China Says "No Mas" to Cheaper Yuan. Here's Why You Shouldn't Listen...

Today’s Pfennigfor your thoughts…

Good day, and a tub thumpin’ Thursday to you!

Well, another day, another day of devaluation of the renminbi by the Chinese government. Last night it was 1.1%, marking the downward move in the past 3 sessions at 4.6%…

We did hear Peoples Bank of China (PBOC) Gov. Yi, say that , “the adjustment is basically over,” and that, “there is no basis for the depreciation to persist”

Really? I know that I’ve always told you that you must believe what the Chinese say, because they don’t say things unless they mean them.  But could this be a twist?  I mean if you ask me, the Chinese are going about this with a vengeance.

Someone asked me yesterday how I viewed these devaluations of the renminbi by the Chinese, and this is what I told them. But first, I must make it perfectly clear here, that I have no proof whatsoever of what I’m going to say. It’s just how I see it. OK? Hopefully that will keep me out of the hot water this morning…

Well, after reading report after report about each respective writer’s view on what China was doing with their currency, I had a different thought. Different from all the others.

You see, it’s my opinion, that 1. The U.S. deep sixed China’s request to have the renminbi added to the IMF’s reserve currencies that are used to make up the Special Drawing Rights (SDR’s) that the IMF uses as global money.  The U.S. is the largest voting member of the IMF, so that all makes abundant sense to me. The U.S. can’t have the Chinese moving ahead of the dollar, it’s that simple folks.

And then 2. The Chinese decided to retaliate and devalue their currency, not once but twice and now a third time!

Now, hasn’t it been a HUGE deal for the U.S. to complain and whine about how the renminbi was too weak, and the Chinese needed to move forward with their appreciations of the currency and gaining a free floating currency?

So, what will the U.S. leaders think about this? Well, that’s my position on all this. You kick me, I’ll kick you back. That’s what it all looks like to me.

Getting back to whether or not it’s really a case of the depreciation is over or not — I have to think at this point, that is until I’m shown otherwise (I AM from Missouri, you know) that The Chinese aren’t going to keep up the large devaluations per se, but I don’t see them wrapping a tourniquet around the bleeding at this point.

In fact, I think the Chinese are going to push the envelope of currency weakness further. I think the renminbi could very well be looking at another 4% of currency weakness before year-end. That’s just my opinion and I could be wrong.

But the words by Yi, settled the markets down a bit. And with that settling down, gold backed off, and is sitting with a loss of $9 this morning.

U.S. Treasuries are giving back some gains, as yields rise from the unwinding of safe haven positions take place. The 10-year Treasury’s yield rose from 2.09% yesterday to 2.16% this morning. The  downward move in yields earlier this week was just another nail in my coffin folks.

Longtime readers know what I’m talking about. I’ve quit talking about the Treasury bubble, because the Fed became the lead coating for the bubble, not allowing a pin to penetrate and pop the bubble.

I was looking through some old Power Points of presentations I’ve made, for a slide, and came across the funny little slide I used to use, that showed a man sitting at a desk, with a look of pain, as he bangs his head on the desktop, and used to tell people that the picture was Chuck, and his thought of the Treasury Bubble popping.

Who knew the Fed was going to be Daddy Warbucks for Treasuries? We do now! Isn’t hindsight great?

I bet you’re wondering why I would bring up something that I have been so wrong about that I’m almost right. Well, just make sure you know I have some “being wrong” skeletons in my closet. Just putting all out there on my sleeve, as always!

Ok. Let’s move on, eh?

Hey! Greece’s 2nd QTR GDP grew at +0.8%! See, it’s the old blind squirrel again, finding more acorns!

Economic growth would be manna from heaven for Greece, as they could maybe grow their way toward being able to repay some of the loans/aid they’ve received.

But we all know that the chances are slim and none, and Slim left town, that Greece is ever able to payback any of the loans/aid. But right now, no one is concerned with that in Greece, and they are probably kicking back having an Ouzo and puffing on big fat cigars, celebrating the 0.8% GDP pickup.

That news did help the euro maintain the strength it had put together this week. Again, like I said yesterday, I thought most of the upward movement in the euro was being derived from outflows from China.

Once again, PBOC Gov. Yi, has basically said, “no mas” on currency adjustments, and that has settled things down around the world.

