Question 20: If China does not want to play according the present rules, which new rule is China most likely to take?
 
In my opinion, China is likely to revert back to pegging rigidly to the USD with periodic appreciation of the RMB. China already had experience and success with that system. China can focus back on international trade and not the losing currency game.

China may stop popping up the RMB exchange rate (USD/CNH pair) and let that rate to increase suddenly to ridiculous levels. The USD/CNH pair value may shoot pass 7.0 and then exceed 10.0. China can then point to the attack by the crocodiles (Hedge Funds) and justify reverting back to the pegged currency system.

When China pegged RMB rigidly to the USD and had strong currency controls, the RMB was highly valued. Investors viewed it as safe; paying higher interests and were happy to own RMB. The Foreign Currency Reserve kept piling up.

Can China move back to the good old days? YES. Let the crocodiles jack up the rate to ridiculous levels for a few days. Explain the need to change the rules of the game clearly. Get the Chinese economists and other like-minded economists to write hundreds or thousands of supporting articles. Promise President Trump that the RMB will periodically appreciate and not take advantage of the low rate to boost exports.

https://www.weforum.org/agenda/2016/06/8-facts-about-chinas-economy/


The above article summarized the rapid growth of the Chinese Economy. It did not compare the Asian Financial Miracle before 1997. It did not describe the economic weapon used by the Hedge Funds that destroyed that Miracle.


Can China neutralize that weapon? (In the financial world, the big fish eats the small fish). Can China set up the nets to prevent the sharks from devout their prey? Can the educational level of the Chinese Citizens rise as fast as or faster than the economic development?

Question 21: Most people lose money in Forex Trading. You are saying that you have a "sure-win" technique by trading along side with the crocodiles. Will you be devoured by the crocodiles yourself?

The crocodiles are forcing the RMB to depreciate to drain the Foreign Currency Reserve of China. They are using the USD/CNH pair to do so. They open the pair at a low value (e.g. 6.5000), betting the value to go up. Someone has to be on the other side. The Central Bank of China or its agents wants to keep the rate from rising too much and buy the pair at that rate. The crocodiles and the Western News Media "predict" a devaluation of the RMB. The massive news coverage got many RMB holders to exchange their RMB holdings to USD. Most calculating Forex Traders will also bet on depreciation of the RMB. They will bet on the side of the crocodiles.

This means the Central Bank of China will be the only major player betting the RMB will not depreciate too fast (or the USD/CNH rate does not increase too fast). It is a one-sided battle. The gang of Hedge Funds or crocodiles and "allies" will win. The Central Bank of China will drain its Foreign Currency Reserves to pop up the RMB. The drain started in 2015 and continuing.

The present value is around 6.9000. This means the crocodiles have achieved a gain of 4,000 pips. At the same time, it means the Central Bank of China lost 4,000 PIPs. To the average Forex Trader, each PIP represents HK$100. But for the crocodiles, each PIP easily represents HK$1,000,000. 4,000 PIP means 4,000,000,000 or HK$4billion. Each crocodile took in HK$4 billion. The drain of the China Foreign Currency Reserve of 1 trillion USD is not surprising.

This sure-win strategy will continue as long as the crocodiles attack the RMB and the Central Bank of China is the only major player popping up the RMB. In this scenario, we are not talking about trading Forex in general.  We are talking about betting with the winner who is overwhelming the Central Bank of China and draining its Reserves. When will China ever learn?

The crocodiles are too busy devouring the Chinese Dragon to care about the small fishes (the small Forex traders.)

There is an unwritten rule and a well kept secret.

In the 1920s, the USA public blindly believed that the stock market would only go up. They poured in their savings and many borrowed to jump onto the stock market. What goes up must come down. The great depression followed.

Now, the USA big banks and government have this unwritten rule and secret. They will intervene to ensure the Market does not get crazy again. They will cool the market down to prevent another depression.

