.com/apps/news?pid=20601010&sid=a3KVAn12SCeI
Ah
From a strict peg on the dollar to ..
A mildly rigorous peg on the dollar.
Jim,
Wouldn’t the yuan depreciating be good for Chinese exporters? Granted, it wouldn’t help China’s inflation problem.