Prudent Bear and nodoodahs on Yuan revaluation

[nodoodahs]

http://www.prudentbear.com/internationalperspective.asp

If you read it later than Aug 1 '05 you may need to look at the archive. The Jul 26 '05 piece is the one I reference.

Sporadic quotes (it's a long article):
... it will almost certainly be recognized for what it is: an entirely political event, cleverly timed to make President Hu Jintao’s state visit to Washington in September less contentious.

...But it can also depreciate. Read the small print. In announcing the revaluation, the Bank of China also said that each evening, it would set a new trading range for the Yuan to move within on the next trading day. To add to the uncertainty, each day's new range may not necessarily be expressed in terms of dollars, the bank warned. It did not provide examples, although one would imagine that the euro, yen and the British pound would be possible alternatives. Here’s the conundrum: under the new system, if the euro, yen, or the British pound were to continue to sell off against the dollar it could conceivably cause the value of the basket to fall relative to the dollar, and thus would have the effect of lowering the external value of the Yuan. Imagine how Washington would react to that.

So we have a cosmetic revaluation policy in which a hitherto transparent peg has been replaced with something far murkier. This policy shift therefore gives enormous discretion to China's leaders to push the Yuan up or down as they choose. And it is akin to waving a red flag at the speculative community ...

...It may be the case in fact that China’s monetary authorities are fully aware of the country’s underlying fragility and that the notion of re-pegging the renminbi against a basket of currencies will in the future provide scope, not for gradual revaluation, but devaluation ...

End of quotes from Prudent Bear. Start of quotes from nodoodahs.

On Jun 21: If the revalue comes between U.S. con(opposite of pro)gress gets out of session, and before the Chinese VIP visit upcoming to U.S., it allows them to "save face" and not look "pressured."

On Jun 29: I believe the Chinese government will allow the Yuan to move within a trading range, small at first and then expanding. Perhaps they will set up a basket of asian currencies to trade vs. the dollar, much like the dollar index. When this happens, there will be a nice, short-term spike in the value of the Yuan (and any other currencies in that basket) vs. the dollar. also Currently Yuan speculation is rampant and it may be nigh unto impossible to play the Yuan directly. Because of rampant speculation it may be easy to lose money playing it directly, and the government might get involved in foreign holders and their holdings (!).

On Jul 22: On gold - I don't think it's so much a "it's cheaper now so they'll buy more" argument. I think (and maybe I'm mischaracterizing the TH boys' position here) the argument for gold bullishness comes from:
1. gold is now legal for "joe blow" in China to own
2. their government is encouraging it
3. they are a nation of prudent savers and gold is a good place for prudent savings, an insurance policy against future RMB currency moves (many many years down the road)

Now perhaps we see why the Chinese government is encouraging gold purchases? Perhaps this is bullish for gold?
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.