I’ve been working on a very lengthy post regarding the Renminbi and what China is actually doing with it (spoiler: they’re struggling to defend it not actively devaluing it). However, I’ve been working 70+ hour weeks for almost a month now and am chronically short on time and don’t want to half-ass it with charts etc.
With that said, there’s just so many interesting things happening right now that I think it’s worth throwing a few things out there:
Offshore yuan looks to be trading ~1.5% lower at the moment which is a considerable move.The 10-year is below 1.40%Gold is notably higher… I could see gold becoming a “screw it, I don’t have a better idea” trade and that’s coming from someone who is as far from a gold bug as you can get.The big wild card: BOE Governor Carney’s remarks at Jackson Hole over the weekend were nothing short of earth shattering with the suggestion that a replacement is needed for the USD as the global reserve currency. I’ll note that Carney only outlined a problem and only said of a solution “not this”. The closest thing he suggested to a currency, a “Libra-like” basket of currencies similar to an SDR… would actually achieve nothing. At some point I’ll dedicate a long post to future monetary policy options. You can read the full text of his speech here: https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/the-growing-challenges-for-monetary-policy-speech-by-mark-carney.pdf?la=en&hash=01A18270247C456901D4043F59D4B79F09B6BFBCThe Turkish Lira just flash crashed ~15% (not surprising since the TCMB is has depleted its FX reserves) https://www.bloomberg.com/news/articles/2019-08-26/lira-s-sudden-crash-catches-japan-s-mom-and-pop-investors-againThe G7 has decided to not issue a communique for the first time in history: https://www.cnbc.com/2019/08/22/g-7-summit-us-china-and-other-allies-expected-not-to-sign-joint-communique.htmlMacron decided to invite Iran’s foreign minister to the G7. It didn’t go well. Macron invited Modi to discuss “inequality” but actually struck the events in Kashmir from any official discussion. France wants to sell India weapons badly. China looks like it is about to roll into Hong Kong with force It’s not only China central government’s authority but also its responsibility to intervene when riots take place in Hong Kong https://www.bloomberg.com/news/articles/2019-08-25/china-signals-intervention-as-hong-kong-s-protests-intensify
Russia is blaming a spat of Cesium-137 poisoning on “Fukushima Crabs”… surely it has nothing to do with the Rapid Unscheduled Disassembly of a prototype nuclear-powered cruise missile, right? 🤔 For perspective, the U.S. developed a similar weapon back in the 60s and even ground-tested the engine but never bothered to actually test the missile because they realized there simply was no safe place to test it even over the vast swaths of Federal land in Nevada (White Sands etc.)A Chinese province defaulted on a dollar-denominated loan (amazingly nobody seemed to notice)I have a crazy theory that Japan will have to recapitalize their banks sometime in the next ~18 months. I don’t know if it will matter though.
I’m probably missing a bunch of stuff. Discuss
I don’t have any finance observation but interesting conversation last night with teacher from my kids school. Over the last 10 years we have hosted a lot of Chinese students at high school level. This teacher was telling me that a particularly intelligent young Chinese man commented that he did not think China would be the next world power in a discussion in civics class. Reason being Chinese not original thinkers. He said, “How many Chinese have been awarded a Nobel Prize” His other observation was that corruption is rampant in China.
The teachers observation was that plagerism was routine with Chinese students. The school had to make special efforts to change that viewpoint with these students.
I don’t have any finance observation but interesting conversation last night with teacher from my kids school. Over the last 10 years we have hosted a lot of Chinese students at high school level. This teacher was telling me that a particularly intelligent young Chinese man commented that he did not think China would be the next world power in a discussion in civics class. Reason being Chinese not original thinkers. He said, “How many Chinese have been awarded a Nobel Prize” His other observation was that corruption is rampant in China.
The teachers observation was that plagerism was routine with Chinese students. The school had to make special efforts to change that viewpoint with these students.
Creative thinking doesn’t prosper in China. As soon as you create anything even mildly successful, it gets copied. And outside the box thinkers are discouraged. You either fit into the system or you get social points deducted. They are their own worst enemy in many ways.
Gold is notably higher… I could see gold becoming a “screw it, I don’t have a better idea” trade and that’s coming from someone who is as far from a gold bug as you can get.
