THOUGHTS ON “THE REDBACK REVOLUTION” Part 1
Casey Ciccarello MARCH 5, 2015 AT 2:11 AM This article makes lots of sense in explaining the reason for the ghost cities, but is what you’re saying evidence based or conjecture?
JC Collins MARCH 5, 2015 AT 2:43 AM Evidence based, as always. Reference the following link. It’s extremely engaging material about China’s urbanization plans. Unfortunately there is only so much I can focus on in a blog post. Enjoy.
Matt McBride (@MattMhmmcbride) MARCH 5, 2015 AT 2:38 AM Hi JC, Great article!
1.RELATED FINDS & RELEVANT ARTICLES
The managed exchange rate has served its purpose (as you have termed the yuan the “mule” carrying the multilateral process toward its integration).
“What many people don’t understand is that to maintain the pegged value of the currency, the central bank must effectively ‘print’ yuan to swap for dollars.”
I agree the yuan will appreciate.
I disagree with what the below article [which is a great read] from dailyreckoning supposes, the yuan is to the contrary undervalued as you have correctly stated, and coupled with the required disclosure of its gold reserves as part of the IMFs disclosure requirements (which I am expecting will be much larger than predicted approx. 6000-7000 MT) there will be increasing faith in its future store of value, especially when it becomes the 5th currency entered into the SDR basket:
“But maybe the damage done by China’s credit bubble — the malinvestment and the huge amount of bad debts created — means that the yuan will actually fall, not rise against the US dollar, if left to market forces.
If confidence in the Chinese economic miracle starts to wane, then the currency will decline whether China runs a healthy trade surplus or not. Look at Russia — their trade surpluses haven’t stopped the ruble from taking a beating recently. It’s all about confidence.”
I mentioned in the prior essays forum:
“By depegging from the USD, the undervalued (some may disagree on this) yuan can float and appreciate to a realistic value.
An appreciating yuan would strengthen the SDR vs the USD and provide further diversification to the basket.”
The projection figures and scenario analysis in this paper by CEPII will help give further clarity to our forum members.
2.US VETO & 2010 REFORMS UPDATE
On a separate note as per the attached article by the fiscaltimes, on April 17-19 2015 the IMF and World Bank spring meeting will discuss “which…options to pursue…before settling on a plan, according to people who were not authorized to speak publicly” [how to move forward with the 2010 reforms and US veto]
It seems things will come to light quickly with the timeline standing at:
3. CURRENT CALENDAR FOR TRANSITION TO MULTILATERAL
April 2015 – IMF & World Bank meet to discuss US veto and 2010 reform options
May 2015 – Informal SDR basket review
May – June 2015 – Yuan depeg initiation + Gold reserves announced to the IMF
June 2015 – Greece extension expires
Sep/Oct 2015 – SDR basket review formality
Nov 2015 – G20 meeting in Turkey
4. TWO QUESTIONS
Finally, just hoping to pick your brain on two things:
With regards to sovereign bonds related to the QE programs of the FED, BOJ, ECB and BOE, a large majority of such bonds are held by these central banks, key insider banks, or even government departments.
If yields significantly rise on these sovereign bonds in a crisis manufactured in Europe (and that spreads around the world), these central banks or key stakeholders in the new system being the FED, ECB, China, Bundesbank, BOJ, BOE, JPM, GS, will suffer tremendous capital losses.
The IMF would also incur tremendous risk and losses under an SDR bond substitution model with Chinas USTs (or any bond exchange that occurred under a SDR bond creation to liquidate the system) if such a yield spike occurred over the next 6-18 months after the IMF took them on their books.
This cost would be on top of the exchange rate and yield differentials of USD vs SDR and UST vs SDR bonds in the substitution account.
At the moment the FED for instance has made great capital growth on the treasuries purchased in the QE programs with the 10 yields dropping to under 2%.
Q1: Is there a way that the “crisis” used to transition to the multilateral SDR system will effect the retail investors, and leave the central bank bond assets relatively unscathed? Or are central bank losses not a concern to them in the scheme of things?
I can see the stock market having a 20-30% correction (or 40 – 60% correction in useless tech stocks) at the expense of the retail investor (to be picked up after the correction by insiders and smart money on the cheap) &
I imagine a bank crisis could be limited to the banks themselves (see that european banks currently hold large exposure to other European bank bonds), with the ESB and FSB taking control of the banks (at the expense of the shareholders/creditors), recapitalising them, and selling them back into the market at a profit.
Q2: Do you see the SDR basket nation bonds/currency (and Gold) being pushed as the only safe havens in the upcoming crisis, as despite their large debt/GDP, the SDR bonds issued for liquidity will keep ie teh UST, JGB respective yields low, thus having retail, bank (and non SDR basket nation) capital pour into such bonds and currency from the stock, property and bond markets of Canada, Australia, Korea et al emerging markets (which will take the brunt of the losses)? Thanks again for your great work Matt
JC Collins MARCH 5, 2015 AT 2:58 AM Matt, as always, thanks for the comment and expanding on the posts content. You’re doing us all a great service. I figured this one would initiate a detailed response from you.
In regards to your questions, I’m beginning to think retail investors are going to be left on their own. The approaching bond crisis will be something of a head fake as the SDRM process, and substitution accounts which will freeze rates, are utilized effectively.
The reduction in risk will create a flood of capital from stocks and into bonds. And as you have stated, non-production based tech stocks will be hit the hardest.
Does that answer your questions? I hope so because I’m tired now.
Thanks again for all the additional information. Great contributions my friend.