There is no such an unwritten rule and secret intervention in the Forex Market. The unknowing Nations stupidly use their reserves to pop up their exchange rates. It is up to the crocodiles to decide when to devour them.

There is an unwritten rule and a well kept secret.

In the 1920s, the USA public blindly believed that the stock market would only go up. They poured in their savings and many borrowed to jump onto the stock market. What goes up must come down. The great depression followed.

Now, the USA big banks and government have this unwritten rule and secret. They will intervene to ensure the Market does not get crazy again. They will cool the market down to prevent another depression.

There is no such an unwritten rule and secret intervention in the Forex Market. The unknowing Nations stupidly use their reserves to pop up their exchange rates. It is up to the crocodiles to decide when to devour them.

This actually leads to the role of Hedging. The known drawback of the Market is the occasional swing to the extremes. When the majority believes that the Stock Market will keep going up, they will buy and force the Market to go up further. The earnings of Companies will not justify the valuation.


The role of Governments and its directed Hedge Funds need to intervene to cool down the Market. The concept of hedging is to establish positions on both sides of the Market. This means the Hedge Fund establishes both Long and Short positions. The result is neutral. Some people may think that this is stupid. There is no gain nor loss no matter what happens.


When the Market goes too wild going up, the Hedge Funds can play in the opposite direction to cool down the Market. Since it has bets on both sides, there is no loss. If it succeeds (with the blessing of the government), the Market cools down. The holdings on the other side will increase in value and the Fund reaps good profits.


The role of these "Government Directed Hedge Funds" is the secret in providing Market Stability. China is still new in this "investment" game. Some Officials do not understand the importance of such hedging and the important role of such hedge funds. When will China ever learn?

The Chinese Foreign Currency Reserve rose to above 3 trillion. What does it means? Has China seen the posts from here? Are they Forex trading via a Chinese Forex Exchange? Will they be able to stop the drain on the Reserve?

The attached picture is the tradition Chinese New Year custom - post some encouraging words at the door.

The Rooster crows; The World hears.
The Good News will be heard for Ten Thousand Generations.

Does that mean the two camps will not fight the economic wars? Will they compete to get poorer Nations rich?

Question 22: Do you think that Governments must have a role in the “financial markets”? Will the simple law of supply and demand be sufficient as the controlling mechanism?
 
Past experiences tell us that the “free market” will sometimes swing to extremes. For example, the Hong Kong Housing Market is going crazy. Property Developers bid up the land prices to unsustainable new heights. There is no supply of new lands to cool down the Market. Housing is no longer for living but has become a vehicle for speculation.

The crocodiles know this too well. They can devour the unknowing Public and even Nations.

Responsible Governments must have the “shark prevention” nets and the trained officials to regulate, monitor and intervene if and when necessary. They should have “friendly” hedge funds...

I was surprised to read a Hong Kong Newspaper article claiming that the high bidding price for land in Hong Kong was nothing to worry about. Hong Kong Government benefits from the land sales. Hong Kong Government can build more low cost housing for the low income.


Property speculation helped many to become rich. The average home owner in Hong Kong can easily sell his home and buy a much larger piece of property in USA, Europe, Canada, Australia and China. He does not need to live in Hong Kong.


Is he right???

Question 23: Do you think that the 5 trillion a day Forex Market is just a game? If China trades through its own Forex Exchange and posts the results in the Forex Computer Systems, it can theoretically achieve any exchange rate? All other Nations can do the same? Individuals can still trade and participate in the 5 trillion a day trading. Is it meaningful?
 
I have been discussing this with many others. It is like gambling in the casi*o owned by the family. Losing or winning makes no effective difference. The result of the trading is posted as the “official exchange rate”! It clearly is a game.


*** I have to admit that I enjoy the game - even with fake or demo money. It is intellectually challenging. It get me to read much more about the "international happenings" including unemployment figures, trade balances, news events and articles by journalists. It is more addictive than almost any computer game. I can start conversation with almost any stranger with the opener - I think I have a sure-win strategy based on the crocodile attack on the RMB.