Last week President Trump had his Treasury Department brand China as a currency manipulator.
Is the President right to call out China as a currency manipulator?
Most currency analysts and financial news pundits say the President is wrong, that China didn’t manipulate its currency and the President, by implication threatening to knock the U.S. dollar down in retaliation for alleged Chinese manipulation, will sink world trade and equity markets.
So, what’s really going on?
The Truth of the Yuan Conspiracy
Technically, the President was wrong last Monday when he said China was manipulating its currency lower on the immediate heels of the yuan breaking 7 yuan to 1 U.S. dollar.
I say technically because according to my sources at some of the biggest bank currency trading desks in the world, the Chinese weren’t visible in the market days before the yuan fell again against the dollar.
They said the latest selloff of yuan began in the forward markets where multinational companies sold yuan forward anticipating they’d need less yuan to buy Chinese exports as the trade war intensifies.
That forward selling turned into spot selling by currency traders who didn’t want to be holding yuan as it fell in forward and futures trading and wanted to profit from further devaluations.
In other words, market conditions, principally driven by the President’s trade war with China, has been driving the yuan down in recent days and weeks, and not direct intervention and selling by the Chinese.
At least not last week.
President Trump simply used the occasion of the yuan’s breaking 7:1 against the dollar to add considerably more pressure on the Chinese in the heated battle over trade policies, China’s protectionist positioning, and its support of theft of U.S. and global technology advances by almost any means, legal and moreover, illegal.
History reveals the truth.
But, of course, China is a currency manipulator. It has been a known manipulator since entering the World Trade Organization in 2001.
Of course, China is a protectionist state operator and encourages forced technology transfers and outright theft of technology and trade secrets.
How else can China’s incredible, unimaginable, and otherwise impossible rise from a poor third world country to the fastest growing, most technologically advanced manufacturing first order country in the world, with the second biggest economy on the planet have happened in only 18 years?
The answer’s simple. By manipulating its currency, keeping it cheap against other countries’ currencies, including its Pacific Rim trading partners, China’s exports flooded international markets and gave China the foreign currency reserves it needed to keep manipulating its currency and at the same time allowed it to buy hundreds of billions of dollars of U.S. Treasuries to placate the U.S. government and politicians who were hearing from constituents that China was stealing their technology.
It took a strong-willed, America First president to call out China and go to war with the colossus the United States directly aided and abetted.
What equity markets are reacting to now, just like the companies who sold yuan in the forward markets, is that this so-called trade war is actually a real war.
The Chinese aren’t going to rollover. The President isn’t going to kowtow to U. S. business interests that haven’t been harmed by China’s manipulation and theft, that want to get back to business as usual.
Markets are going to be volatile and hang on every news item about trade talks with China.
But they aren’t going to see a resolution any time soon.
That’s because China will never admit it stole technology and will never agree to future punishment if it breaks any agreement it must sign to save its economy from where its headed, into a recession.
So, buy VIX calls every time the market rallies and the VIX falls below 15.
And hedge your long bets against market selloffs that are with us now no matter how high up benchmarks can crawl.
Chinese Aggression is Concerning…
Trade and currency wars are of concern, but that’s not the only front in which China has become a threat.
My associate Dr. Kent Moors, a former high ranking intelligence officer and advisor to the highest levels of the U.S. government has informed me of China’s increased militarization of the South China Sea putting not only their neighbors on alert, but U.S. soldiers stationed there.
For the past several years, China have been occupying a chain of the Paracel Islands and from there Beijing has been upgrading facilities in the region… deploying surface-to-air missiles, building 20 hangars at the airfield, upgrading two harbors and performing substantial land reclamation.
Escalating aggression from the Eastern Superpower has everyone in the intelligence community on guard. Especially when it comes to the country’s newest armament.
A weapon that can bypass every defensive measure of US Aircraft Carriers in the vicinity, taking them off the board entirely… Read more.