Matt McBride (@MattMhmmcbride) MARCH 5, 2015 AT 3:32 AM Thanks for the response and the kind words. Ah ha. I did not consider the rate freeze for the SDRM and SDR substitution :)
The head fake will screw the retail investors bond value (as yields sky rocket in temporary panic). Many will panic and take losses as they bail on bonds for cash/gold/stocks etc.
Martin Armstrongs 2015.75 big bang is only partially right (because it will be in fact only a head fake).
The yield freeze and SDRM/substitution process will allow the bulk of the sovereign bonds (held by central banks and key inside banks) to avoid losses on the head fake movement (due to their knowledge), and successfully liquify the system with new low cost SDR bonds…
confidence will return to sovereign debt and the volatile stock market will continue to drain malinvested capital to the more stable SDR bonds, or resources priced in SDRs.
You have helped me complete the final gap in my knowledge of how this will likely play out.
…I forgot the time difference between Aus and Canada. wǎn ān (mandarin for good night)
ps A “redback” is one of Australia’s most deadly spiders.
Dripfood MARCH 5, 2015 AT 8:28 AM Matt, your projections of troubled Central Banks are quite interesting.
It’s not hard to imagine, how a global Central Bank crisis would benefit consolidation into regional CB’s and eventually one global CB.
We might be observing a Central Banking crises being slowly engineered by ways of the QE programs. Though I guess it won’t mature before another decade (or two) has passed.
Bennybenfari MARCH 5, 2015 AT 5:30 AM So basically it’s going to comes down to timing. I’m sorry I’m completely in the dark when it comes to investments but anyone who’s invested in Bonds should stick with them in the long term?
Right now my investments in my brokerage link fidelity account are in GLD, PALL, SGOL, and TSO (precious metals). When this “head fake” occurs I should see a significant rise in my investment value correct?
Orendareview MARCH 5, 2015 AT 6:31 AM JC, Perhaps the globalization of China’s National New Urbanization Plan should be understood as a part of Agenda 21, with China’s plan being a regional development of this massive reorganization of global resources under the rubric of sustainable development. Thoughts?
Nevenmeic MARCH 5, 2015 AT 11:57 AM “China is literally advertising its currency overseas, and it’s making sure that everyone landing at one of the world’s busiest airports sees it.”
nevenmeic MARCH 5, 2015 AT 12:29 PM “This process will be used in Greece and the Eurozone as the multilateral develops further into its broader global framework. See post BRICS SDR to Bailout Eurozone.”
This was never said officially before! “They gave money to save German and French banks, not Greece,” Paolo Batista,one of the Executive Directors of International Monetary Fund….
He urged Greece to directly negotiate with the IMF and favored the restructuring of the Greek debt that is been hold by the European partners.
speedspirit MARCH 5, 2015 AT 2:07 PM If China is going to grow its middle class then all those folks are going to want to eat more meat and drink more wine.
So since we average folks are not in the boys club of wall street why play in their casino.
Take the money out and exit the game that’s rigged. Get a nice farm somewhere and live a better life without all this time spent worrying about complicated things we have no control over.
The soul prefers a lifestyle of reflecting on matters that make the soul grow not digits on a screen.
nanook73 MARCH 5, 2015 AT 3:25 PM You are reading my mind speed spirit. Had a great conversation with a client of mine yesterday who is a sales executive for a large agricultural company.
Both of us are typically middle/upper middle class people and both of us are feeling pretty “burnt out”. We both agreed that we are feeling like there is something more to this life than simply chasing (and never quite grasping) the almighty dollar/success (whatever that looks like). We are like hamsters on a wheel that can never get off for fear of what may happen if we do.
The older I get the more I realize what I’d really like to do is just grow/create things and reflect. Sounds kind of corny but the more I think about it the more at peace I tend to feel.
There is something about this corporate/hamster like existence that is not healthy for the soul. Somehow I get the feeling that the life/existence we have created for ourselves in our societies is not how we were intended by our creator to exist.
PS – JC – interesting explanation of the ghost city phenomena. It will be very interesting to see how it plays out over the next few years. Has been a hot topic of conversation at my dinner table more than once.
Martinoloughlin MARCH 5, 2015 AT 2:28 PM Thanks JC! This post has been very enlightening to say the least. I travel to China and have seen these cities first hand. I ask the factory owners what its all about and I could never get a straight answer… Quick video I took from my travels…
China's Ghost Cities & International Construction
Norman Ball MARCH 5, 2015 AT 7:02 PM How do you avert war with a side that is **** bent on having it, more specifically with a side that has decided its viability is premised on the necessity of war?
If we can’t precipitate Russia into war in the Ukraine, then we will park NATO forces on its borders. This is tantamount to lighting a fuse and then blaming the other side when the bomb explodes.
Yes of course, some will argue the elite is creating the fearful prospect of war in an effort to press an otherwise unpalatable economic agenda. Perhaps. Occam’s Razor suggests simpler answers. 1)
The world looks chaotic because it is. 2) The appearance of war is not a cunningly devised diversionary projection. Rather, it looks like the start of war because it IS the start of war.
In a well-written Hollywood script, a series of disparate loose ends tie up into a nice and clever bow at the end. We applaud at the end of the movie. Ingenious!
What if world affairs is not a tightly orchestrated script and everything is not moving along just the way ‘they’ want it to? Yes, we say there is flex in the script of life.
I agree the overarching plan must be adaptable in its finer points. When something doesn’t fit the guys at Veterans Today have a handy catch-all: psych-ops.
The need for an all-knowing elite is palpable, though few would admit it. The most terrifying prospect of all is that no one is running the joint.
Comments may be made at the end of Part 2 Thank You