patrick.net

I can't help but think that this is an indicator that the Yuan RMB is or will soon be at bubble levels.

The conventional wisdom is that the RMB is undervalued. What if the truth is the opposite?

Once the China housing bubble bursts, and I think it will burst in a most spectacular fashion (barring massive intervention, mind you), it seems likely that RMB will DROP in value, just like USD did when our bubble burst, and perhaps even more permanently so.

I wonder what the motivation of People's Bank of China is with respect to opening branches in the US? They want US citizens to be able to hold deposits in RMB? This will increase demand for USD-->RMB exchange in the short term, and make RMB more expensive. This is the opposite of what is good for China as an exporter, and in fact is what the US/Obama/Congress have been demanding for severals years now.

The mind boggles. somewhat. Not investment advice, buyer beware.

justme says

I wonder what the motivation of Bank of China is?

The bank of china is the government of china. Goals are: Short term, keep congress off their backs. Long term, become the world's reserve currency.

Goal is to diffuse criticism of closed capital markets.

It's a shitty deal. The interest paid is well below their inflation rate. I'll take 1% on my USD thank you very much.

It's still an EXTREMELY closed, controlled economy. Outsiders can't own land, or most stocks or bonds. The only reason China can own so much treasury debt is we let anybody buy it. China does not offer the same openness.

SF ace says

The rate of interest for savings is so paltry vs. inflation and peer that the Chinese have no choice but to chase after stocks and homes. If you can’t gain 30-40% with substantial investment base a year minimum, you are falling behind relative to others.

This is the same as what happened in the US, but amplified by a factor of 3 or 4.

There is no chance this will end well for China.

Anyone here can invest in Chinese yuan right now through two ETFs (exchange traded funds). These are --

CYB = WisdomTree Dreyfus Chinese Yuan
CNY = Market Vectors Chinese Renminbi

These trade just like stocks, although they are structured like a mutual fund, without the associated fees. All you pay is buy and sell commissions to your broker. You can set stop and limit orders on these, too.

You may also walk into most US banks and exchange your US dollars for yuan as long as you have an account there. This will require you to pay a commission/fee to the bank for this service, and you will be limited in the amount you may transfer at any one time. You will need to call your bank for details, and to pre-arrange your order for yuan.

The Renminbi (RMB) (sign: ¥) is the official currency of the People's Republic of China (PRC). Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC. The primary unit of renminbi is the yuán. One yuan is subdivided into 10 jiǎo, which in turn is subdivided into 10 fēn. Renminbi banknotes are available in denominations from 1 jiao to 100 yuan. Coins are used infrequently compared to banknotes, and have values from 1 fen to 1 yuan.

I trade the ETFs mentioned above in my self-directed Roth IRAs, traditional IRAs, and taxed accounts.

bob2356 says

Long term, become the world’s reserve currency.

Paul Krugman just wrote a blog post about the perceived and supposed but ultimately not-so-real advantages of being a reserve currency.

Among other matters, he points out that there are multiple countries that are able to support a high debt/GDP ratio WITHOUT being the issuer of a generally perceived reserve currency.

He also points out that before the 1990 burst of the Japan bubble, there was widespread discussion that Yen should become the new reserve currency. This did in fact not occur, and this should be food for thought as well.

http://krugman.blogs.nytimes.com/2011/01/17/the-role-of-the-dollar-who-cares/

Another sign that China is going badly:

Forged "commercial paper" (short term commercial loan contracts) in China

http://market-ticker.org/akcs-www?post=177673

I find it interesting that the three obvious alternatives to the US dollar are perpetually murdered in the mainstream media and on the mainstream blogs.

Gold and silver = The bubble is always about to burst. Been that way for 10 years now...
Chinese yuan = The Chinese bubble economy is always about to burst.
US real estate and land = The bubble is still bursting.

Time is ripe for a US dollar crash right about now. Sure would make for a fine wealth transfer of the US middle class, wouldn't it?

Anyone feeling trapped yet? How about lied to?

SF ace says

RMB have plenty of room to gain in relation to the USD so it’s a safe play. Many believe 1 USD for 3-4 RMBS is parity. I would love to see this opp in SF.

