Nice Bet China

tippy · #1 11-07-2007, 12:47 PM

Some currency gamesmanship going on here. China says they are diversifying out of dollars and into Euros. Does anyone really believe they would come out and say this publicly? Like saying I've got 72 offsuit and I'm putting you all in. Just not believable.

If you held dollars, you wouldn't attack the currency pushing it to all time lows. And you wouldn't praise the Euro pushing it to all time highs if you really wanted to buy it.

You would however make this statement if you wanted to dump your Euros at the top and buy dollars at the bottom.

I'm giving the long dollar trade another try at 1.47. With gold hitting 850 and oil near 100, there is inflation mounting. I still think rates are going to have to go up soon, which should benefit the dollar. At the least, rates shouldn't go down, even given the credit problems.

ItalianFX · #2 11-07-2007, 12:50 PM

If China thinks the dollar is going to keep dropping, why would they keep their currency reserves in something that is going to keep dropping? Why not put it into something that is going to continue going up?

tippy · #3 11-07-2007, 12:54 PM

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If China thinks the dollar is going to keep dropping, why would they keep their currency reserves in something that is going to keep dropping? Why not put it into something that is going to continue going up?

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But the point is, if what you say were TRULY their position, would they really come out and publicly say it, KNOWING it would move the pair wildly against their position? Would you do that if your intent was to dump your dollars and buy Euros?

Seems more likely that it is a bluff.

mtgordon · #4 11-07-2007, 12:56 PM

I don't think he's necessarily disagreeing with the policy that China says it is taking, however he is pointing out that if you were going to take that policy you would not tell everyone else until you were already done doing it.

tippy · #5 11-07-2007, 01:02 PM

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I don't think he's necessarily disagreeing with the policy that China says it is taking, however he is pointing out that if you were going to take that policy you would not tell everyone else until you were already done doing it.

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Not likely. They presently have a MUCH larger position in dollars than they do in any other currency.

tolbiny · #6 11-07-2007, 01:17 PM

[ QUOTE ]
Some currency gamesmanship going on here. China says they are diversifying out of dollars and into Euros. Does anyone really believe they would come out and say this publicly? Like saying I've got 72 offsuit and I'm putting you all in. Just not believable.

If you held dollars, you wouldn't attack the currency pushing it to all time lows. And you wouldn't praise the Euro pushing it to all time highs if you really wanted to buy it.

You would however make this statement if you wanted to dump your Euros at the top and buy dollars at the bottom.

I'm giving the long dollar trade another try at 1.47. With gold hitting 850 and oil near 100, there is inflation mounting. I still think rates are going to have to go up soon, which should benefit the dollar. At the least, rates shouldn't go down, even given the credit problems.

[/ QUOTE ]

China isn't the only player here, other countries are holding $ that they want to get rid off. The name of the game is don't be the last one holding dollars right now. China's move could easily be because they think Japan/Saudi Arabia/Russia will be moving large amounts of US currency soon and want to forstall it by hammering teh currency now, its not like China was going to be able to unload $500,000,000,000 without people noticing anyway.

tippy · #7 11-07-2007, 01:30 PM

[ QUOTE ]
[ QUOTE ]
Some currency gamesmanship going on here. China says they are diversifying out of dollars and into Euros. Does anyone really believe they would come out and say this publicly? Like saying I've got 72 offsuit and I'm putting you all in. Just not believable.

If you held dollars, you wouldn't attack the currency pushing it to all time lows. And you wouldn't praise the Euro pushing it to all time highs if you really wanted to buy it.

You would however make this statement if you wanted to dump your Euros at the top and buy dollars at the bottom.

I'm giving the long dollar trade another try at 1.47. With gold hitting 850 and oil near 100, there is inflation mounting. I still think rates are going to have to go up soon, which should benefit the dollar. At the least, rates shouldn't go down, even given the credit problems.

[/ QUOTE ]

China isn't the only player here, other countries are holding $ that they want to get rid off. The name of the game is don't be the last one holding dollars right now. China's move could easily be because they think Japan/Saudi Arabia/Russia will be moving large amounts of US currency soon and want to forstall it by hammering teh currency now, its not like China was going to be able to unload $500,000,000,000 without people noticing anyway.

[/ QUOTE ]

Interesting. So you are saying that China is holding dollars and they fear the dollar is going to fall. They know others will be selling soon. So logically they just kill the game before anyone else has a chance to get out (and in the process cost themselves nearly $25,000,000,000)???

Seems like a self defeating move and cutting off their nose to spite their face...

CrushinFelt · #8 11-07-2007, 01:57 PM

Bluffing doesn't make any sense either so wtf are you talking about? Are you saying they actually want to accumulate even more dollars than they have now?

tippy · #9 11-07-2007, 02:08 PM

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Bluffing doesn't make any sense either so wtf are you talking about? Are you saying they actually want to accumulate even more dollars than they have now?

[/ QUOTE ]

Just trying to figure out their position. If they WANTED to accumulate dollars that were at their cheapest in decades, what would their move be? If they wanted to dump Euros at their highest in decades what would they do?

I just don't see much logic in them issuing that statement for any other reason given their current dollar holdings.

Maybe China is putting on a long dollar trade here? Maybe averaging down? If they are, I'd like to be on the same side of that trade...

Thoughts?

CrushinFelt · #10 11-07-2007, 02:27 PM

I think you need to read this:

Bloomberg Article

In particular:

[ QUOTE ]
China Investment

China Investment Corp., which manages the nation's $200 billion sovereign wealth fund, said last month it may get more of the nation's reserves to invest. The company, established in September, will use about $67 billion to buy shares in the Agricultural Bank of China and China Development Bank, Li Yong, China's vice finance minister said at the conference. It will invest another one-third of its assets in financial markets.

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That is implying they will balance not by selling dollars and buying Euros and other "strong currencies", but rather by reducing their dollar reserves by inveting them.

So it would be incorrect to assume (as it seems much of the public has done because they didn't take time to understand the statements and instead jumped to the conclusion that it meant China selling $ and buying other currencies) that "balancing" necessarily means swaping reserves in one currency for another. It could just mean (and reading the actual statements it likely does mean) that they will be holding less dollars, but they will do so by investing them.

Also, I think it actually is very good for the dollar to do this. The more dollars invested in the Chinese system means the more dependent their system becomes on the dollar (thus dumping it would hurt them even more).

I think basically that a lot of people are morons, saw the headlines and said "zomg! te chinese are going to throw all their dollars into the marketplace!"