For now. Until the next black swan comes drifting down the river…

The Swedish krona is booking gains this morning against both the dollar and euro, as CPI (consumer inflation) was much stronger than expected, as it printed flat, vs. a -0.3% drop expected vs. the previous month (June). And year-to-date CPI was also better than expected and the previous month as it printed at -0.1% vs. the -0.4% expected and prior.

There’s also a report in Sweden that I like that’s called the “underlying inflation” and it’s probably more important to the Riksbank (Sweden’s Central Bank) than the headline CPI number…

Here, the underlying inflation was up 0.9% year-on-year vs. 0.6% expected. That’s more like it, and while it’s still nowhere close to the Riksbank’s target level of 2%, it’s better than what has been printing in Sweden.

I would have to think the Riksbank is in a position at this point, to just sit and watch all the monetary measures they’ve implemented work through and see what happens.

The Aussie dollar (A$) and New Zealand dollar/kiwi, took another one to their respective chins overnight, although they did rebound a bit when Yi made his comments about being finished.

I think that these two will go as the Chinese renminbi goes. As they are all a reflection of global growth, and if that’s the case, I don’t like what’s going on here.

The British pound sterling is carving out a gain vs. the dollar this morning. Here they saw a bounce in House Prices as the RICS House Price Balance rose from 40% in May to 44% in June.

Every time there’s a piece of data in the U.K. that indicates the economy is doing better and could lead to a rate hike, there’s a Debbie Downer economic report showing otherwise. And here the 3 month Employment Change saw 63,000 jobs lost.

So. the currency, pound sterling, rallied and then gave some back. Two steps forward, one step backward.

Well, as I said above, gold has given back $9 this morning. That’s disheartening to me, given the nice gains it booked previous to today. Do the markets really believe that Yi’s “we’re finished” comments are the real deal? Apparently so.

My guitar playing friend, Steve Sjuggerud, sent out a note in his letter the other day, pointing out that the Commitment of Traders (COT) report showed that the interest in gold is at a low point for this period. That’s usually when Steven, who’s a true contrarian investor, says to buy. But I haven’t hear that yet. But I thought it was important that he pointed out the negativity of the COT.

Time to back up the truck?

The U.S. Data Cupboard finally come to life today, with July Retail Sales. I told you earlier this week that the BHI (Butler Household Index) indicated to me that we could see a rebound in this data, but still nothing to beat the drum about.

Yesterday’s data cupboard had the Monthly Budget Statement, and it was worse than expected! For July, the government overspent by $149.2 billion vs. $140 Billion expected and $93 billion in June. That just drives me crazy folks.

But no one seems to even notice the debts and deficits any longer. It’s a shame. A downright dirty shame!

Yesterday, friend, Bill Bonner and his letter, Bill Bonner’s Diary, arrived in my email box, and last night I was going through email and took a few moments to read it, as whatever thoughts Bill has are usually worth taking the time to read. And this time was no different.

This one was titled: How Much Is Gold Really Worth? So, I can’t put his whole letter here, so I have a piece of it that I liked a lot. and you can read the whole letter, and hopefully sign up to get it each day, here:

Monday was the 101st anniversary of Ford’s famous announcement: He would pay his workers a shocking $5 a day.

With gold then priced at $19 per ounce, that was roughly an ounce of gold for every four days of work.

Today, the United Automobile Workers (UAW) union rate is $73 an hour, including health care and pension benefits.

An eight-hour day at this rate would earn you $654, including benefits. Four days at this pace gives the worker $2,616 – more than enough for two ounces of gold today.

So, in gold terms, the autoworker today earns about twice as much as he did 100 years ago, which doesn’t seem like much of an increase for an entire century.

Either the price of gold is too high. or too low. How’s that for a helpful analysis?

But had gold kept up with UAW hourly wages, it would be priced at about $2,485 today.

And at today’s gold price, it takes 20 ounces to buy Ford’s cheapest car.

That is six ounces more than it cost to buy the Model T. 

Chuck again. Pretty interesting way to look at gold, eh?

That’s it for today. I hope you have a tub thumpin’ Thursday!

Regards,

Chuck Butler
for The Daily Reckoning

P.S. The Daily Pfennig is first published everyday, right here.

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