patrick.net

Ha Ha, hellboy, the Chinese have been talking about that for quite a while already. So it is not a complete surprise.

Bond price is down (yield up), but nothing dramatic. Perhaps the market does not think that the re-peg will cause too much bond sell-off?

Prat, do you have Forex exposure other than the 10% international index fund?

Cattle, the government backing of Fannie Mae is a perception because

1) It is federally chartered
2) It is too big to fail (!)

I think early payment (pre-payment) has more to do with interest rate movements (http://tinyurl.com/atqo3). I am not expert in this either.

If the credit risk of Fannie Mae is not questioned, foreclosures should not matter much to the spread. Homeowners are supposed (!) to have equity to protected themselves in case of a downturn, right? ;)

Prat, I do stocks myself. So my brokers really love me even more. ;)

BTW, the Fidelity Target funds will rebalance your portfolio based on your expected retirement date. A pretty good idea indeed.

Fake P, the Chinese has demostrated that they will only revalue in "measured pace".

I think your money is probably better served elsewhere.

(Not investment advice.)

g lammert, great site!

The terrorist trolls are striking London again. I heard that no one was killed. Thank God.

Still seems a bit premature to short financials and housing all-out.

Shorting needs to be driven technically. It is not the time yet.

Any thoughts as to where?

Anyone has figured out what basket of currencies to which RMB will be pegged?

Veritas, I am looking at CHF, NOK, AUD, and NZD. How would you get Forex exposure? Would you trade them or would you hold them?

If CHF and JPY are already too high then leveraged carry trades may be difficult to implement.

"Too high" relative to other currencies.

Forget what I just said, what I meant is that it may be difficult to borrow CHF/JPY (low interest) to buy higher-interest currencies if CHF and JPY are going to appreciate because of this revaluing move. On the other hand, borrowing USD (higher interest) to buy CHF/JPY will incur a lot of carrying costs (interest).

Peter, I must cede to your wisdom

Do not cede to the void. I have no wisdom. Just words.

BTW, I am interested in those currencies because Norway, Australia and NZ are rich in commodities. And the Swissland has fondue. :)

I do not know. My tiny brain is overloading.

One question: can China use the peg as an excuse to buy up currencies of its export competitors, thus driving up their prices and removing their competitiveness?

Zeta, I am not going to comment. The moment I make a prediction, the reverse will happen. (Not long after Bond bears waved their white flag, bond prices started to fall. This is the way of the Collective Unconscious to punish the talkative.) :)

Veritas, I agree with with except

This is NOT consistent with the governing policies of the PRC. They tend to handle dissent poorly. Remember Li Peng is the guy who “green lighted” the Tianamen massacre.

My impression is that the Chinese government is pro-wealth so long as it power is not challenged. I seriously doubt that they see the middle class wealth as dissent. I think they will actually see improving economics as a reinforcer of their power because happy and complacent people are much easier to control, so long as growth remains sustainable.

Veritas, you have a point. I do expect instability over the intermediate term.

Veritas
I just met a woman today who is raising a female child adopted from China. She told me that all the unmarried men in China are starting to form gangs because they don't have anything else to do. Off topic but interesting.

I shouldn't say ALL the unmarried men. But you get the point.

SactoQt, that would be very bad.

Peter
I really don't know much about it. But can you imagine so many young men with no one to marry? I do wonder what the long term consequences will be.

I do wonder what the long term consequences will be.

No doubt some will turn to various forms of fundamentalism.

You're probably right, but in this case I would have to hope you're wrong.

Since we are talking about the Chinese economy, how do you think this kind of instability will affect the world economy in the future?

You’re probably right, but in this case I would have to hope you’re wrong.

I certainly hope that I am wrong too.

Perhaps they can marry someone from neighoring west asian countries?

Perhaps they can marry someone from neighoring west asian countries?

Let's hope they are considered "acceptable marrying material."

Since we are talking about the Chinese economy, how do you think this kind of instability will affect the world economy in the future?

Instability is never a good think for the world economy. A country with more than 1 billion people is going to make a lot of impact.

One thing though, policy decisions are extremely efficient in China. I do have faith that they can solve the problem without resorting to war.

Veritas, have you consider the possibility that the "re-peg to basket" is a scheme to further depress the value of RMB?

Although the initial revaluation result in a gain of about 2%, they now have the flexibility to "choose" appreciation and depreciation against various currencies so long as the peg to the sum remains relatively constant. This re-peg to a basket of currencies is a very clever strategic move.

Veritas, now you are being dramatic.

Strategic nuclear weapons will never be used against another nuclear nation. It will forever remain a threat and only a threat.

I agree, but it does bring parties to the table, like Pakistan and India.

Absolutely. We only need to worry about nukes from terrorists.

Anyway, I think China's posession of nukes did played a major part in their emergence as a economic power.

Maybe they are sensing Europe and Asia would become more important export destination than US in future.

Or they now have a way to depress its value against the dollar without relying on US assets. The Chinese rarely makes a wrong long term strategic move.

Oil is the black gold. I do expect oil conflicts among economic powers. Let's hope that nuclear fusion can give some hope.

With this in mind I expect bay area prices to fall at least 10% in the August to December time frame.

This is a more daring prediction than mine! :)

I hereby reaffirm my October prediction.

By the end of the October, I expect certain credit/financial market events will give convincing evidence that a real estate crash is imminent.

Peter,

Looks like you might have called it. Given how wrong I've been the last few years, I think I prefer to prophesy after the event...

What do you think about my previous posting on the allocation of capital between various index funds? Like I said, I want boring, diversified and inexpensive rather than exciting, high potential and pricey. I'm a bit ashamed to admit that VFINX is my kind of thing. Plunk it in and forget about it for 20 years. I guess where this strategy really loses is in its lack of leverage. But it makes up for it with its lack of antacid buying.

Swing... Set. Through.

Cheers,
prat

_smile_

From ben's:

http://tinyurl.com/drt2l

Cheers,
prat

Jack Says:
Re: China currency….Looks like its time for another new thread HARM!

It looks like you guys already have a good start on the topic right here, but what the heck... Here you go:

"The China Syndrome"

Switch to the next blog (latest one) so I don't have to bounce to this one - please?

Prat, I think index investing is cool. It should work out fine.

I am just a bit wary of mutual funds. But I am wary of a lot of things including 401K and IRA. So please ignore me.

:)

I am wary of a lot of things including 401K and IRA

Peter, if you don't put any money into retirement accounts, what do you use as a write-off? My IRA/403b is about all I've got tax-deduction wise (no mortgage, no kids). Plus, with IRAs (and most 401/403s) you get to invest it pretty much any way you want to.