Did anyone get rich buying gold the last time (2011)? Yeah, sure professionals did, but your average libertarian who decided the USD was going to die?
It peaked in Sept 2011 at $1928. By June of 2012, it was down to $1250. Last Friday, it’s back up to $1527
Makes me wonder what is going inside those trade talks. With Hong Kong protests intensifying I wonder if that is being discussed. Would the US look the other way if the Chinese gave in on some of the trading talks?
What amazes me is if China is coming to the table, that means they really can’t hold off till the 2020 elections. Or is it another smoke screen?
Reason being Chinese not original thinkers. He said, “How many Chinese have been awarded a Nobel Prize”
This is currently one of the great delusions in the west. Its a not so subtle twist on the ol’ racist idea of ‘oriental inferiority’. 100 years ago it was common knowledge that ‘orientals’ were lazier and less intelligent than the European colonialist. Read the literature or news of the day to get a flavour. I love the writing of the Nobel prize winning author Joseph Conrad but his work is rife with those beliefs of the day. These two ideas have been easily discredited - visit any university campus to see that east Asians as just as smart, and ask any global factory owner to see that they are as hard working (probably harder working these days) than westerners.
That leaves the innovation question.
Its clearly not a cultural / Confucian thing as the Chinese the the word’s foremost innovators until the modern era (Gunpowder, compass, printing, rockets and toilet paper… https://en.wikipedia.org/wiki/List_of_Chinese_inventions)
The Chinese have fallen behind on innovation in modern times because China went to politically / economically to hell just as the industrial revolution was starting. Modern innovation is tricky
You need capital and the structure of modern research centers, with IT systems, computers, and a critical mass of collaboration between various specialists. Japan achieved this in the 70’s. Korea in the late 90’s. China is still getting there.
But look at the data for Patent applications. China now out-patents everyone. And the gap is growing. Japan and Korea are top 5 in the world.
There are a couple of interesting commentaries in addition to carneys statement. The first is that the US is no longer a reliable partner.
The second which I questioned was how do you have a independent fictional currency with no control over monetary or fiscal policy?
The euro has all sorts of issues, not least its value differs North to South in Europe and taxation is viewed very differently north to south
How would a trading currency independent of the dollar work. How would FX rates work?
Who in their right mind is currently stupid enough to lend to China…
It’s a bit like asking Woodford to invest for you
Brexit will have repercussions, as bat shit crazy and bojo and cummings are, the UK is a significant economy and the disruption will have repercussions
Patents are a terrible means of measuring innovation. The whole patent system is messed up and works against innovation in a lot of ways. It’s great for lawyers though.
I sat in on a second round of funding presentation for a Chinese gene testing startup last year.
All the participants were first generation us born Chinese attracted back to shenzhen by the Chinese government offering deals and assistance to start ups
“China” may not have been particularly innovative but I’m guessing there are plenty of Chinese working in silicon Valley who are
The presentation I saw was not a copy of existing tech, these guys were from market leaders starting a new company developing next gen products.
Very interesting. The economy may be a basket case but how many innovators do you need when there are a billion of you
As one of my friends who had a great idea and filed and application found out patent applications don’t equal patent granted. Don’t know how patent applications translate into a measure of innovation.
As one of my friends who had a great idea and filed and application found out patent applications don’t equal patent granted. Don’t know how patent applications translate into a measure of innovation.
Not every baby turtle makes it to the sea. Patents are a leading indicator. Certainly a better one than Nobel prize winners.
What quantifiable measure / metric do you have to support your premise on China’s lack of innovation?
In the 1970’s Japan’s economy was growing rapidly but was still the butt of American jokes because all they did was manufacture low quality tin whistles. But the late 80’s America was collectively over-reacting that the Japanese were going to take over the world as they perfected Kaizen / lean manufacturing, and started to lead with their electronics innovations.
I predict that by 2030 the west will be in a tizzy again as the Chinese suddenly appear to have leap-frogged the west with some space / military or industrial advances.
As one of my friends who had a great idea and filed and application found out patent applications don’t equal patent granted. Don’t know how patent applications translate into a measure of innovation.
The bigger problem is that the patent office is completely overwhelmed and does not have the resources properly manage all the patents they receive. This has led to the rise of patent trolls and corporate bullying with patents. Software patents in particular have become a legal quagmire.
