Here Comes China's Next Devaluation Wave

Jun. 12, 2018 7:16 AM ETFXI, UUP, YINN, YANG, MCHI, GXC, CYB, PGJ, CN, TDF, CHN, CXSE, XPP, FCA, YAO, YXI, KGRN, FLCH, WCHN22 Comments
Tom Luongo profile picture
Tom Luongo
2.36K Followers

Summary

  • There's a lot of talk about China's debt problems thanks to a strengthening dollar.
  • Europe is the bigger problem because of its lack of political cohesion.
  • China will not fight the trend, but use it to its advantage.
  • The PBoC has a plan.

There’s been a lot of talk in recent weeks about the size of China’s corporate debt affecting its growth. This talk always coincides with U.S. dollar (UUP) appreciation. And, to be fair, China’s corporate debt pile is enormous and would be difficult to manage in any kind of dollar liquidity spasm.

Now, with political tensions rising in Europe which is putting upward pressure on bond yields across the heavily-indebted south, the risk of a run on the dollar rises daily. And while the European Central Bank looks to have everything under control in the short-term it looks to me like the calm before the storm.

In this article I’m going to go around the world quickly to end in China because I believe it’s important to separate hyperbole and, frankly, political necessity from China’s plans for its currency, the yuan (CYB) likely course of action.

In fact, the beginnings of China’s plans are already in place and working well.

But let’s start in Europe, because that’s where the source of any true dollar bullishness will come from.

Eur-Only Making it Worse

With new governments in Italy and Spain, especially Italy, the status quo in Brussels is facing its stiffest challenge ever. Brexit was always going to be betrayed by the political class in the U.K. Greece’s Syriza never had the coalition strength nor the leverage that Italy has.

So, it is only a matter of time before Italy’s fiscal situation takes center stage. Italy’s leadership understands the fundamental problem of the European Union. The euro is badly designed and that bad design benefits a handful of countries, mostly Germany, at the expense of the rest of the union.

Absent structural reform which there is no political will to implement the European Union is headed for a complete political and economic

This article was written by

Tom Luongo profile picture
2.36K Followers
I am a former research chemist by trade and an Austrian Economist by study and a market analyst by choice. For the past four years I have been a Senior Financial Editor with Newsmax Media publishing my thoughts on where markets, central banks, gold and geopolitics meet and explode.  I am now the publisher of Gold, Goats n' Guns, a monthly newsletter offered through Patreon.  I have been an investor and market analyst for more seventeen years and am an astute observer in changes within the culture and the political landscape. Feel free to find me on: My personal blog, Giold Goats 'n Guns: www.tomluongo.meYou Tube: https://www.youtube.com/channel/UC54PyZuVrDrhbWc6UqNjEBALinkedin: http://www.linkedin.com/pub/tom-luongo/5/384/a59/ Twitter: @TFL1728 Patreon: www.patreon.com/goldgoatsngunsPeriscope: @tomluongo (Mondays at 8pm and Fridays @ 9pm EST)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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