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TLDR: China is actively fighting domestic capital outflows. They are incentivising keeping funds on-shore by pumping the equity markets. Buy large China stocks (BABA, JD).submitted by 1poundbookingfee to wallstreetbets [link] [comments]
Inb4 pos or ban
China has a fixed exchange rate regime. Blah blah RMB internationalization, blah blah offshore RMB (which is actually settled in US dollars). This places it within line C of the policy trilemma (which says, you can't sustainably have all 3). Since 2005 to about 2017, the government was moving towards free capital mobility because of large amounts of exports which fed the national forex reserves. You bet billions of RMB left China, which the government didn't really like at first because that reduced domestic investment and would contribute to a weaker RMB. Basically, China was trying to do all 3 which works for a short while... until your forex reserves run out.
The Current Problem
The trade war has definitely been bad for China. I am going to try and skip politics, but basically foreign exchange reserves have been gapping down (official Chinese data is 100% fake). China is increasingly bellicose as well, which doesn't improve relations with trading partners who also buy with US dollars.
You can't exchange for US dollars anymore. For private citizens, you can only exchange for education purposes or travel . For companies, you need verification of invoices through both SAFE (State Administration of Foreign Exchange) and the tax offices. This used to take 24hrs, but is now taking 2-3 weeks for amounts >$500k. China also has US dollar denominated bank accounts. But unfortunately, you can't take it in cash unless you have the reasons above. Chinese media is also branding holding US dollars as unpatriotic, so I'm afraid my $50k in digital money might be subject to confiscation. If not, it's just fake money (can't take cash or wire out).
China has been brrrrrring to the pace of JPOW. Weapon of choice are muni and local bonds, which have been forced upon local banks. This creates a certain credit problem, but let's not worry about that until later.
China's pretty smart. All those RMB quotes are fake. You can try to get US dollars, but that is almost impossible now. Anyone who wants to buy RMB, contact me and we'll trade at the current price. So looking at the impossible triangle, free capital mobility has become nonexistent. In order to keep exchange rate stability (to avoid a sudden rush towards the door) and keep printing, free capital mobility needs to be 100% sacrificed.
How do you do that with a population that has seen the west and aspire to get out? You need to keep the money onshore. Thankfully, all Chinese are greedy and the equity markets are full of retailers that pump stocks up or down 10% per day. This is one of the reasons for the early July State Council report calling for everyone to buy stocks. Who's buying? Everyone. And if it drops, the national team takes over.
This creates a powerful incentive to fill the foreign reserves again. Foreigners (funds) would want to get in on the action. They will exchange their dollars for RMB, get those 20% gains, but eventually find out trying to get that money back into USD is impossible.
China has also been strengthening the RMB from 7.10 to 6.96 as of yesterday. Smart, because why would you want to sell an asset that's weakening? This is also a reason why China fears gold rallies - buying gold causes RMB to leave. Happily for the SAFE, some banks have stopped offering their paper gold products.
China will pump its domestic markets. Unless you have a Chinese account, the closest thing you can get to are mega names like Alibaba, JD and Tencent. I would avoid touching too small companies because of LK coffee problems.
Oh yeah the trade war? Well, pussies don't make money.
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Sup retards, back at it with the DD/macro.submitted by TaxationIsTh3ft to wallstreetbets [link] [comments]
scroll to the rain man stuff after the crayons if you don't care about the why or how.
June 19 $250 SPY puts
May 20 $4 USO puts
SPY under 150 by January next year.
So I was going about my business, trying to not $ROPE myself as my sweet tendies I made during the waterfall of March have evaporated, however, I heard that the fed was adding another $2.3T in monopoly money to the bankers pile specifically to help facilitate these loan programs being rolled out.
In short, they are backing these dumb-ass, zero recourse, federally mandated, loans with printing press money.
But cumguzzler OP, your title is about inflation and guage simp--try, why are you talking about the fed #ban.
Well, when you print money it is an inflationary action in theory. Let me explain.
EDUMACATION TIMEWhat is inflation? Inflation is the sustained increase in the price level in goods and services. Inflation is derived from a general price index, and in the US, from the consumer price index. Knowing that inflation is an outcome, not a set policy is very important. Inflation is a measurement after the fact, much like your technical astrology indicators. (**ps, use order flow in your TA you wizards**)
HOWEVER, the actual act of buying bundles of these loans does not directly impact inflation.
Now what is Gauge symmetry? Gauge symmetry is a function of math and theoretical physics that can be applied to finance models. What a gauge is, is a measurement. Gauge symmetry is when the underlying variable of something changes, however, we do not observe that variable change.
A great example of this is if you and a friend are moving, and your friend is holding a box of tendies. The box is a cube, equal on all sides. If you turn away for a moment and she rotates the cube 90 degrees while you are not looking, and you look back - you would have no idea the cube was rotated. There was a very real change in the position of the cube in relation to space-time. Your friend acted on it. But you didn't measure it, in fact it would be impossible for you to determine if the box was changed at all if you weren't observing it. That movement of the box where you didn't observe it, is called gauge transformation and happens literally more then JPow fucks my mom in quantum physics. The object observably exactly the same even though it is not physically the same. The act of it existing as an observably the same box is gauge symmetry - it is by observation symmetrical.
