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MarketWatch reports China’s state-run press just issued a warning to billionaire trader George Soros: Lay off our currency.
Soros is famous for “breaking” the Bank of England in 1992.
The U.K. government was suffering 15% inflation at the time. It tried to prop up the pound’s value by pegging it to a rising German Deutschmark.
Soros took a $10 billion short position against the British pound. The government capitulated, and Soros walked away with $1 billion from the trade.
In a Bloomberg TV interview last week, Soros revealed he was betting against Asian currencies. He also said the Chinese economy is due for a “hard landing.”
He expects the Chinese currency—the renminbi—to further devalue against the U.S. dollar. That prompted the Chinese government’s reactionary response…
The Chinese People’s Daily piece blames Soros for “increasing volatility in already unstable financial markets.”
The article raises another “red flag” on China…
The Chinese economy has grown at double-digit rates for a quarter-century (2015 U.S. gross domestic product (GDP) growth will struggle to hit 2%).
China burns as much coal as the rest of the world—combined. It accounts for about half of the world’s consumption of steel, copper, and aluminum. And in the last three years, it’s poured more concrete than the United States did in the entire 20th century.
But singling out one man as a target—even if it’s George Soros—shows the desperation the Chinese government is feeling right now.
Chinese stock markets have lost $1.7 trillion since the start of the year. The Shanghai Composite index is now down 47% since its June 2015 high.
Blaming a foreign entity—a traditional enemy, “terrorists,” or evil “market speculators”—is a classic “go-to” move for governments under duress.
They need to turn their peoples’ anger on anyone other than themselves. Their own currency manipulations cause these booms and busts.
China’s latest “freak out” won’t surprise regular Daily readers…
They know Tom predicted a massive reckoning for the Chinese economy.
Here’s what he wrote in the December 2015 issue of The Palm Beach Letter:
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The U.S. dollar’s been climbing in value for the past few years. The renminbi—artificially pegged to the U.S. dollar for the last decade—has appreciated alongside it. This has not been good for China’s export-heavy economy. A stronger renminbi means China’s lost billions in export sales. Its goods were simply too expensive (factoring in the “strong” renminbi when making currency conversions into other “weaker” global currencies). Countries looking to buy Asian goods were choosing China’s cheaper neighbors, like Myanmar, Vietnam, Taiwan, or Thailand. This is why we’ve seen China’s GDP decrease every consecutive year since 2007. It’s now growing at its slowest pace in 25 years. China’s GDP will contract even further in 2016. |
Bottom Line: You know a government’s desperate when it vilifies foreign parties for its own misdeeds. China’s economy is in trouble. Expect more downside ahead… and more renminbi devaluation. Stay long the U.S. dollar.
Palm Beach Letter subscribers should review Tom’s “Do Not Own” list of the top Chinese-related ETFs. If you hold any of them in your portfolio, sell them right away.