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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (36530)	7/21/2005 8:03:13 PM
From: russwinter	Read Replies (2) \| Respond to of 110194

I wonder how the 0.3 "daily change" works? In theory they could just let the Yuan trade 0.3 higher a day, for another ten days, and ratchet up 3.0% more? Say it Ain’t So, Hu Jintao by Charles Mackay, Thursday July 21 2005 wallstreetexaminer.com Today’s yuan/renminbi revaluation may have dire consequences for the dollar and bond markets –depending on what weight the dollar takes in the new Chinese basket of currencies. Details of China’s new basket weighed yuan/renminbi currency system are not available at this time. Should the US dollar represent only a minority share of the total new yuan basket, a major change would take place in its support mechanism for the US dollar. If China sets its new basket valuation based on Mainland China exports, the US dollar would only have about 25% or so of the total valuation. They may conceivably then give the US dollar 25% of weight in the new basket, with another 25% each in the Euro and Yen, with balance in other Asian currencies. This would be roughly equal to the respective export trade weights from the Eurozone and Japan, respectively. Defending the new basket of currencies above would be much easier on China’s stressed financial system than the current ad-hoc system of US dollar support by the People’s Bank of China. The PBC would suddenly no longer have to buy about $300 billion of US$ per year to maintain the renminbi/dollar rate. Rather it would only need buy about $75 billion per year to keep its new basket stable. It’s doubtful any country could fill in the $225 billion yearly financing hole left by such a change in policy. What will happen to the dollar and bond market after that could be dramatic. The sudden loss of China’s support from the dollar and bond market could precipitate a plunge. Unless the Fed steps in quickly by increasing its money market purchases, bond yields may quickly escalate. Supporting the dollar would be more problematic. A move to an easier monetary policy by the Fed may accelerate any downward dollar momentum. Treasury Secretary Snow and Fed Chairman Alan Greenspan may find that getting their wished for change in China’s forex policy will make the economy worse, not better, if the US dollar gets only a small piece of the new renminbi pie.

To: mishedlo who wrote (36530)	7/22/2005 10:57:25 AM
From: russwinter	Read Replies (3) \| Respond to of 110194

On the issue of the currency basket and Chinese reserve holdings, I don't think there is any doubt that it will have a strong pan-Asian flavor, with far less USD. Net net that means US Treasuries and agencies will not be rolled over as before, or will be rolled over at lower levels. This will result in a withdrawal of vendor financing for the US, and does not bode well for the interest rate complex. Just follow the next few auctions for confirmation of this. The Fed will now be forced into the monetization game, no more transferring of inflation abroad. Anybody found a good intra day yuan quote source?