Why this is important, is that fiat money doesn't have any absolute meaning. The value of $1 is arbitrary. furthermore, Inflation is a Guage symmetry. Inflation has no real impact on the real value of the underlying goods and services, but rather serves as a metric to measure the shift of value across a timeline.
When JPow starts pluggin' your mom along with all these balance sheets, there is a gauge symmetry event happening. The money he is printing is entering the system (gauge transformation), this isn't an issue if all pricing against the USD get shifted equally, however, the market is not accounting for this money because we don't have real-time data on what is being applied where, we only get a slow drip in terms of weekly and monthly reports. WE HAVE OUR EYES CLOSED. This is a gauge symmetry event.
When this happens in real terms, the market becomes dislocated from its real value price. Well how do we know there is a dislocation?
"YoU JuSt SaId tHe UnDeRlYiNg VaLuE iZ AbStRaCkKt HuRr QE aNd MaRkEtS Iz ComPlEx ReAd A TeXtBuK AbOuT FrAcTiOnAl ReSErVe BanKiNg YoU NeRd." - **anyone rationalizing the bull run**
We can look at Forex you fish.
USD lives in a bubble. The Yen is in a bubble, the RMB is in a bubble, and we exchange with each other. the Jap central bank has little effect on the CPI index (cost of goods and services) of the US. If the Yen prints a gazillion dollars, the USD is not effected EXCEPT in its exchange rate. YEN:USD would see a sizeable differential the more Yen is printed and vise-versa.
So NOW instead of JPow getting away with plowing your girlfriend, we can catch the bitch.
Instead of looking at the gauge transformation at face value and then giving up because it is symmetrical output, we can look and see if this gauge symmetry carries over to the foreign exchange market. Well guess what happens when you look at the value of the USD against foreign currencies.
Consistent uncertainty during the fed operations. Meaning the market of banks that partake in FX swaps don't know where to spot the USD. Generally a very very bad thing.
Value of the USD to Euro 2017-2020, notice the slow decline, then the chaos at the end
Above is the value of the USD to Euro, notice the sloping decline. The dollar has been growing weaker since 2017. At the end you see our present issues, lets #ENHANCE
USD to Euro, January 2020 to Present
When you see those spikes, those are days in between Fed action. The value of the US goes up when the fed doesn't print because people aren't spending. Non-spending is a deflationary event and has a direct impact on the CPI. However, each drop when you line up the dates, was a date of Fed spending.
Lets look outside of the Eurozone.
This is the RMB to USD. Yes China manipulates, but look at the end of the graph
China manipulated rates early in 2018 however you can see the steady incline upward towards the of 2018. More specifically, lets look at it since December.
RMB value against USD, January to Now
You Can see the Chinese RMB has been gaining steam since December, even with Chinese production falling off a cliff all through this pandemic.
What this rain man level autism means for the economy.Looking across the board at Forex we can see the USD having a schizo panic attack jumping up and down like me at a mathematics lecture.
But what does all this gauge BDSM and shit have to do with the markets? Well it shows 1 of 3 things are occuring.
It is very important to understand that inflation is only a measurement, and itself does not denote value of real goods and services.
Option 1 of a print fiesta that works (something similar to 1981-82) seems possible. A similar environment and reaction occured in the early 80s when the government brute-forced a bull run using these same offset theorems but in that situation, Volker at the fed had interest rates at 21.5% and had 20% to come down to stimulate the inflationary reaction.
Long term this would just lever up more debt and expanded the real wealth gap over time because we kicked the can down the road another 15 years. If that happens again socioeconomically I don't see capitalism surviving (yeah Im on my high horse get over it). This is the option that many fiscal policymakers and talking heads abide by and the reason why the markets are green. However, it is really just kicking it down the road and expanding real wealth inequality. You think Bernie Sanders is bad, wait until homes cost $3million dollars in Kentucky and AOC Jr comes around.
If we get option 2, we see hyperinflation and we turn into Zimbabwe, which is great, I've always wanted to see Africa. Long term we could push interest rate back to 1980 Volker levels and slowly revalue the US against real value commodities already pegged to the USD like oil. This would be a short term shock but because of international reliance on the USD system, we could slowly de-lever this inflation over 2-3 years and be back to normal capacity although the markets would blow their O-ring. Recession yes, but no long term depression.
If we get option 3, the worst long term option in my opinion, basically any company with any revolver line drawn down when that hits is going to go under, private equity won't touch it with a 20ft stick because cashflows couldn't possibly handle the debt on the end of the lever, and we see mass long term unemployment. The only way out of the spiral of option three is inflationary pressure from the fed+government, but because we are already so far down the rabbit hole at the current moment there's no fucking way we could print another 10 trillion. USD treasuries couldn't handle the guh and we would essentially be functionally forced into a long term (7-10 year) depression because nothing anyone could do would delever the value of the dollar. This would result in the long term collapse of the United States as a world power and would render us like Russia in 1991.
Thank you for coming to my ted talk.
|submitted by ToharBaap to geopolitics [link] [comments]|
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