Saturday, May 22, 2010

China's Foul Assets

Andy Xie: China's Foul Assets, Fouler Yet

China's policies have travelled the path of least immediate resistance - monetary expansion and asset inflation. The main purpose behind asset inflation is that the government can tax it. It provides a place for people to chase their get-rich-quick dreams and is popular as long as the market goes up. It also offers insiders who have disproportionate influence to play the game at the expense of little people. It is no coincidence that China's policies have been so pro-asset-inflation in the past few years.

What more is there to say? Oops. There is more to say.

Beijing can still cope with the consequences of the bubble bursting, given its enormous assets. But it may be harder to handle if the bubble continues for two more years. To rein it in, Beijing must raise interest rates quickly. Some worry that raising rates would increase the pressure for currency appreciation, but this is probably not true. The yuan is not undervalued. When the subsidy to manufacturing for asset inflation is removed, it could be equivalent to a 20 percent appreciation in the exchange rate.

What? All those investors who piled into Wisdom Tree's CYB back on 5/14/2008 aren't going to make a killing someday? Andy Xie, tell me it isn't so!

CYB: WisdomTree Dreyfus Chinese Yuan

The investment seeks to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese Yuan relative to the U.S. dollar. The fund normally invests in a combination of U.S. money market securities with forward currency contracts and currency swaps which is designed to create a position economically similar to a money market security denominated in Chinese Yuan. The average portfolio maturity is 90 days or less. It does not purchase any money market securities with a remaining maturity of more than 397 calendar days. The fund is non diversified.

It's got the safety and return of U.S. money market securities (minus 0.45% annual fund expenses) with the potential risks and rewards of forward currency contracts and currency swaps. What's not to like? I don't know about you, but I can't seem to get enough forward currency contracts and swaps into my retirement nest egg. *sarcasm*

Perhaps the typical CYB investor knows exactly what he or she is doing though.

Most Amusing Yahoo Question:

3-5% increase over 1 year...

If the Chinese gov. only allows for this amount of currency increase, what type of annualized return do you think we will get?

Most Amusing Yahoo Answer:

Re: 3-5% increase over 1 year...

I'm going to take a wild guess...of 3-5%

Most Tragic Yahoo Answer:

Re: 3-5% increase over 1 year...

My goal is to settle in china maybe permanently. So I may have to convert half my money. I will buy only because I think I will not be able to retire in USA, very high cost of healthcare and having no job is making me think about moving to china; maybe become citizen of china if I start to like it there.

Please just shoot me if I ever think of moving to China. I have absolutely nothing against the Chinese people but I would not want to be a citizen. What if the government discovered my blog?

China Human Rights

Amnesty International has documented widespread human rights violations in China. An estimated 500,000 people are currently enduring punitive detention without charge or trial, and millions are unable to access the legal system to seek redress for their grievances. Harassment, surveillance, house arrest, and imprisonment of human rights defenders are on the rise, and censorship of the Internet and other media has grown.


dearieme said...

Don't be too hasty - you might find that you enjoy all the spitting at table in restaurants, and the indescribable foulness of the public loos.

Stagflationary Mark said...


Don't even get me started!

I ate at a highly rated traditional Chinese restaurant in Seattle's International district once and was somewhat horrified to see cardboard boxes stored in the men's bathroom. No joke. ;)