The rate of interest for savings is so paltry vs. inflation and peer that the Chinese have no choice but to chase after stocks and homes.

So, for a Chinese person, Yuan deposits are so lousy that they have no choice but to invest elsewhere, but for me it's a "safe play"?

Hmmm. I don't buy it. Sure, the Renminbi is below what it would be if they weren't buying US treasuries, but there is no guarantee that will stop, and no guarantee the Chinese economy won't stumble badly, and most importantly, there are indications their banking system isn't sound (bad loans)

MarkInSF says

SF ace says

RMB have plenty of room to gain in relation to the USD so it’s a safe play. Many believe 1 USD for 3-4 RMBS is parity. I would love to see this opp in SF.
The rate of interest for savings is so paltry vs. inflation and peer that the Chinese have no choice but to chase after stocks and homes.

So, for a Chinese person, Yuan deposits are so lousy that they have no choice but to invest elsewhere, but for me it’s a “safe play”?
Hmmm. I don’t buy it. Sure, the Renminbi is below what it would be if they weren’t buying US treasuries, but there is no guarantee that will stop, and no guarantee the Chinese economy won’t stumble badly, and most importantly, there are indications their banking system isn’t sound (bad loans)

When you are fully denominated in a currency (USD) that is controlled by a central bank that seeks to dilute the currency (USD) endlessly, any other currency backed by a country GDP of double-digit growth (China) seems like a great idea. Better than sitting in USD-based cash or money market funds. Volatile, manipulated (PPT and FSB) equity markets that defy fundamentals are not generally comforting unless you use technical analysis regularly, and swing trade only.

Chinese yuan is no longer pegged to USD, though the Chinese govt continues to keep them in synch. This will eventually end. When it does, the USD will likely be obliterated soon after that.

If you trust what you read in the financial media (and paid-for blogs) you are trusting the fox in the henhouse. Raw market data such as the COT report (large speculators) is far more dependable (long positions in USD currently outweigh puts, 2 to 1). For most, it's easier to pay attention to the mainstream financial media which tells you what they want you to hear (info specifically designed to help you transfer your wealth without you realizing it).

BTW, the Chinese govt has been telling its citizens to buy gold, instead of sitting in yuan. Not everyone everywhere has the same opportunity or same economic situation. You cannot apply one method to all people globally.

Billy Jack says

BTW, the Chinese govt has been telling its citizens to buy gold, instead of sitting in yuan.

That sounds fishy. Do you have a reference for that?

justme says

Billy Jack says

BTW, the Chinese govt has been telling its citizens to buy gold, instead of sitting in yuan.

That sounds fishy. Do you have a reference for that?

I've read it a few times from different sources, including from Chinese news sources. Found a quick one for you without spending time on this, using Google News...

http://www.telegraph.co.uk/finance/personalfinance/investing/8260049/Anthony-Bolton-Gold-is-the-only-commodity-to-buy.html

"Chinese investors have also started to take an interest in gold, he said, where previously they were buying American bonds."

Finding a reference to Chinese govt telling citizens to buy gold was a little harder to run across. Did read it though. If you aren't checking who controls or owns the news source for everything you read, and researching their affiliations with commercial banks, thinktanks, the UN, etc. then not sure why this would matter.

Billy Jack says

When you are fully denominated in a currency (USD) that is controlled by a central bank that seeks to dilute the currency (USD) endlessly, any other currency backed by a country GDP of double-digit growth (China) seems like a great idea. Better than sitting in USD-based cash or money market funds. Volatile, manipulated (PPT and FSB) equity markets that defy fundamentals are not generally comforting unless you use technical analysis regularly, and swing trade only.

Chinese yuan is no longer pegged to USD, though the Chinese govt continues to keep them in synch.

I disagree. yuan/usd is allowed to trade in a narrow range, but is still tightly controlled by the Chinese central bank, which just prints new yuan to buy dollars when yuan gets too strong. China is far more guilty of seeking to dilute it's currency endlessly than the US. They're the ones with rampant inflation. The Fed is just trying (unsuccessfully) to rekindle private lending. Yeah, the Chinese growth story is great, but it's not clear to me that investing in their currency is a good way to ride it.